A Transfer on Death Deed is a way to title real estate so it transfers, as the name would imply, upon your passing. Transfer on Death Deeds are used in Estate Planning to avoid probate and simplify the passing of real estate to your loved ones or Beneficiaries. It’s also known as a “Beneficiary Deed” because in essence, you’re naming a Beneficiary who will receive the deed to your property after you pass away.
Transfer on Death Deeds can be beneficial for a number of reasons, but a main benefit is that you can achieve the goal of avoiding probate without needing to create an entire Trust, which can sometimes be a bit more complicated depending on the route you take to create it. In this article, you will learn about:
What is a Transfer on Death Dead?
A Transfer on Death Deed, also called a TOD Deed, is a great way to ensure your property or real estate goes to the Beneficiary you choose while avoiding the costly, timely and often-stressful process known as probate. You can create a TOD Deed simply by moving real estate from your name only into your Beneficiary’s name as a TOD. The property remains yours and you continue to control it until you pass away, at which point the deed automatically transfers to the name of your Beneficiary.
As long as you’re living, you can still refinance, sell, rent out or do anything else you choose to your property. It belongs to you until your death. Only then does your Beneficiary benefit. And don’t worry, TOD Deeds are revocable, which means you can amend or revoke them at any time.
Types of TOD Deeds
There are different names for a Transfer on Death Deed, and sometimes those names may depend on what state you live in. TOD Deeds may also be called:
Deed Upon Death
Additionally, a few states allow what’s known as a Lady Bird Deed, also called an Enhanced Life Estate Deed. Lady Bird Deeds allow you to keep control over a property while you’re alive, but then transfer it without going through probate after you pass away.
Whatever it’s called in your state, TOD Deeds serve one main purpose: to allow you to transfer the deed of a property to a named-Beneficiary after you pass away while avoiding the probate process.
Which States Allow Transfer on Death Deeds?
The first state to recognize a TOD Deed was Missouri in 1989. Since that time, other states have followed suit, recognizing them as well. Note that you don’t actually have to live in the state to title property with a TOD Deed - the property just needs to be in one of the following states:
**District of Columbia
**States that adopted the Uniform Real Property Transfer on Death Act (URPTODA).
URPTODA was introduced by the Uniform Law Commission and was designed to be a model for states to use when and if they decided to create their own TOD Deed laws.
How to Use a Transfer on Death Deed to Avoid Probate
Perhaps the biggest benefit to a Transfer on Death Deed is the fact that it allows real estate to bypass probate and instead just go directly to a Beneficiary. Setting up a TOD Deed is simple. And while the process may vary slightly from state to state, there are some general, basic steps to follow.
1. Get Your State-Specific Deed Form.
Look up the requirements for the state the property is in. Many states have state-specific forms or language that must be used in order to be valid.
2. Decide on Your Beneficiary.
You can choose one person, multiple people, an organization or a charity to be your Beneficiary. Be specific when you’re listing Beneficiaries. For example, don’t say “my children.” Instead, use their full names: “John J. Smith and Jane J. Smith.” If you do select more than one Beneficiary, be sure to include how the property will be titled in their names. If you use “Joint Tenants,” that means when one dies, the surviving Beneficiary will become the owner. Be sure to check what language your state recognizes - some states won’t accept “Joint Tenants.”
You may also want to consider naming an alternate Beneficiary in case your chosen one doesn’t survive you.
3. Include a Description of the Property.
Using the existing deed, copy a description of the property exactly as it currently is. Compare it against the original at least once for accuracy.
4. Sign the New Deed.
If you’re the only owner, your signature is likely sufficient. That said, you should check to see if you’re in a community property state. If that’s the case, you should have your spouse sign as well.
5. Record the Deed.
Until you file a TOD Deed, it won’t be valid. To record it, you need to find your Land Records office in the county the property is in. This entity can be several names, including: County Recorder, Registrar of Deeds or Land Registry, to name a few. If you’re unsure where to go to record a deed, simply call your local courthouse and ask where you should go to record real estate deeds.
Tax Implications of Transfer on Death Deeds
Keep in mind that as long as you’re alive, TOD Deeds have no impact on (or benefit for) your Beneficiary. He or she has no legal rights to the property until after you pass away. That means you pay the property taxes on it until you die. One downside to a TOD Deed is it’s not an effective tax beneficial tool. However, the threshold is quite high, and the majority of Beneficiaries do not pay taxes on TOD Deeds. They will, however, take over any financial obligations on the property once they are owner, such as mortgage payments and property taxes.
A Transfer on Death Deed can be a great way to ensure your loved ones or Beneficiaries get the inheritance you intend. It streamlines the process, allowing for a simple transfer of property ownership without the headache, cost and time that probate requires. If you’ve been thinking about starting or revising your Estate Plan to ensure all your affairs are in order, now may be a great time to learn more about TOD Deeds and to see if they’re a smart move.