Transfer on Death Deed
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What is a “Transfer on Death” Deed?
A “Transfer on Death” Deed is a newer way of passing property to heirs besides the traditional will documents. A transfer-on-death deed is created and signed by the property owner, who names the person to receive the property in the deed (the “beneficiary”). Upon the creator’s death, the property is automatically transferred to the beneficiary through the deed documents.
One of the main reasons persons use a transfer on death deed is to avoid the delays and costs associated with the probate process. They are also revocable, meaning that the property holder can cancel the transfer or change the name of the beneficiary at any time before their death. Transfer on death deeds are also called by other names, such as TOD, revocable transfer on death deed, or “beneficiary deed”. They usually involve transfers of real estate like a home or condo.
Transfer on death deeds are not available in all 50 states. Only the following states have laws allowing TOD’s: AZ, AR, CO, HI, IL, IN, KS, MN, MO, MT, NV, NM, ND, OH, OK, OR, and WI.
What are the Benefits and Drawbacks of a Transfer on Death Deed?
There are advantages and disadvantages to using a transfer on death deed. Some benefits associated with a transfer on death deed include:
- Retaining Ownership Interests: The property is not transferred until the owner’s death. Until then, the property owner maintains their rights of ownership and control over the property.
- Protection of Assets: Legal actions such as bankruptcy, lawsuits, or divorce that are brought against the beneficiary won’t affect the property. This is because the beneficiary doesn’t really have any present interests in the property. If the beneficiary is in debt, their creditors won’t be able to place a lien on the property.
- Avoid Probate: Again, this is probably the main reason why people choose a TOD. The real estate won’t be subject to the costs and time of court probate proceedings- the beneficiary simply submits an affidavit and death certificate with the county recorder.
- Revocable: This means that the property owner can change or delete the beneficiaries named in the document, even without their consent. Names can be deleted or added as the person sees fit. Or, the entire transaction can be cancelled as well.
Some of the drawbacks of transfer on death may involve:
- Doesn’t Avoid Taxes: Beneficiaries will still owe property taxes on the property. Tax debts that existed before the transfer will be transferred to the beneficiary upon the owner’s death. There may be exceptions to these rules for gifts made to a spouse during the owner’s lifetime
- No Protection against Owner’s Creditors: While a TOD may protect the beneficiary from their creditors, it won’t protect the property owner from their own creditors. Also, any debts, liens, and encumbrances against the property owner will “attach” to the property, and carry over to the beneficiary.
- May not avoid Conflicts between Beneficiaries: Often times, the transfer on death deed will name more than one beneficiary. This may lead to conflicts among the beneficiaries after the person’s death. In particular, sale of the real estate property may become confusing when multiple beneficiaries need to sign the sale documents.
What Happens if the Beneficiary Dies Before the Property Owner Does?
Lastly, if the beneficiary dies, their share is terminated and won’t pass on to their heirs. If there are no designated beneficiaries surviving when the owner dies, the property then reverts to probate estate and must be distributed according to probate laws. These issues can be resolved by indicating an alternate beneficiary in the documents (i.e., the person who will inherit the beneficiary’s property interest if the beneficiary becomes deceased).
Do I Need a Lawyer for Issues With a Transfer on Death Deed?
Transfer on death deeds can be a very useful estate planning tool. It may be necessary to hire a lawyer for help with your transfer on death deed. A qualified attorney can help you draft and review the deed documents so that they fulfill state requirements. Also, your attorney will be able to represent you in court if any conflicts or disputes arise in connection with your property.
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Last Modified: 04-13-2012 03:49 PM PDT
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