As Boomers Retire, the Transfer on Death Deed Comes of Age

Each day, about 10,000 baby boomers reach retirement age. Their recent frustrations, as they’ve grappled with Covid-19, have only accelerated the national jump to retirement. And now, this large cohort of retirees is thinking about getting its financial affairs squared away.

Baby boomers still hold the lion’s share of real estate assets in the United States. At some point, their thoughts turn to what they’ll do with the houses they own. Right on cue, the concept of the transfer on death deed is rising in popularity. This year, the Washington Post wrote about TOD deeds as good alternatives to wills and trusts. Forming a trust can expensive, the article notes, and might be too complicated for someone with few assets beyond the home.

This new breed of beneficiary deed will transfer a great deal of real estate wealth to upcoming generations — without the use of a will or the complications of joint ownership.

The transfer on death deed does for houses what a beneficiary form does for a retirement account or insurance benefits. It’s main selling points? Simplicity. Control. And the ability to transfer ownership of property upon death, without putting the beneficiaries through the probate process.

Beneficiaries Are Not Owners: They Can Be Changed

The beneficiary is not a joint owner. The beneficiary has no say over the property until the creator of the transfer on death actually dies. The homeowner can take out secured loans on the property and make any other decisions involving it.

Only when the owner dies, leaving a valid transfer on death deed, is the transfer official. Then, the new deed holder is automatically responsible for any mortgage or other liens, and any encumbrances on the property.

☛ If you are in a state that has adopted this simple means of title conveyance after death, you may create your deed at any time. Deeds.com has transfer on death deed information and forms.

A valid TOD deed is recorded during the owner’s lifetime, following the procedure set forth in the property’s county. We lay out the steps here. The recorder of deeds will charge a fee for dating and recording. Because the act of recording does not transfer the house yet, there’s no taxable event. But the recording is public notice that the title will go to the named beneficiary when the owner dies. Once your TOD deed is placed in the public record:

Do: Give a copy of your TOD deed and other estate planning documents to the lawyer or other person who will deal with your estate.

Do: Keep beneficiary deeds together with a will. Having documents in different places can lead to confusion and mistakes.

Do: Update your TOD deed (read on to learn why and how) if your designated beneficiary dies or becomes unable to handle ownership responsibilities, or if you change your mind about who should receive the house when you die.

Don’t: Try to override your decision with your will. A transfer on death cannot be revoked by the deceased owner’s will. As long as the deed itself has not been revoked, the named beneficiary is entitled to the house.

Now, let’s go over an example of how errors could play out — and how to avert them.

Will or Transfer on Death: Which Controls?

Imagine that Marian decides to transfer her house to someone else instead of Alex, the beneficiary named on a TOD deed that Marian previously created.

Marian decides to update her will. Marian’s new will revokes all previous wills and states that Sharon will receive Marian’s house. The lawyer who drafts Marian’s new will is unaware that Marian’s TOD deed exists.

Marian dies, believing that Sharon will receive the home. But upon death, that old TOD deed becomes controlling. Alex gets the home, even though that wasn’t Marian’s hope.

So, how could Marian have avoided this potential outcome? By remembering to tell the lawyer about the existing TOD deed. The lawyer could assist Marian in formally revoking the recorded transfer on death deed in the same way Marian first created the valid TOD. That is, by properly creating, executing, notarizing, and recording a revocation or a new transfer on death deed that states it is revoking any previously recorded transfers on death for the home.

Selling the home would have also revoked Marian’s TOD deed. Marian was always in control during life, and could have always sold the home if she chose to do so, effectively revoking the TOD deed.

A will is still important. It can spell out the homeowner’s intent in a number of other issues, including who should receive personal property. It just doesn’t revoke the TOD deed!

TOD Deed Property Can Go to (or From) Multiple People

A TOD deed can assign the home to one or multiple beneficiaries. It can be created by one homeowner or multiple owners, to go into effect only when both/all are deceased (both/all homeowners must sign the TOD deed).

If there are multiple beneficiaries, the title can be conveyed to beneficiaries through any form of vesting. It can state that the beneficiaries shall own the asset as joint tenants or as tenants in common.

