Should More States Legislate Transfer on Death Deeds?

A Transfer on Death (TOD) Deed means exactly what it says -- transferring real estate from one owner to another upon the original owner’s death. It conveys property outright without the burden and expense of probate in much the same way as designating beneficiaries for your life insurance or 401k plans. As simple as it is, only a handful of states now recognize it: Arizona, Arkansas, Colorado, Kansas, Minnesota, Missouri, Montana, Nevada, New Mexico, Ohio, Oklahoma, and Wisconsin.

TOD has had a slow evolution, in part, because of the fear that beneficiaries may attempt to coerce TOD from owners because it circumvents the tedious process of probate. If your state does not allow TOD, contact your legislators and let them know you favor it.

A TOD ensures that a beneficiary inherits property immediately upon the death of the guarantor. This enables the beneficiary to assume, rent, or to sell the property immediately. This differs from a survivorship deed in that a TOD can be revoked at any time during the owner’s life without consent or knowledge of the beneficiary. In a survivorship deed, for instance, a mother who transferred property to her sons would need to obtain their legal consent to recapture title should she ever need to sell the property later. Unlike a survivorship deed, a TOD is revocable at any time during the life of the guarantor without consent of the beneficiary.

When multiple guarantors sign a TOD, they must agree on beneficiaries. If one or more of the guarantors die, then it is up to the surviving guarantors to agree to revoke or change beneficiaries. This leaves the judgment of several to the wishes of the remaining. For this reason, multiple-owner TOD is not advisable. Probably the best uses of a TOD is the single parent who wishes to ensure a child inherits property outright. A married couple can execute a TOD, but both spouses must sign it regardless of which one “owns” the property. Also, you need to avoid TOD when there is a joint and survivorship deed in place, or the property may be stripped from the survivor.

If there is an outstanding mortgage, it will transfer with the property in a TOD. Additionally, a TOD cannot be used to avoid debt. Estate taxes may still be due, although some states do void deed taxes. The TOD will not avoid medical or other liens attached to the property. The beneficiary of a TOD must encumber the cost to transfer title, but this is far simpler than the probate process. The process to transfer title requires that the beneficiary prepare an Affidavit of Identity and Survivorship and a Medical Assistance Clearance (forms often available from the County). The forms should be filed in the County where the property is located. The beneficiary must also produce a certified death certificate and pay any administrative fees to record the transfer of title.

Is TOD the right option for you if your state permits it? While a last will and testament designates beneficiaries, it doesn’t necessarily circumvent probate. When a will conveys property to beneficiaries in conflict with laws designed to protect spouses, or even when it doesn't, they are subject to probate. Like beneficiary designations on a 401k or life insurance plan, a TOD cannot be contested. So if you live in the handful of states that allow TOD, ask yourself:  1) how quickly will the property create a financial drain for the beneficiary;  2) how much property do you have to convey;  and 3) how many beneficiaries do you wish to convey your property to?  If you live in a state that does not honor TODs, ask yourself if they would be worth taking the time to write your legislator about them?

If you live in a state that does not honor TOD, a living trust can achieve the same objective. However, it is recommended that you use an attorney to prepare a living trust. You can create a living trusts online with services like www.nolo.com, but you will get a canned result, not a tailored result. You can also transfer real estate via warranty or quitclaim deeds but these do not give you the right to re-claim your property like TOD. A retained life estate deed or some variation of one may also serve you well if you need to retain rights up until your death.

At least ten of the U.S. States now allowing transfer on death deeds, provide a statutory form for doing so.

• Ariz. Stat. §33-405(K)

• Ark. Stat. §18-12-608(h)

• Colo. Stat. §15-15-404

• Kans. Stat. §59-3502

• Minn. Stat. §507.071(24)

• Mont. Stat. §72-6-121(13)

• Nev. Stat. §111.109(6)

• N.M. Stat. §45-6-14 401(C)

• Ohio Code §5302.22(A)

• Okla. H.B. 2639 §3