The Transfer on Death Deed: Is It Always Simpler Than Probate?

Passing property along when you no longer live in it shouldn’t be a huge hassle. And that’s why an increasingly popular choice is the transfer on death deed. This is a real deed, which designates a beneficiary on the real estate title.

If you have a beneficiary in mind, and you aren’t already co-owners with rights of survivorship, the transfer on death deed is a simple option in any state that offers it. But is it perfect for every homeowner? Probably not. Let’s look at how it works — and its possible drawbacks.

Will Versus Transfer on Death

You’re a homeowner. You want to name a certain person to get your home after your death. One way to do this is to write a will. To transfer a home through a will means putting the home into probate. That’s a court-led process to distribute the assets of someone who has died. Because it’s public and takes up time and resources, some people prefer to avoid it. But wills are simple to write and can be used in every U.S. state.

In some states, residents have the option to sign and record a transfer on death deed (sometimes abbreviated to TOD deed, or just TODD). The point is its simplicity after you’re gone. Think about passing your home along in the same way you’d pass along a bank account — by naming a beneficiary. In fact, the TOD deed is called a beneficiary deed in many locations.

You’ll fill out the TOD deed document, and then record it in the same county as the home. Note: Unlike a will, an unrecorded TOD deed will do nothing. But if your TOD is in the public records, assuming your debts can all be paid by your estate, the named beneficiary will receive your home title after you pass. Your beneficiary will file the document with the recorder of deeds as public notification of their new ownership.

In short, if your state is among the majority of U.S. states that has adopted the TOD deed, you may use it to leave the home to anyone you’ve designated as your beneficiary, without putting the real estate in probate the way a will would. So far so good.

Now, the TOD deed has something in common with a quitclaim. That is, it’s not a warranty deed! Just because you pass your own rights on to someone else, doesn’t mean your own title is free and clear. If a TOD deed becomes effective under a state’s law, for a certain time (such as two years from the date of the homeowner’s death), creditors can still make claims on the home.

Of course, a home can get hung up in probate, too, before the court generates a free and clear deed. Wills can be contested. So, is the TOD deed the stronger document? Maybe so, if you fill out that document with conviction, record it, and never change your mind.

But life takes some interesting turns. And documents left after someone’s life can cause confusion.

The TOD Deed Is Not Foolproof: Confusion Alert!

Consider an Ohio homeowner who died, leaving a TOD deed naming someone she no longer had any relationship with.

She did remember to change her will, and her power of attorney, after the relationship ended. But her wills and estates lawyer neglected to ask about the old TOD deed, and never created, signed, and recorded a new TOD for a new beneficiary.

When she died, the deed went to the ex-friend. You know — the friend she purposefully cut out of her will.

The ex-friend’s ownership rights did meet a challenge — but the court decided the TOD deed was fine. The appeals court said: Not so fast! Noting the lapse by the deceased homeowner’s lawyer, the appeals court sent the case back to the trial court to examine all the evidence pointing to the deceased person’s true wishes.

What could have prevented this confusion? While still alive, the homeowner needed to remember to change the beneficiary named on the TOD deed. Because a TOD deed has no effect during the homeowner’s lifetime, the homeowner may revoke it — any time the homeowner wishes.

The formalities are simple, but they must be followed. A TOD revocation must be a new, written document. The homeowner must record it with the city or county recorder of deeds.

Or, the homeowner can always sell the home. That cancels the TOD — which has no legal meaning at all as long as the person who created it is alive.

Other Possible Challenges to a Beneficiary Deed for Real Estate

Could someone else who wanted to get your home challenge your beneficiary? Certainly. People can claim that a mistake was made, or fraud was involved, or you were pressured to sign the TOD document.  Undue influence is a common claim against most any type of estate plan.

Imagine coming to depend on someone else for assistance as you grow older. You might decide to create new estate documents, and one might be a beneficiary deed.

When you are no longer around, a relative or some other interested party could claim that your assistant improperly influenced you to sign over your property. A challenged TOD deed has to be fought out in probate court.

What signals could show you were under someone else’s inappropriate influence, according to the courts? Generally, the signs could look something like one or more of these:

• You suddenly name a new beneficiary.

• Your decision to create your new TOD deed doesn’t appear reasonable, or it’s inconsistent with other estate plans you’ve made in the past.

• Your new beneficiary is involved in your decision and signing. Maybe that person wants to help you take the new deed to the county recorder’s office without your key relatives or supporters knowing.

• You are vulnerable to inappropriate influence because of cognitive decline, control by other people, or other new life circumstances.

• After the document is created, maybe you yourself told people you signed it under inappropriate pressure.

Could any of these factors call your TOD decision into question later? An attorney’s involvement would be important if you want to create a document that withstands challenges.

Takeaway: TOD Deeds Are Useful, But Please Pay Attention

Be careful with transfer on death deeds, and be sure a copy is kept with your will, so that they don’t show up as a surprise after you’re gone.

To avoid unexpected disputes after your death, it’s best to name one party as the designated beneficiary. Naming multiple people is a recipe for future legal confusion. And if that one person dies before you do, you’ll need to remember to update your beneficiary.

☛ Is your beneficiary is on board? If a beneficiary refuses the TOD deed, your home will go into probate, despite your intentions.  

While it’s good to know that your beneficiary will accept the deed, it helps to choose your beneficiary without involving that person in your decision. That will help later, if your beneficiary’s rights are challenged, to show that you were not subject to undue influence.

As you can see, it’s important to know the potential pitfalls and how they could relate to you. If you have a straightforward situation and want to create a TOD deed, it’s best to execute it with the knowledge and guidance of your attorney.