☛ Homeowners who want to be sure the home passes to the desired beneficiary must be sure the property is correctly vested. Learn more about vesting a deed to its recipients as joint tenants with right of survivorship or as tenants in common.

The TOD beneficiary deed can even place property in a trust! Refer to the home’s state current law, as not all states allow this, and laws are changing!

Wait, though. Why not just use a trust by itself?

With the traditional revocable living trust, an owner makes an immediate transfer of property. But some homeowners might prefer to keep ownership and control over their property while alive.

Transfer on Death Can Avert Probate: Here’s How and Why

Probate puts a court system in charge of the matters of the deceased person. The TOD deed bypasses that system, by handing the new homeowner the real estate when the owner dies — automatically, immediately.

Keep this in mind, though. Should the owner of the house pass away with more value in debt than in assets, a probate court can still get involved, voiding the TOD deed and putting the house into probate so it can be sold to satisfy its late owner’s debts.

And this leads us to our next important issue: whether the state can come in and recover government healthcare benefits from the deceased person’s estate if a transfer on death deed is in place.

Medicare Support: Can Transfer on Death Deeds Shield It?

Medicaid benefits are increasingly being tapped into as the population ages. While some are entering 55+ communities, others are opting for life plans at dedicated retirement homes. Most are paying for this themselves. But long-term care is pricey. And people are living longer. Some run out of funds, and become eligible for Medicaid in their states.

The federal government directs states to seek recovery from Medicaid recipients aged 55+. This can mean forced sales of deceased people’s homes, if no exemption applies.

Moreover, when a person applies for Medicaid, the government looks back over the most recent five years to find any transferring of assets leading up to the application date. The government may delay the homeowner’s full Medicaid benefits for a certain time period, to recoup that lost value.

People use beneficiary deeds to get around Medicaid recovery in states where non-probate property is exempt from Medicaid recovery.

☛ The transfer on death deed is now available in most states, but not all. Find out more by selecting the state where your property exists.

Recent Innovation: Understand Transfer on Death as an Evolving Legal Concept

It was 1989 when the state of Missouri introduced a beneficiary deed for real estate, as an easy alternative for a homeowner wanting to leave property to a family member, life partner, friend, or charity. Therefore, all state laws creating TOD deeds are of recent vintage. Could state laws change to allow broader Medicaid reimbursement mechanisms? It’s quite possible.

So, use the TOD deed with open eyes. Before creating one, it’s best to check with the title company to find out if the beneficiary can get title insurance without a hitch, too.

Have questions pertaining to your individual situation? Please ask an estate planning attorney in your state. Deeds.com is pleased to publish information, commentary, and updates on real estate matters and trends of interest to our readership. Material available here does not constitute financial or legal advice.

Supporting References

Kate Dore for CNBC.com: The Pandemic Drove These Americans Into Early Retirement (May 9, 2021).

Ilyce Glink and Samuel J. Tamkin for WashingtonPost.com: Why Putting Your Home in a “Transfer on Death” Deed Might Be a Good Alternative to a Will or Living Trust (Jan. 3, 2022).

Deeds.com: Medicare and Medicaid: Can They Take Your Home? (Dec. 2, 2019).

Law Office of DeConcini McDonald Yetwin & Lacy P.C.: Beneficiary Deed Proving to Be a Popular and Versatile Method of Transferring Real Estate to Successors Without the Need for Probate.

Texas Real Property Transfer on Death Act: 84th Leg., ch. 841, § 1.

Transfer on Death Deed Authorized: Tex. Est. Code § 114.

Transfer on Death Deed: Minnesota Statutes § 507.071.

Transfer on Death Deeds for Real Estate: Indiana Code § 32-17-14-11.

Colorado Revised Statutes, Title 15 – Probate, Trusts, and Fiduciaries.

Richard E. Anderson in the Law Review of the UNT Dallas College of Law: How a Transfer on Death Deed Affects Medicaid Benefits.

Sarah Gonzalez for NPR.org: A Lot of People Blame Baby Boomers for the Housing Shortage But It’s Not So Simple (Jul. 30, 2021).