Estate Planning and Transfer of Death Certificates: New Insurance Alerts Effective August 1 | Winthrop & Weinstine, PA

A new law in Minnesota goes into effect on 1 August 2024, This highlights the importance of considering insurance coverage in your estate planning, especially if your plan includes transfers upon death. Transfer upon death (“TODD”) is a transfer instrument that allows a property owner to direct that his or her interest in a property be transferred to a specific person or entity (a “beneficiary”) upon his or her death.

WHAT HAPPENED: THE CASE

The new law results from the facts of a federal court case from 2019. Strope-Robinson v. State Farm Fire and Casualty Company:(1)

• A property owner has executed and registered a TODD contract to transfer his house to his niece.
• Shortly thereafter, the owner died and just six days after his death, the owner’s ex-wife deliberately set fire to the house.
• As a beneficiary of the TODD, ownership of the property passed to the niece upon her uncle’s death and she filed a claim with his property insurance company for compensation for fire damage.
• The insurer refused the claim for compensation for any damage to the property because the niece was not listed as an insured person in the policy.

The court ultimately concluded that the insurer was not obligated to cover the property damage because there was no contractual relationship between the insurer and the niece as the owner of the property and the uncle’s estate no longer had any insurable interest in the property at the time of the fire.

WHAT COMES NEXT: A WARNING ABOUT COVERAGE

This case exposed a contractual and legal gap in property insurance coverage that the Minnesota legislature sought to fill with this new law. Effective August 1, 2024, Section 507.071, Subdivision 2 of the Minnesota Statutes will clarify the following:

“Until a transfer on death becomes effective, it does not affect title to the property…but it does create an insurable interest in the property for the benefit of the named beneficiary for the purpose of insuring the property against loss or damage occurring on or after the transfer on death becomes effective.”

To ensure that property owners are aware of this insurable interest, all TODDs executed on or after August 1 must include a new warning to property owners and their beneficiaries:

“Warning to the owner of the concessionairer: Temporary extended coverage of a fire and casualty insurance policy on the property under Minnesota Statutes Chapter 65A shall exist only if the transferring owner has provided notice to the insurer under Minnesota Statutes Section 507.072, Subdivision 3, setting forth the existence of a transfer on death deed and the names and contact information of all designated beneficiaries. Any temporary extended coverage shall terminate either (1) 30 days after the date of death of the transferring owner, (2) the expiration date of the policy, or (3) upon the issuance of a replacement policy of insurance, whichever is earlier.

Warning to the beneficiary“A beneficiary should not assume that insurance coverage will continue after the death of the grantor owner. After the death of the grantor owner, the beneficiary should determine whether the provisions of Minnesota Statutes Section 507.072 apply and consult an insurance agent or attorney.”

WHAT TO DO: NOTIFY YOUR INSURANCE COMPANY

In order to avoid a situation like the one in the arson case, the new law requires insurers to thirty (30) days temporarily extended insurance coverage on the property for the benefit of the beneficiary upon the death of the property owner who granted the TODD or upon the expiration of the property owner’s existing insurance policy, whichever occurs earlier.

However, this insurance cover only applies if the owner notifies the insurer about the existence of the TODD and the names and contact details of the beneficiaries.

In order to pay a claim under such insurance coverage, an insurer may also require proof that:

• the applicant is the beneficiary under a TODD from the property owner;
• the TODD was recorded as required by law; and
• An affidavit of survival and a death certificate of the deceased property owner have been issued as required by law to prove that the beneficiary is the current owner of the property.

Therefore, notifying your property insurance providers and your beneficiaries of TODDs as part of your estate planning is a new and crucial step in the estate planning process for those who plan to pass property to their loved ones using this type of transfer tool. We recommend reviewing your estate planning documents and contacting your insurance agent to inform them of any TODDs.

In particular, if you executed a TODD for estate planning purposes, you may have named a revocable trust as a beneficiary under the TODD. Your insurance company may be able to add any revocable trust named in the TODD as an additional insured under your insurance policy so that coverage is extended to the trust even if the property ultimately falls under the TODD upon the death of the settlor(s). This will ensure that coverage for a trust extends beyond the thirty (30) days provided under the new law. Please review your TODD and contact your insurance agent to determine what updates may be necessary to your coverage.

(1) Strope-Robinson v. State Farm Fire & Cas. Co.429 F. Supp. 3d 634 (D. Minn. 2019), affirmed, 844 F. App’x 929 (8th Cir. 2021)