For most homeowners, the goal is to keep their house out of probate to save their loved ones the stress and cost of probate court. In California, a living trust is the gold standard because not only does it avoid probate when done properly, but it also provides many more benefits. However, not everyone is willing or able to invest in a proper estate plan, or they prefer to piecemeal their death planning by using other tools available, for example owning property in joint tenancy. Thankfully, a growing number of states now offer an easy and effective alternative.
A Transfer on Death Deed (TODD), or sometimes a beneficiary deed, is a particular type of deed that can be used to transfer ownership of real estate at death outside probate. A TODD names the person or people who will get your home after your death. You keep ownership of your home during your lifetime, and you may revoke the TODD anytime.
There are many benefits of using a transfer of death deed:
● Allows you to plan for what happens to your house during your lifetime.
● It may be canceled at any time.
● Your heirs may avoid probate.
● You keep ownership of your home, so you may still sell, mortgage, or transfer the home.
● You also keep any tax benefits.
● Unlike wills, there is no risk that it will be lost or destroyed because the TODD is recorded with the county.
However, there are circumstances where a TODD is not appropriate or possible. For example, your current vested deed must show that you have an ownership interest in your home. There are special considerations if you own the property as a joint tenant instead of a tenant in common. If you predecease your co-owner as a joint tenant, the TODD will not work because the property automatically would transfer upon your death to the surviving joint tenant.
Also, when the deed upon death is recorded, there should be no real estate transfer fee at that time. However, when the grantor dies, and the new owner (the beneficiary) files his Death of Grantor Affidavit, there will be a real property transfer taxes due unless an exception applies (e.g., the beneficiary and the grantor are husband and wife).
The biggest downside to a TODD is that it does nothing to address the rest of your assets. While you may avoid probate of that particular real property, there may need to be a probate of your estate due to other assets. If you have multiple children, using a TODD will not ensure that they inherit equally or provide any protection from creditors and predators. While it’s a benefit to have this took available, people should use it with caution and only after being educated on how it will impact the rest of their estate upon death.
A properly drafted estate plan not only addresses what happens to your property at death – who gets what, when, and how – but also provides protections for you while you are alive. It should be holistic and carefully personalized according to your concerns, family, and wishes.
If you want to discuss whether a transfer of death deed is appropriate for you, give us a call. We are happy to help!
Meza Talbott Law
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