A Transfer on Death Deed (TODD) is a legal document that allows you to transfer your property to someone else after you die. It's a way to pass on your home or land without going through probate. Think of it as a beneficiary designation for your real estate.
How Does a Transfer on Death Deed Work?
Here's a simple breakdown of how a TODD works:
1. You create the deed while you're alive
2. You name who gets the property after you die
3. You keep full ownership and control of the property while you're alive
4. When you pass away, the property goes to the person or people you named
It's important to note that the transfer only happens after you die. Until then, you can sell the property, take out loans against it, or change your mind about who gets it.
Why Do People Use Transfer on Death Deeds?
There are several reasons why people consider using TODDs
1. Avoid Probate
The main reason people use TODDs is to avoid probate. Probate is the legal process of dealing with someone's estate after they die. It can be time-consuming and expensive. With a TODD, your property can go directly to your beneficiary without going through probate.
2. Simplicity
TODDs are often simpler and cheaper to set up than other estate planning tools, like trusts. You don't need to create a whole new legal entity or transfer your property into it.
3. Flexibility
You can change your mind about a TODD at any time while you're alive. Want to name a different beneficiary? No problem. Decide to sell the property instead? Go right ahead. This flexibility is appealing to many people.
4. Privacy
Unlike a will, which becomes public record when it goes through probate, a TODD keeps your property transfer more private.
An Example of How a Transfer on Death Deed Works
Let's look at an example to see how a TODD might work in real life:
Meet Sarah, a 65-year-old homeowner in Minnetonka, Minnesota. She wants to leave her house to her daughter, Emily, but doesn't want Emily to have to deal with probate court after she's gone.
Sarah decides to use a Transfer on Death Deed. Here's what happens:
1. Sarah works with an experienced estate planning attorney to create a TODD naming Emily as the beneficiary.
2. Sarah files the deed with the county recorder's office.
3. Sarah continues to live in her house, pay the mortgage and taxes, and can even sell it if she wants to.
4. Years later, when Sarah passes away, the house transfers to Emily.
5. Emily files a simple form and Sarah's death certificate with the county to complete the transfer.
In this scenario, Emily gets the house without going through probate, saving time and money.
The Pros of Transfer on Death Deeds
Now that we understand what TODDs are and how they work, let's look at some of their advantages:
1. Probate Avoidance
As mentioned earlier, the biggest advantage of a TODD is avoiding probate. This can save your beneficiaries time, money, and stress during an already difficult time.
2. Cost-Effective
Compared to setting up a trust, creating a TODD is often less expensive. This can make it an attractive option for people who want to do some estate planning but are concerned about costs.
3. Retain Control
With a TODD, you keep full control of your property while you're alive. You can sell it, refinance it, or do anything else you want with it. This isn't always the case with other estate planning tools.
4. Easy to Change
If you change your mind about who should get your property, it's relatively simple to revoke a TODD or create a new one with a different beneficiary.
The Cons of Transfer on Death Deeds
While TODDs have many advantages, they're not perfect for every situation. Here are some potential drawbacks:
1. Limited to Real Property
TODDs only work for real estate. You can't use them for other types of property like cars, bank accounts, or personal belongings.
2. Not Available Everywhere
Not all states allow TODDs. While they're legal in Minnesota, they're not an option in every state.
3. Potential for Challenges
Like any estate planning document, TODDs can be challenged in court. If someone believes you were pressured into creating the TODD or weren't of sound mind when you did it, they might contest it. And while trusts can be challenged, for a number of reasons they are harder to challenge than a simple TODD.
4. No Protection Against Creditors
Unlike some trusts, TODDs don't offer any protection against your beneficiary's creditors. Once the property transfers, it's fully accessible to your beneficiary's creditors.
5. Potential Medicaid Issues
Unlike certain trusts, such as Medicaid Asset Protection Trusts, a transfer on death deed does not protect your home from long-term care and nursing home costs.
6. Your Children's Spouses Will Have an Ownership Interest
The law in Florida and Minnesota, and many other states, provides that a spouse has an automatic ownership interest in any real estate their spouse owns even if they are not listed on the title. So that means if you use a TODD to transfer your home to your son and daughter, their spouses will also automatially own the home with them. That means your son and daughter's spouses will have to sign off on the sale or any other transaction involving your home. That often leads to conflict.
And if your son or daughter is getting divorced, their spouse will have an interest. A properly drafted trust on the other hand, can ensure your children's spouses do not own an interest in your home or any other assets you give to them.
7. Homeowner's Insurance Coverage Does Not Extend to Beneficiaries on a TODD
In the case of Strope-Robinson v. State Farm Fire and Casualty Company, the federal Court of Appeals for the 8th Circuit held that homeowner's insurance coverage does not extend to beneficiaries under a TODD. So if you lose your home to a fire, as was the situation in that case, your beneficiaries may not have insurance coverage.
Who Should Consider a Transfer on Death Deed?
