Do You Still Need An Estate Plan If You Use A Revocable Transfer on Death Deed?
Suppose you own real estate and are looking for a way to avoid probate. In that case, you might be interested in understanding the benefits of a transfer on death deed. This simple document may help you avoid probate for real estate simply and inexpensively. But there are specific requirements you must meet so that it actually works. And there could be severe negative consequences to going this route instead of creating a comprehensive estate plan.
What is a Transfer on Death Deed (TOD)?
In TOD deeds, the current owner designates one or more persons as beneficiaries of the property. The beneficiary automatically becomes the property owner when the current owner dies. A beneficiary can be an individual or an organization such as a charity.
What are some of the advantages of a TOD?
It gives people the ability to transfer a piece of property without probate when you only leave a will. Remember, a will does not avoid probate.
You can transfer to a living trust upon death instead of a person.
You keep complete control of the property while you are alive versus owning the property in some joint form (e.g., joint tenancy) during your lifetime.
You can avoid gift taxes when creating the TOD deed because it’s not an immediate transfer.
You can revoke the transfer on death deed at any time.
Requirements? There are formal requirements so that a Revocable Transfer on Death Deed works as intended. In other words, DIY deeds may not pass muster! Here are the requirements that must be met:
You can only use this for certain types of property: a single-family home or condominium unit; a multiple residence of not more than four (4) residential dwelling units; or a single-family residence on no more than 40 acres of agricultural land.
For validity and effectiveness, a transferor must sign and date a revocable TOD deed before a notary public.
The transfer on death deed must be recorded within sixty (60) days or less from the date it is signed.
What could go wrong? What are the downsides to using a TOD deed without considering all the consequences?
If the intended beneficiary dies before you, the TOD deed has no effect. If you don’t have an estate plan, the property may have to be probated.
If you become incapacitated and don’t have an estate plan, you would not be able to revoke the TOD deed yourself. This could be a big problem if you have a change in family circumstances or a need to qualify for Medicaid assistance.
If the TOD deed is not drafted properly or recorded within the sixty-day deadline, it becomes invalid, and the property may have to be probated. Many DIY forget this crucial step, and their loved ones don’t find out until it’s too late.
You can’t leave property to a minor since they can’t legally sell, purchase, or transact in their names. So, if you have minor children, you need a living trust so you decide who will manage their inheritance while they are young and how and when they will receive their inheritance.
If you own a property as a joint tenant with someone else, the TOD deed will not work unless you outlive the other owner. To give your half to someone else when you die, you would create an estate plan that changes your type of ownership.
As you can see, there are many factors to consider when thinking about who will inherit your real estate smoothly when you die. In most cases, a Transfer on Death Deed should be a last resort when there isn't enough time to draft a comprehensive plan. We can help you create a plan that works and takes into account all the various scenarios – incapacity, minor children, joint ownership, etc.
If you have questions about a TOD deed and how to create a comprehensive estate plan, give us a call. We are here to help!
Meza Talbott Law
A Family + Estates Firm
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