Transfer on Death Deed

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 What Is A Deed?

A deed is a legal document which transfers ownership rights in a home or other piece of property, from the current owner to a new one. There are many different types of deeds, each of which has its own requirements that are discussed later on. However, the most deeds generally include the following information:

  • A description which clearly identifies the property that is being transferred;
  • The names of all parties who are taking part in the deed transaction, generally the grantor and the grantee; and
  • The signature of the party who is transferring the deed, which must be notarized by a notary public.

Some examples of the most common reasons that a deed may be used would be:

  • To transfer ownership during the purchase or sale of a home;
  • When a person inherits property from one of their family members; and/or
  • To transfer gifts, trust contents, and specific rights, such as a sheriff’s deed or tax deed.

There are many different types of deeds of transfer, some of the most common being:

  • Quitclaim Deeds: Quitclaim deeds provide the least amount of protection for the buyer. Although the property is still transferred through this type of deed, they do not guarantee that the grantor has actual ownership or rights in the property. Additionally, they leave the buyer exposed to potential legal issues. An example of this would be if there is a lien against the property, or if someone else is the true owner and tries to claim the property;
  • General Warranty Deeds: General warranty deeds give the buyer the greatest amount of protection by guaranteeing that the grantor actually owns and can sell the property. Additionally, general warranty deeds also promise that the property does not have any debts, encumbrances, or liens against it; and
  • Special Warranty Deeds: Special warranty deeds give the buyer adequate protection for two specific guarantees. The first guarantee states that the grantor does hold title to the property. The second guarantee ensures that no liens or encumbrances existed on the property while the grantor owned it. However, this says nothing about what encumbrances may be associated with the property prior to when they owned it.

The most common type of deed that is used in real estate transactions would be the general warranty deed. To reiterate, this deed offers the greatest protections for a buyer through its terms. Some examples of such terms include, but may not be limited to:

  • The grantor is the rightful owner of the property, and as such can legally transfer its title;
  • There are no liens, debts, or encumbrances on the property, neither prior to nor during their ownership period; and
  • Should any legal issues arise, the grantor will be responsible for resolving such issues.

What Is A Transfer On Death Deed?

A death deed, or transfer on death deed, is a legal instrument allowing a real property owner to transfer property to a designated beneficiary at the owner’s death. This transfer occurs without the property being subject to going through probate. Transfer on death deeds, or “TOD” deeds, are a relatively newer instrument in the realm of property law.

Not all states recognize or permit these transfers; as such, it is important to check with your state laws in order to see if a TOD deed is available to you in your state. A TOD deed allows the beneficiary to immediately take ownership of real property, upon the death of the owner.

What Are The Pros And Cons Of Executing A Death Deed?

Some of the pros associated with executing a death deed include:

  • Avoiding Probate: The most significant advantage to a TOD deed is the ability to avoid probate. Probate can be expensive and time consuming; however, a TOD deed allows the beneficiary to skip this process when taking possession of their new property. This would be done after submitting an affidavit and death certificate to the appropriate records office;
  • Property Interest Remains With The Original Owner Until Death: Many property owners may consider transferring the property before death, through instruments such as a joint tenancy. However, the original owner is then subject to joint ownership, which can become burdensome if a disagreement occurs.
    • Alternatively, TOD deeds offer the ability to legally promise the property to the future beneficiary, without actual ownership changing hands. This advantage can also protect vulnerable elders with manipulative relatives. Because the property still belongs to the owner, a manipulative adult child cannot threaten to kick out a vulnerable parent when they have no legal ownership of the property until the death of their parent;
  • Protection Of The Property From The Beneficiary’s Debts: Because the beneficiary of a TOD deed does not have a present interest in the property, any debts or bankruptcy actions involving the beneficiary will not harm the property while the original owner is living. What this means is that creditors of the beneficiary cannot place a lien on such a property; and
  • TOD Deeds Are Revocable: Owners have the ability to change their mind regarding the deed while they are still alive. A beneficiary can be changed exclusively by the owner, regardless of the beneficiary’s consent, and a new TOD deed can be drafted in order to assign a new beneficiary.

There are some notable disadvantages to a TOD that should be considered:

  • Fails to Avoid Taxation: TOD deeds are subject to property taxation, just the same as property that is included in a will or other transfers of real property;
  • Property Not Protected From Owner’s Debts: Although the beneficiary’s creditors cannot access the property, the owner’s creditors can. This can present a challenge for the beneficiary if the owner is unable to resolve any debts affecting the property before death. This is because the beneficiary will inherit any liens or burdens associated with the property; and/or
  • May Not Prevent Conflicts Between Beneficiaries: If the owner drafts a TOD deed for multiple beneficiaries, it can be difficult to complete the transfer after death if the beneficiaries would like to sell the property. Another potential conflict would be if a relative challenges the validity of the deed, which mirrors concerns with wills. If there is a claim that the owner did not actually have the capacity to sign the deed during their life, it can take a considerable amount of time to sort out the claim after their death.

What Else Should I Know About A Transfer On Death Deed?

In most states in which the death deed is recognized, the deed controls over the will. What this means is that if the owner of a home provides a death deed for the home to their child, and then designates their spouse for the home in the will, the child will likely receive the home over the spouse. While owners should avoid such a conflict when planning their estate, most decisions have resulted in the deed controlling the transfer.

Because death deeds are relatively new instruments, and not permitted in all states, some insurance companies are concerned in terms of providing title insurance to a death deed.
However, states that have allowed such deeds for some time have seen this concern be resolved.

Should the beneficiary die before the owner, the owner must draft a new deed for a new beneficiary. If the owner failed to list a secondary beneficiary for such a circumstance, and dies before a new deed is drafted, the property will be controlled by their state’s probate laws.

Do I Need An Attorney For Help With A Transfer On Death Deed?

If you would like to execute a TOD deed, or are experiencing issues associated with a transfer on death deed, you should consult with an experienced and local estate lawyer. An attorney can help you determine whether a TOD deed is available in your state, and what requirements you will need to consider.

Additionally, your estate attorney can also help you draft a legally sound TOD deed, and will even be able to represent you in court, as needed, should any issues arise.

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