Estate planning can be overwhelming, but the use of Transfer-on-Death deeds (TODD), can make managing your assets more flexible and ensure a smooth transfer after your death.

Understanding Transfer-on-Death Deeds

So, how does a transfer-on-death deed work? At the most basic level, TODDs enable property owners to name specific individual(s) or entities as beneficiaries who will automatically inherit the property upon the owner’s death without going through probate court. This is managed by completing and recording a TODD with the appropriate county office. A TODD must be recorded prior to the death of the property owner to be effective.  With a recorded TODD, many find peace of mind knowing that your loved ones will receive your real estate without needing to involve the court system.

What sets this strategy apart from methods like trusts or joint tenancy arrangements is its simplicity and flexibility. A TODD offers an alternative for those seeking straightforward asset transfers and providing the property owner complete control over their property during their lifetime, including the ability to sell without needing the signatures of any beneficiaries on the TODD.

Please note TODDs are not suitable for every situation.  It is important to talk to an estate planning attorney to determine if a transfer-on-death deed is an appropriate planning tool for you.

Advantages of Using Transfer-on-Death Deeds

One advantage of utilizing TODDs, for some, is avoiding probate and its associated timeline. By using transfer-on-death deeds, property owners can bypass probate for their real property. Flexibility also plays a role when considering TODDs. Property owners retain complete control over their assets during their lifetime and have the freedom to modify or revoke beneficiary designations at any time.  The owner may also sell the property without needing the approval or signature of the TODD beneficiary.  This allows the owner to adapt their plans according to changing circumstances while maintaining peace of mind knowing that an efficient asset transfer mechanism is already established.

Transfer-on-death deeds can be compatible with other estate planning strategies, allowing individuals to create a comprehensive plan that addresses their unique circumstances and goals. For example, a person can combine a transfer-on-death deed with a revocable living trust to ensure seamless asset distribution while also providing flexibility in managing and controlling those assets during their lifetime. This compatibility enables individuals to tailor their estate plans to suit their specific wishes and optimize the benefits of multiple planning tools.

As with any legal document, consulting an experienced attorney familiar with estate planning laws in your jurisdiction is essential before implementing a transfer-on-death deed strategy into your own plan.

Disadvantages of Using Transfer-on-Death Deeds

Transfer-on-Death deeds are not suitable for every individual or family.  With a TODD, upon the death of the original owner, the new owner(s) takes ownership subject to any and all mortgages, liens, judgments, or other claims against the property.  So, it is important to consider the means and abilities of someone you name as a TODD beneficiary.  Is that beneficiary able to immediately start making your mortgage payments, and/or will they be able to qualify for their mortgage?  If you have named more than one beneficiary on a TODD, are the multiple beneficiaries and their spouses able to work together?  In a time of grief will those beneficiaries be able to work together and agree on the best course of action for the property – keep it, sell it, or rent it out?

While the decedent’s interest in the property ends with their death, there is paperwork to be filed with the county to complete the transfer of title into the beneficiaries’ names, including an Affidavit of Identity and Survivorship and a Medical Assistance Clearance Certificate signed by the Department of Human Services in the appropriate county.

Perhaps the biggest hiccup in the conceptually smooth transfer a TODD allows involves homeowner’s insurance.  In 2019 a case came before the Minnesota District Court where a transfer-on-death deed was validly executed and recorded.  The owner died on August 14, 2017, and the named beneficiary effectively took ownership as of that date.  On August 20, 2017, the ex-spouse of the deceased set fire to the property, burning it to the ground.  The TODD beneficiary filed an insurance claim on the decedent’s insurance policy for the destruction of the home; the claim was denied as the TODD beneficiary was not a named insured.  The court decided that insurance policies are contracts personal to the insurance company and the named insured (original policyholder); the policies do not attach to the insured property. So, because the TODD beneficiary was not a party to the insurance contract of the deceased, and because the deceased no longer owned the house at the time of the fire, there was no named insured with an interest in the house and no insurance coverage was available.

Conclusion

In summary, transfer-on-death deeds are a powerful tool that simplifies asset transfers and provides advantages for some situations in estate planning. Their simplicity and flexibility make them an attractive option for individuals looking to streamline the distribution of their assets. By understanding the benefits and considerations associated with transfer-on-death deeds, individuals can make informed decisions and create an estate plan that best suits their unique needs and circumstances.

While a Transfer-on-Death deed provides a simpler alternative to a traditional will, it is vital to note that it does not replace the need for comprehensive estate planning. Consulting a lawyer can help you understand the broader implications of your decisions, allowing you to consider other aspects of estate planning and make informed choices for the long term.