Why Are Transfer on Death Deeds Used in Estate Planning?
1. A parent may make a Transfer on Death Deed to ensure their child will inherit real estate when the parent does not want to give the child an interest in the property before the parent's death.2. People sometimes use Transfer on Death Deeds because they believe it is easier or less expensive than making a will or living trust.
3. Transfer on Death Deeds are used to transfer title to real estate upon the death of the owner without going through probate.
What is a Transfer on Death Deed?
A Transfer on Death Deed, also referred to as a Beneficiary Deed or TOD Deed, is a type of deed in which the owner of real property names a beneficiary or beneficiaries to inherit the property upon the owner's death. A Transfer on Death Deed is a type of deed that has been authorized under state law in some states as a way to allow real property owners to avoid
The owner that makes the deed is referred to as the grantor or transferor. The named beneficiaries have no legal or equitable interest in the property until the death of the grantor. Also, the grantor can revoke the Beneficiary Deed at any time prior to his death. The grantor retains the right to sell the property or encumber the property in any way prior to his death.A Transfer on Death Deed is a relatively new estate planning method of transferring property without probate. While several states have recently adopted legislation authorizing the use of this type of estate planning deed, it is not valid in all states. To learn about other estate planning methods that may be used to transfer assets without probate, see
How to Make a Transfer on Death Deed
The requirements for making a Transfer on Death Deed vary from state to state. Before making a TOD Deed, the starting point is to find out if they are authorized in the state where the property is located. To find state statutes on estate planning, see state laws. The next step is to ensure the deed is properly drafted. Some state statutes require that Transfer on Death Deeds contain specific language. Therefore, you should not attempt to use free estate planning forms or templates you find online to make this type of deed. If your Transfer on Death Deed does not contain the correct language required by the laws of the state where the property is located or fails to comply with applicable law in any other way, it could cost your heirs, beneficiaries or your estate a lot of money in legal fees. In addition, mistakes in a deed made for estate planning purposes can result in someone other than your desired beneficiary inheriting the property.The third step is to make sure your deed is properly executed and recorded. A TOD Deed must be recorded within time frames specified by law.When making a Transfer on Death Deed, you also need to make plans for what will happen if the named beneficiary predeceases you or is not able to inherit the property as intended. In addition, you should have your will and any other estate planning documents reviewed to determine whether there is a conflict between the TOD Deed and the bequests outlined in your will or trust. Therefore, you should only make a Transfer on Death Deed with the assistance of a licensed attorney. For tips on how to find an affordable and qualified lawyer, see
finding an attorney.
Other Types of Estate Planning Deeds
Although making a Transfer on Death Deed offers some advantages, such as avoiding probate, you may want to consider other estate planning methods. Also, you may need to evaluate other options if TOD Deeds are not recognized in the state where your real estate is located. For a list of other types of deeds used in estate planning, see estate planning deeds.Copyright 2020 Pennyborn.com. ALL RIGHTS RESERVED.This article was updated on February 29, 2016.
Advantages of Transfer on Death Deeds
1. Allows real property conveyed by the TOD Deed to pass to the designated beneficiary without probate, making this type of deed popular among individuals seeking to avoid probate.2. Allows the grantor or transferor to designate a beneficiary to inherit the specific property covered by the deed without making a will or living trust. Nevertheless, executing estate planning documents such as a will is still a necessary part of making an estate plan. See Wills and Trusts.3. A Transfer on Death Deed allows the grantor to keep title solely in the grantor's name until his death.
Disadvantages of Transfer on Death Deeds
1. The grantor must still execute a will or trust to name beneficiaries to inherit other property in his or her estate because a TOD Deed only designates a beneficiary to inherit the real property conveyed by the deed.
2. If the grantor changes his mind and does not want the beneficiary named on the deed to inherit the property, the grantor must make a new deed or record a revocation of deed that complies with state law requirements for properly revoking a Transfer on Death Deed and must have the new deed or revocation of deed recorded. This requires hiring an attorney and the payment of recording fees. All joint owners must sign the revocation.
3. The beneficiary inherits property conveyed by a Transfer on Death Deed subject to all mortgages, liens, and other encumbrances on the property.
4. Making a Transfer on Death Deed creates the potential that your estate will not have sufficient assets to pay expenses required to settle an estate, such as funeral and burial expenses, final medical bills, creditor claims, and professional fees.5. By using a TOD Deed to accomplish certain estate planning objectives, the property owner may overlook other very important aspects of making an estate plan, such as the advantages of certain types of trusts, planning for illness or incapacity by making a durable power of attorney or evaluating whether Medicaid planning is necessary to pay for future long term care expenses.
Key Points About Transfer on Death Deeds
1. A Transfer on Death Deed must be properly recorded before the grantor is deceased and within strict time frames after the deed is executed, as set forth in applicable state law.
2. If the property has joint owners, the beneficiary named on a Transfer on Death Deed will not inherit it until all of the joint owners are deceased.
3. States that allow the use of Transfer on Death Deeds typically require the grantor to have the requisite capacity to make a will in order to make a valid Transfer on Death Deed.
4. Transfer on Death Deeds are not valid in all states.
5. If the beneficiary does not want to accept ownership of the property, the beneficiary must complete the steps required by state law to disclaim the property conveyed by a Transfer on Death Deed.
6. Before making a TOD Deed, consider how it will affect other distributions you intend to make as part of your estate plan, such as any specific bequest to a beneficiary in your will or living trust.
Which States Allow Beneficiary Deeds?
Whether you can make a Transfer on Death Deed to name a beneficiary to inherit your real property depends on whether TOD Deeds are valid in the state where the real property is located. For example, even if the state where you are domiciled has enacted legislation to allow the use of Beneficiary Deeds, if the real estate is located in a state where this type of deed is not recognized, you will have to consult an attorney about other options to achieve your estate planning objectives, such as making a living trust.To learn about which states have statutes authorizing Transfer on Death Deeds, review the list of states shown on the Uniform Law Commission website. Their site provides an overview of the Uniform Real Property Transfer on Death Act. Several states have enacted this legislation or similar legislation to allow the use of Beneficiary Deeds so a property owner can pass real estate to a beneficiary and avoid probate.
Title to Property and Your Estate Plan
The manner in which you hold title to real property may determine who inherits your real estate. Have you reviewed your property deeds and tax records to determine how your real estate is currently titled?
It is important to understand the ramifications to your heirs and beneficiaries of whether you own property as joint tenants, tenants in common, community property, etc. If you made a living trust as part of your estate plan, did you complete the process by executing
trust transfer deeds to transfer your real property to the trust?
For an overview of how different methods of holding title may impact your heirs, go to
title to property.
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