Your Financial Advisor Told You to Get a T.O.D.D—Should You?

Over the past few months, I have had several clients come into my office with the same message: “My financial advisor told me I need a Transfer on Death Deed right away, so my house doesn’t go through probate.”

First, I appreciate financial advisors who encourage their clients to be proactive about estate planning. Having a plan in place is important, and avoiding probate can be a good goal. But avoiding probate and having a good estate plan are not necessarily the same thing.

A Transfer on Death Deed (a “TODD”) can be a very useful estate planning tool. But it is not right for everyone. A TODD works similarly to naming a beneficiary on an IRA or life insurance policy. On the TODD, you name the people who will receive your real estate when you die, but they have no ownership in the property while you are living.

If you decide to sell your house, farm, or other real estate, the TODD beneficiary does not need to sign off on the sale and does not receive any of the sale proceeds. You remain in control. You can also change or revoke the TODD if your circumstances or wishes change.

For someone with a relatively simple estate plan, a TODD can be an attractive option. You maintain control during your lifetime, while the property can pass directly to the named beneficiary at your death without going through probate.

So, what’s the downside?

Problems can arise when there are multiple beneficiaries, blended families, minor or disabled beneficiaries, beneficiaries with financial problems, or uncertainty about what should happen if a beneficiary dies before you.

In addition, a TODD doesn’t help avoid probate if you have other assets that would cause your estate to go through probate (e.g., multiple vehicles, UTVs, ATVs, boats, property in other states). That is why I encourage clients not to merely ask, “How do I avoid probate?”

Instead, ask: “What do I want to happen to my legacy, and what is the best way to make that happen?”

Sometimes the answer is a Transfer on Death Deed. Sometimes it is a trust or a Marital Property Agreement.

If you have been told to get a TODD or are considering how to avoid probate, contact our office to schedule a consultation with our experienced estate planning attorneys.