Transfer on Death Deeds vs. Living Trusts

Both a transfer on death deed and a living trust can keep your real estate out of probate, so which should you use?

By , Attorney

If you want to keep your real estate out of probate, you might be weighing the pros and cons of using a transfer on death deed versus a revocable living trust. You can make both using WillMaker, but there are important differences.

A transfer on death deed (sometimes also called a beneficiary deed) has a much more limited focus than a living trust. A transfer on death deed can name a beneficiary to inherit your real estate when you die, while a living trust can name beneficiaries for many other types of property as well (like bank accounts and physical belongings). Below are a few factors to consider if you're trying to decide between transfer on death deeds and living trusts.

1. Transfer on Death Deeds Aren't Available in Every State

Not all states allow you to make a transfer on death deed, so as an initial matter you'll need to find out whether transfer on death (TOD) deeds are an option in your state. Over half of the states allow TOD deeds. (Find out which states allow transfer on death deeds.) The relevant state to look up is the one where your real estate is located, not the state where you currently live.

Example: Toni owns a house in New Mexico but now is a resident of Arizona. She wants to create a TOD deed to leave the house to her son. She would create a New Mexico TOD deed, not an Arizona one.

If your state doesn't currently allow TOD deeds, it might later. WillMaker periodically updates its software to add the ability to make TOD deeds in states that have newly adopted TOD deed laws.

2. TOD Deeds Are Less Expensive and Less Complicated Than Living Trusts

A transfer on death deed is a simple document that identifies the owners of the real estate, the legal description of the real estate, and the beneficiaries who will inherit the property when the current owners die. TOD deeds tend to be simple (and therefore relatively inexpensive) to make. In fact, many states provide sample language for their TOD deeds in their laws; these templates are called "statutory forms."

By contrast, living trusts tend to be more complicated to set up. If you use a lawyer to create a living trust, the cost will generally be much higher than using a lawyer to make a simple TOD deed. That said, WillMaker offers bundles that allow you to make either document by walking you through guided interviews. If you use WillMaker, the costs are comparable.

With both transfer on death deeds and living trusts, you'll need to record (file) the document with the land records office in the county where your real estate is located. But with trusts, you'll also have to take extra steps to retitle certain property in the name of your trust. Additionally, if you acquire new property that you want to add to the trust, you must remember to legally transfer it to your trust. In other words, living trusts typically require more maintenance as well.

It's also easier to revoke or make changes to a transfer on death deed than a living trust. To revoke a TOD deed, you simply sign, notarize, and record either a revocation (a simple document stating that you are canceling the original TOD deed) or a new TOD deed that replaces the original one. Trusts can be more complicated to amend or unravel.

3. Trusts Can Do More Than Transfer on Death Deeds

If your real estate is your most significant asset, and most of your other property will pass to your inheritors outside of probate anyway (using other probate-avoiding techniques), then it might make sense to use a simple transfer on death deed to keep your real estate out of probate.

On the other hand, if you have significant assets besides real estate that you would like to protect from the expenses and delays of probate, then a living trust can offer a single solution.

Trusts Hold More Than Just Real Estate, and They Name Trustees to Manage the Property

Living trusts are more flexible and powerful than transfer on death deeds. As mentioned, they can hold property besides real estate. Additionally, trust documents name people to act as "trustees"—people who manage the trust property. If you make a trust using WillMaker, you name yourself as trustee, meaning you maintain control over your property during your lifetime. You also name a "successor trustee." After you die or become incapacitated, the successor trustee steps in to manage the property and distribute it to your beneficiaries. This added oversight can be a great advantage.

Trusts Can Provide More Oversight for Property You Leave to Minors

If you have minor children, your trustee (or successor trustee) can take care of the trust property until your children reach an age of your choosing. When you make a living trust with WillMaker, you can set up this property management system by creating a child's subtrust within your living trust. This allows your trustee to manage property for your child—and use their discretion to spend the trust assets for the child's health, support, and education—until the child reaches a specified age (up to 35 years).

As an alternative to the child's subtrust, you can name a "custodian" to manage real estate for a minor child, but the property must be turned over to your child once the child reaches an age defined by your state under its Uniform Transfers to Minors Act. This state-selected age is often 21, which some people might consider too young to be in charge of a large asset like real estate. This option is available both in WillMaker's living trust and transfer on death deed.

Trusts Can Plan for Incapacity

If you anticipate or worry about becoming incapacitated, you might want to opt for a living trust. Unlike a TOD deed, a living trust can name a successor trustee to take care of the trust property if you become incapacitated. If you opt for a TOD deed instead, consider also creating a durable power of attorney that names an "agent" or "attorney-in-fact" who can handle your financial matters on your behalf if you ever become unable to take care of them yourself.

Trusts can also accommodate a wide variety of other circumstances. If you have more complicated circumstances, an estate planning attorney can help you draft a trust that meets your unique needs.

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