When you're estate planning, you'll probably want to take steps to keep your house—likely one of your most valuable assets—out of probate when you die. A living trust works well, but you may not want to go to the trouble of creating one. Here's good news: More than half of states now offer transfer-on-death deeds (TOD deeds), an easy and effective alternative for transferring real estate upon your death, and other states are considering adopting it.
This alternative is usually called a transfer-on-death deed, though a few states use the term "beneficiary deed" or something similar. A TOD deed is like a regular deed used to transfer real estate, with a crucial difference: It doesn't take effect until your death.
See whether or not your state is one of the states that allow transfer-on-death deeds.
Here are some of the benefits of transfer-on-death deeds:
If you're thinking about ways to transfer the deed on your house upon your death, and TOD deeds are an available option in your state, they are well worth considering.
Using a transfer-on-death deed is a lot like using a payable-on-death (POD) designation for a bank account. You name one or more beneficiaries now, who then inherit the property at your death without the need for probate court proceedings.
To name a beneficiary or beneficiaries, you use a special kind of deed, one that's tailored to the law of your state. The deed looks pretty much like any other real estate deed; it names the current owner, provides the exact legal description of the property, and names the person who will receive the property (known as the grantee or beneficiary). But a TOD deed also contains an additional statement, making it clear that the deed does not take effect until the current owner's death.
The beneficiary you name to inherit the property doesn't have any legal right to it until your death—or, if you own the property with your spouse or someone else, until the last surviving owner dies. The beneficiary doesn't have to sign, acknowledge, or even be told about the deed, though it's usually a good idea to give the beneficiary a heads up.
In the deed, you can often also name an alternate beneficiary who will inherit the real estate if your first choice isn't alive at your death. If you don't name an alternate, and your first choice doesn't survive you, the property will go through probate, and state law determines who will inherit it.
After you've signed the deed, you must record it with the local county land records office before your death. Otherwise, it won't be valid.
You keep complete ownership of, and control over, the property while you're alive. You pay the taxes on it, and it's not protected from your creditors. You can sell it, give it away, or mortgage it. Because the TOD deed does not make a gift of the property, there's no need to concern yourself with federal gift tax.
Watch out for your state's special rules. Every state has its own rules about TOD deeds, and some of these may be important. Before you set off to prepare your deed, read your state's statute yourself or consult a knowledgeable lawyer—or do both.
For more information on the nitty-gritty of creating a TOD deed, see How to Prepare a Transfer-on-Death Deed.
Later, if you change your mind about whom you want to inherit the property, you are not locked in. You can revoke the TOD deed or simply record another TOD deed leaving the property to someone else. See How to Revoke a Transfer-on-Death Deed for more details.
At your death, ownership passes immediately—and automatically—to the beneficiary you named in the deed. Any mortgage or debt attached to the land goes along with it. There's still some paperwork to get the property into the name of the new owner, however. The new owner will probably need to record a simple sworn statement (affidavit) and a copy of your death certificate. (See How the New Owner Claims Transfer-on-Death Real Estate.) Although the TOD beneficiary has these few steps to take, the process is still much simpler and quicker than probate.