Let’s take a moment and look at a probate avoidance document called the Transfer on Death Deed.
Suppose Sally owns a house and wants her good friend Dave to have it when she dies. How does she make that happen?
Sally could leave a will that specifically bequeaths the house to Dave. When she dies, the will is admitted to probate and the executor signs an executor’s deed that conveys the house to Dave. That is the traditional method.
Or Sally could sign and record a Transfer on Death Deed that designates Dave as the beneficiary. When she dies, Dave automatically receives the title to the house. He signs an affidavit and records it in the deed records to give public notice that he is now the owner.
That last method, the Transfer on Death Deed (“TOD deed”), seems mighty attractive, doesn’t it? Simple, less cost, less time, less… everything. So let’s look at it more closely and see if it is indeed the best solution for Sally and Dave.
Does My Transfer on Death Deed Need to be Documented?
A TOD deed must be in writing. Sally cannot just tell Dave and his friends that he will get the house when she dies.
While Sally is living, the TOD deed must be recorded in the deed records in the county where the house is located. If it is not recorded, then it is worthless. Recording the TOD deed after Sally dies does not fix that problem.
Sally can revoke the TOD deed at any time. The revocation must be in writing and recorded before she dies.
Sally can also revoke the TOD deed by simply conveying the house during her lifetime to someone else, if that deed is also recorded before Sally dies.
If Sally doesn’t revoke it, then what does the TOD deed give Dave once she dies? The house, together with all its conveyances, encumbrances, assignments, contracts, mortgages, liens, other interests, termites, and skunks. He gets not an iota more or less than what Sally had.
What About The Exceptions to Transfer on Death Deeds?
Except – and this is a big except- for that pesky warranty of title and creditor’s claims. A TOD deed goes without a covenant of warranty of title. Dave is not guaranteed that he has a good title to the house.
The other big exception is creditor’s claims. If Sally’s probate estate is not big enough to cover the expenses of administration, claims against her estate, estate tax, and any family allowance, then the executor of her estate can seize the house she left to Dave and sell it so that those liabilities can be paid.
What? The house that Dave received through a TOD deed isn’t protected? Not one little bit. After receiving a demand for payment, the executor has 90 days to act. After that, the door flings open for a whole slew of other people to go after the house: creditors, distributees of the estate, Sally’s surviving spouse, a guardian on behalf of Sally’s minor or incapacitated children, or any taxing authority.
How long must Dave look over his shoulder? For 2 long years from the date of Sally’s death. That claw-back period could make it difficult for Dave to sell or lease the house for those 2 years.
Our Sally and Dave scenario is a simple one. The story becomes more complex if Sally is married or co-owns the house. We also have not discussed alternative ways to leave the house to Dave, such as a trust or ladybird deed.
A Transfer on Death Deed is a tool. It may not be the right one for you.
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Attorney Virginia Hammerle has practiced litigation and estate planning for 40 years. She is founder and managing attorney for Hammerle Finley Law Firm.