TODDs can be a good option for some people and are worth considering if:
1. You own real estate in a state that allows TODDs (like Minnesota)
2. You want to avoid probate for your real estate
3. You want to keep things simple and cost-effective
4. You want to retain full control of your property while you're alive
5. You're comfortable with your beneficiary receiving the property outright
6. You're comfortable with the risks that come with using them
Who Might Want to Consider Other Options?
While TODDs can be useful, they're not the best choice for everyone. You might want to explore other options if:
1. You own property in multiple states, especially states that don't allow TODDs
2. You want to leave your property to multiple beneficiaries with specific instructions
3. You're concerned about protecting the property from your beneficiary's creditors
4. You want to provide ongoing management of the property after your death
5. You have a complex estate or significant assets that might benefit from more comprehensive planning
6. You want to protect your home from long-term care and nursing home costs
We believe that the risks associated with TODDs outweigh their benefits in almost every case. Therefore, we recommend against their use for the reasons discussed above. That being said, if you want to create a TODD, here are the steps:
How to Create a Transfer on Death Deed
If you've decided a TODD might be right for you, here's a general overview of how to create one:
1. Consult with an experienced estate planning attorney: While it's possible to create a TODD on your own, it's wise to work with a professional. They can ensure the deed is properly drafted and fits with your overall estate plan.
2. Gather necessary information: You'll need details about your property and the beneficiary you want to name.
3. Draft the deed: Your attorney will draft the TODD according to your state's laws.
4. Sign and notarize the deed: You'll need to sign the deed in front of a notary public.
5. Record the deed: File the deed with your county recorder's office. This is a crucial step - the TODD isn't effective unless it's properly recorded.
6. Inform your beneficiary: While not legally required, it's a good idea to let your beneficiary know about the TODD.
Common Questions About Transfer on Death Deeds
Let's address some frequently asked questions about TODDs:
Can I name multiple beneficiaries on a TODD?
Yes, in most states that allow TODDs, you can name multiple beneficiaries. You can specify how you want the property divided among them.
What happens if my beneficiary dies before me?
This depends on how your TODD is written and your state's laws. Some TODDs allow for alternate beneficiaries. In other cases, the property might go through probate if your named beneficiary predeceases you.
Can I use a TODD for property I own jointly with someone else?
In many states, you can use a TODD for jointly owned property, but it typically only transfers your share of the property. The other owner's share isn't affected.
Does a TODD override my will?
Generally, yes. A TODD typically takes precedence over instructions in your will regarding the same property.
Can I sell or mortgage property that has a TODD?
Yes, you retain full rights to sell, mortgage, or otherwise use your property during your lifetime. The TODD only takes effect after your death.
Alternatives to Transfer on Death Deeds
1. Living Trusts
A living trust can hold your property and transfer it to beneficiaries without probate. It offers more control and can cover all types of assets, not just real estate.
2. Joint Ownership
Owning property jointly with rights of survivorship can allow it to pass automatically to the surviving owner.
3. Life Estate
A life estate deed allows you to transfer property while retaining the right to use it during your lifetime.
4. Traditional Will
While it doesn't avoid probate, a will allows you to specify who gets your property and can cover all your assets.
5. Asset Protection Trust(s)
Certain types of trusts, like Medicaid Asset Protection Trusts, Qualified Personal Residence Trusts and Spousal Lifetime Access Trusts, can protect your home and life savings from creditors, long term care and nursing home costs, and help to minimize or avoid estate taxes.
The Importance of Comprehensive Estate Planning
While TODDs can be a useful tool, they're just one piece of the estate planning puzzle. A comprehensive estate plan might also include:
- A will
- Power of attorney for financial matters
- Health care directive
- Trusts for asset protection or tax planning
- Beneficiary designations for non-probate assets like retirement accounts and life insurance
Every person's situation is unique, and what works well for one person might not be the best choice for another. That's why it's crucial to work with an experienced estate planning attorney who can help you create a plan tailored to your specific needs and goals.
Conclusion: Is a Transfer on Death Deed Right for You?
Transfer on Death Deeds can be a simple and effective way to transfer property to your loved ones while avoiding probate. They offer flexibility, control, and potential cost savings. However, they're not suitable for every situation and come with some limitations and significant potential drawbacks.
At Roulet Law Firm, P.A., we understand that estate planning can seem overwhelming. That's why we're here to help. With offices in Minnetonka, MN, and Venice, FL, and nearly 30 years of experience in trusts, estates, and elder law, we're well-equipped to guide you through your options.
Whether a Transfer on Death Deed is right for you or you need a more comprehensive estate plan, we can help you make informed decisions to protect your assets and provide for your loved ones. Don't leave your legacy to chance. Call us today at either (941) 909-4644 for our Florida office or at (763) 420-5087 for our Minnesota office to schedule a consultaiton to start planning for your family's future. Or, you can fill out the contact form on this page and a member of our team will reach out to you to schedule your consultation.
If you are not yet ready to schedule a consultation and would like additional information, here are some resources for you:
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