Understanding the Transfer on Death Deed
If you own real property and are looking for a way to avoid probate, you need to understand the benefits of a transfer on death deed. This simple document may help you to simply and inexpensively avoid probate for real estate. Probate can be expensive and time-consuming, but it may be avoidable. For real estate, one way is with a transfer on death deed (TOD deed).
How a Transfer on Death Deed Works
In a TOD deed, the current owner designates one or more persons as beneficiary. The beneficiary automatically becomes the owner of the property when the current owner dies. A beneficiary can be an individual or an organization such as a charity. In some states a TOD deed is referred to as a beneficiary deed, TOD instrument or deed upon death.
If your property is not located in a state that allows TOD deeds, you may still be able to avoid probate by other means, such as transferring property to a living trust. Deeds held by married couples typically state that they own property “as joint tenants with rights of survivorship” or as “tenants by the entireties.” If one spouse dies, the surviving spouse automatically becomes sole owner. A married couple may also create a TOD deed. The beneficiary will not acquire the property until the second spouse dies, but the surviving spouse can revoke the TOD deed before then. A beneficiary should be designated by name, never just by their relationship to you. If you designate two or more beneficiaries, indicate how they will take title, typically either as joint tenants with rights of survivorship or as tenants in common. You may also designate alternative or successor beneficiaries, in case the first beneficiary dies.
Benefits of a Transfer on Death Deed
Following are a few benefits of the TOD deed compared with other methods of transferring property upon death:
Transfer by will.
Even with a will, the property must go through probate to be transferred to the new owner. A TOD deed avoids probate.
Joint ownership.
Having someone on the deed as a joint owner with rights of survivorship will avoid probate. Upon the death of one owner, title automatically goes to the surviving joint owner or owners. But all joint owners have equal rights in the property. Therefore, selling or mortgaging the property will require the agreement of all joint owners. With a TOD deed, you keep full control of the property.
Transfer to a living trust.
While transferring property to a living trust can avoid probate without sacrificing control, setting up a trust requires a more complicated document than a TOD deed. If an attorney prepares the document, creating a living trust will be significantly more expensive than a TOD deed. But for large estates with various types of property, a comprehensive estate plan that includes a living trust may be advantageous.
Creating a Transfer on Death Deed
As with any real estate deed, the document must comply with state law. All real estate deeds must include certain information, such as the names of the grantor (current owner) and grantee (beneficiary), legal description of the property, signature of the grantor, and legally required witness and notary provisions. Other requirements may include minimum type size and formatting to allow space for recording stamps.
Special language must be used to create a TOD deed, clearly stating the name of the beneficiary, who is usually referred to as the “grantee beneficiary,” and that transfer will take place upon the death of the current owner.
Tranfer on Death Deed Avoids Probate.
First, the owner signs a new deed that states who she would like to inherit the real estate at her death, and secondly some states require that an attorney must prepare the new deed. The attorney prepares an enhanced life estate deed in order to avoid inadvertently preparing a regular life estate deed instead. The new deed must be signed and recorded with public land records office, usually in the county where the real estate is located,and recording it should not incur real estate transfer taxes because there won’t be an immediate transfer of ownership. Recording fees can vary from state to state.
Finally, the death certificate is also recorded among the same public land records office after the original owner dies. This puts the world on notice that title to the real estate has been transferred into the name of the beneficiary listed in the TOD deed due to the owner’s death.
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FAQs
Does death transfer prevent probate?
A transfer on death (TOD) account will avoid probate because assets transfer automatically to a beneficiary when the owner dies.
Does TOD account go through Probate?
Accounts or assets with named beneficiaries may be transferred without going through the probate process. If there is a TOD on the account, the assets will only go to the beneficiary if both joint owners pass away. In either case, the asset will not likely go through probate.
How do I protect my assets from probate
Giving away your assets before you die and also Designating beneficiaries on your registered investments, life insurance policies and other investments held through life insurance companies.
