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Transfer on death deeds (also called TOD deeds) allow real estate property to be transferred to a new owner, a named beneficiary, upon death. This is a great option for people who want to avoid the costly, complex process of probate. TOD deeds only impact the specific property item, not other assets, so it is only part of a comprehensive estate plan.
Transfer on death deeds are real estate documents that allow real estate properties to automatically transfer ownership to the beneficiary or beneficiaries listed. They are also called “transfer on death beneficiary designations” or “TOD deeds” for short. This automatic transfer happens upon the owner’s death or upon the last owner’s death if there are multiple owners. Transfer on death deeds are often used as part of a comprehensive estate plan.
TOD deeds must be signed in front of a notary and recorded at the Register of Deeds while the owner is still alive. They can provide an efficient, affordable way to avoid probate on real estate properties. They act similarly to the payable on death beneficiaries of retirement or bank accounts. Only the beneficiaries listed on the TOD deed receive the property, which they do not have to share with potential other heirs who were not listed on the TOD deed.
While TOD deeds are often used to directly transfer real estate to other people after a death, they can also be used to transfer real estate to revocable trusts. Using one this way avoids the issue of a beneficiary potentially being deceased at the time they were to receive the property. If that did happen, it could necessitate a probate case.
The transfer on death deed process begins by having the owner(s) of the real estate property sign a custom drafted TOD deed with a notary. The signed TOD deed is then recorded at the local Register of Deeds. Until the owner dies, nothing else needs to be done.
Upon the owner’s death, the receiving beneficiary would file a Termination of Decedent’s Interest (HT-110) at the Register of Deeds to trigger and complete the transfer on death process. The HT-110 is what notifies the world and Register of Deeds that the former owner has died, and the beneficiary named on the TOD is the new owner.
Recording the TOD deed during the owner’s life can be thought of as “Step A” and recording the HT-110 after their death can be thought of as “Step B.” Both of these steps are significantly faster and more affordable than sending the real estate through the probate process.
Yes, a transfer on death deed can be revoked or changed during the owner’s lifetime, so long as the owner is still of “sound mind” and understands what they are doing. This is required for most estate planning documents.
TOD deeds also override wills, so if someone sets up a TOD deed to one person, but then later makes a will leaving the same real estate to another person, the TOD deed is what is followed. Therefore, owners must be careful when creating estate planning documents and should consult an attorney to make sure their portfolio will transfer comprehensibly in the way that they desire.
One key benefit to a transfer on death deed is that they are an affordable way to avoid probate on real estate properties. This allows real estate assets to be addressed and/or sold faster by the family or beneficiaries after a passing, without government oversight or red tape.
Transfer on death deeds are also usually favored for people with a trust set up. TOD deeds are preferred over the classic quit claim deed (QCD) for two main reasons. First, a TOD deed does not require the owner to inform their lender or mortgage company that they are changing the title of their real estate property. They don’t have to do this because the transfer is not actually taking place yet and is instead being delayed until the owner has died. Second, owners also do not have to update their home insurance policy to name their trust as an additional insured entity. That is a step which is highly recommended if the property is transferred to the trust through a quit claim deed.
Using TOD deeds is more convenient for owners and easier to understand because the property stays in the human owner’s name during their lifetime, and then immediately transfers to the trust upon their death, avoiding probate.
Any person who owns real estate and wants to avoid probate by transferring their property in an efficient, affordable manner, would be a good fit for a transfer on death deed.
One common problem with transfer on death deeds is owners name too many beneficiaries. For example, in a two child family, it is not too complex or hectic for those two children to cooperate and sell or create a plan for how to use the house. But if there are multiple children, or if some of the children live far away, or if there is disagreement on what to do with the house, or there is some other complexity, the TOD deed could lead to issues. Those issues could even be lawsuits brought against each other or expensive probate actions that otherwise could’ve been bypassed.
One solution for this is to have the transfer on death deed transfer the property to a trust rather than a person. Then one trustee can be put in charge of making decisions on selling the real estate, and simply pay their siblings out after the sale is complete. Trusts also help avoid the issue of beneficiaries being deceased or disabled, as the trust can pivot to the other living family members or a special needs trust.
Trusts are also necessary if the owners want the real estate to be held in a certain way for many years, such as sharing deer hunting land or a vacation home with multiple generations of a family. Without combining a TOD deed with a trust, this scenario is impossible to ensure, as simply transferring to multiple people will not impose the long term controls and rules that a trust provides.
TOD deeds can also be problematic when trying to transfer property owned by a business, such as an LLC or corporation, because the entity itself does not die. That is specifically defined under the TOD statute, and therefore cannot trigger a TOD deed properly. Instead, business estate planning and/or a trust should be used to make sure that the company–and the real estate it owns–transfer effectively after a death.
Two alternatives to transfer on death deeds would be deeding real estate into multiple owners’ names as “joint owners with right of survivorship” or by using a quit claim deed and reserving a life estate for the original owner. Both of these are older estate planning tools that allow the property to avoid probate and transfer to the desired persons after a death.
However, both of these methods come with classic problems or pitfalls, such as the joint owners disagreeing on how to manage the property, gift/inheritance tax considerations, and the need for all names added to the deed having to consent and sign off if the original owner ever wants to change the title again. That includes if the owner wanted to put it back in their name alone for example if they wanted to sell their house to pay for end of life care. These problems are exacerbated if any of the persons added to the deed are deceased or receive disability benefits. It is much more flexible to use TOD deeds instead, especially when combined with a trust.
