Transfer on Death Deed: Proceed with Caution

Often people want to make the transfer of their estate as easy as possible. This usually means avoiding probate is their main goal. To avoid probate, many people record a Transfer on Death Deed for their real estate (“TODD”). A TODD works like a beneficiary on a financial account. When the owner of the real estate dies, the real estate is immediately transferred to the beneficiaries named on the deed.

Although  a TODD can transfer real estate very easily, you should proceed with caution. Transferring things with ease does not always mean that things will be easy for those who receive the real estate. So, what could possibly go wrong with a TODD? I’m glad you asked. Here are three things you should consider:

• Refusal to sell. I have had families come to me after Mom or Dad’s death to deal with a sibling that refuses to sell the real estate Mom or Dad left to the children via a TODD. At the time, Mom or Dad thought it would be easy to leave their real estate to their kids by using a TODD. Probate would be avoided. The transfer would be easy. What they didn’t anticipate is what happens after that easy transfer.

By using a TODD deed, Mom or Dad created a situation where the real estate was immediately owned by multiple people. Multiple owners have all the same rights to the property, so all of the owners have to agree on the listing agent, listing price, negotiations, final sale price, etc. This opens the door for disagreement. There are better options to avoid this outcome.

• Death of a Beneficiary. There have been times where a beneficiary of a TODD died before Mom or Dad, and the TODD remained unchanged. This opens the door to owners of the real estate who were not intended (usually the children of the deceased beneficiary). Now, the property Mom thought would be owned by her children is owned by grandchildren, too. Creating more owners and decision makers.
• Transfers to Widow. It is not uncommon for Mom or Dad to name a child and their spouse as “joint owners” on a TODD. While this makes Mom or Dad happy to see an in-law treated as family, it does cause potential issues. If the child predeceases Mom or Dad, the widow will take ownership at Mom or Dad’s death. This can result in the property being controlled by someone who may have no connection to the family or may remarry and make their property interest part of their new estate plan, with their new spouse, risking the family property from staying in the family.

As you can see, just “leaving things to the kids easily” does not always mean things will be easy once the property has been transferred to the kids. Before you record a TODD, please contact us to schedule a consultation to discuss whether the TODD meets your estate planning needs.