How to Use TOD or Beneficiary Deeds to Avoid Probate
Make Real Estate a Non Probate Asset in Certain States
NOTE: State laws change frequently and the following information may not reflect recent changes. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.
In a growing number of states, a new type of legal document has been introduced that allows real estate owners to name who they want to inherit their property after they die.
If properly signed and recorded, then this new type of document, called a transfer on death (or TOD) deed or affidavit or beneficiary deed or affidavit, will allow the real estate described in the deed or affidavit to pass to the named beneficiaries outside of probate.
As of July 1, 2014, the states which recognize transfer on death deeds or beneficiary deeds are as follows:
- District of Columbia
- New Mexico
- North Dakota
- South Dakota
- West Virginia
Aside from states that recognize transfer on death deeds (or affidavits) or beneficiary deeds by statutes enacted by the state legislature, at least three states - Florida, Michigan and Texas - recognize an "enhanced life estate deed," also referred to as a "Lady Bird Deed," under state common law. In these states, an enhanced life estate deed functions in a manner similar to a transfer on death deed.
How a TOD Deed or Similar Document Works to Avoid Probate
How a TOD deed (or affidavit) or an enhanced life estate deed is used to avoid probate is fairly straightforward:
- First, the owner signs a new deed (or an affidavit) that states who should inherit the real estate after the owner's death. Note that in some states an attorney is required to prepare the new deed. In Florida, it is highly recommended that an attorney prepares the "enhanced" life estate deed in order to avoid inadvertently preparing a "regular" life estate deed.
- Next, the new deed or affidavit is recorded among the appropriate public land records. This is usually in the county where the real estate is located and should not incur real estate transfer taxes since there will be no immediate transfer of ownership. Recording fees vary from state to state and can range anywhere from $10.00 to upwards of $100.00.
- Finally, after the owner dies, a death certificate is recorded among the same public land records where the real estate is located in order to put the world on notice that title to the real estate has been transferred into the names of the beneficiaries listed in the TOD deed (or affidavit) or enhanced life estate deed due to the owner's death.
What Happens if the Owner Later Wants to Name Different Beneficiaries?
What happens if the owner of the real estate later changes their mind and wants the real estate to go to different beneficiaries? Then the owner can sign and record a new TOD deed (or affidavit) or a new enhanced life estate deed.
Should You Consider a TOD Deed or Similar Document to Avoid Probate of Your Real Estate?
However, the laws governing these type of deeds or similar documents vary widely from state to state, and in the end, a TOD deed (or affidavit) or an enhanced life estate deed may not be right in certain situations.
If you own real estate in one of the states that currently recognizes TOD deeds, beneficiary deeds, TOD affidavits, or enhanced life estate deeds, then consult with an estate planning attorney in the applicable state to determine if one is right for you and your family.