Avoid Probate With a Transfer-on-death Deed
How to Transfer Your Property At Death By Deed
A transfer-on-death deed is a special type of deed that can be used to transfer ownership of real estate outside probate in a growing number of U.S. states.
How Transfer-on-Death Deeds Work
If you own real estate in your sole name without a co-owner, you have limited options if you want to pass the property to a beneficiary at your death without the necessity of probate. Assets placed in a living trust can avoid probate, but it's far simpler and less expensive to simply transfer the property by beneficiary deed, also called a transfer-on-death deed, if you live in a state that recognizes this option.
You can create and sign a transfer-on-death deed now, moving your property from your sole name into the name of your beneficiary, but the deed is not valid and does not take effect until you die. You continue to own the property during your lifetime so you retain the right to mortgage it or sell it. Your beneficiary has no legal right to it until your death.
You do have to record the deed with the county land records office where the property is located. If you change your mind -- perhaps you decide you want to leave the property to someone else at a later point in time -- you can simply revoke the deed or create and record a new one to supersede the old one and transfer the property to someone else.
Because you're not technically giving the property away during your lifetime, the deed will not incur a gift tax. However, the property will contribute to the value of your estate for estate tax purposes.
States that Recognize Transfer-on-Death Deeds
The following states recognize transfer-on-death or beneficiary deeds in their state statutes as of 2017:
- District of Columbia
- New Mexico
- North Dakota
- South Dakota
- West Virginia
At least three states -- Florida, Michigan and Texas -- recognize "enhanced life estate deeds," also referred to as "Lady Bird deeds," under state common law, although not by state statute. An enhanced life estate deed functions in a manner similar to a transfer-on-death deed in these states.
State rules regarding the content and requirements of transfer-on-death deeds can vary. In some states, a sworn affidavit instead of a deed is all that's required to designate transfer-on-death beneficiaries. If you think this is a good estate-planning option for you, speak with a local attorney to find out exactly what's involved where you live. It's also advisable that you have an attorney draft the actual deed so you're sure it will stand up under the law when the time comes.
NOTE: State laws change frequently and this article may not reflect recent changes in the laws. Please consult with an attorney for the most up-to-date legal advice. The information contained in this article is not legal advice and is not a substitute for legal advice.