What is a Transfer On Death Deed(TOD)?
Transfer-on-death is a type of deed where the creator or the current owner makes one or more beneficiaries for his/her property who becomes the owner of such property upon the creator’s death.
Transfer-on-death deeds are also known as beneficiary deeds or deeds upon death in several states. You can use a transfer-on-death form to name beneficiaries for vehicles, securities, and real estate to bypass probate. Cars, small boats, stocks, bonds, brokerage accounts, land, and houses all qualify as TOD assets.
A TOD designation helps in a direct transfer of your assets and property to your named beneficiaries.
TOD is a simple and inexpensive way to avoid probate. But if you have a property in a state that does not allow TOD, we can explore other ways to avoid probate.
States allow you to create a Transfer-on-death or a Beneficiary Deed.
Benefits of a TOD Deed
1. Avoids Probate
Probate is a formal Legal process, more specifically, a Judicial process whereby the Will of a person who has died is recognized by a court of law. Executors or Personal representatives are then appointed by the court to distribute the property/assets among the beneficiaries.
If you create a TOD Deed, your property will not have to go through Probate. Your beneficiary will directly receive your property without the intervention of the Court.
2. Medicaid eligibility
There are people who cannot otherwise pay for their medical care. Medicaid protection is designed for such people. A person applying for Medicaid benefits must have a low income and few assets.
While applying for Medicaid benefits, a person is required to disclose any assets they have given away in recent years (usually 5 years), known as the look-back period. If a person has given any valuable assets in recent years, it may disqualify them from the Medicaid benefit
Upon a Medicaid recipient's death, the government may seek reimbursement from the recipient's probate estate. A TOD is not considered a gift for this purpose.
3. Tax savings
No federal gift tax is owed because designating a beneficiary is not an immediate transfer. The ownership is acquired by the beneficiary upon the current owner's date of death. If the beneficiary later sells the property, any capital gain will be based upon the value of the property at the original owner's date of death, not the value when the original owner acquired the property.
4. Less expensive
As compared to Living Trusts, TODs are less expensive. They are simple and easy to create and maintain. Even the revocation of any provision is much easier than that of a Living Trust.
Creating a Transfer on Death Deed
Creating a transfer on a death deed is easy but it must comply with the state rules in which your property is situated. Each state has its own laws regarding the creation of a transfer on a death deed. Prior to the death of the current owner, the TOD deed must be recorded in the property records of the county where the property is located. Payment of a small fee is also there at the time of filing it.
Following are the steps to take for creating a TOD deed:
1. Fill out the State-Specific Deed Form.
Each state has its own laws and forms or language in which the transfer on death deeds is to be created. Look up the requirements of the state your property is situated and fill out the form.
2. Decide on Your Beneficiary.
You can use a transfer-on-death form to name beneficiaries for vehicles, securities, and real estate to bypass probate. Cars, small boats, stocks, bonds, brokerage accounts, land, and houses all qualify as TOD assets.
You can name any person, organization, or charity as your beneficiary but be specific in writing the details of your beneficiary.
For example, do not use the word “my children” use their names instead like “Alice Brown and Edward Brown”. You can also consider naming an alternate Beneficiary in case your first chosen beneficiary doesn’t survive you.
3. Sign the New Deed.
If you are the only owner, your signature is sufficient. But if you are in a community property state, the signature of your spouse is also required.
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states.
4. Record the Deed.
Until you file a TOD Deed, it won’t be valid. Prior to the death of the current owner, the TOD deed must be recorded in the property records of the county where the property is located. Payment of a small fee is also there at the time of filing it.
If you are not sure where to go to record a TOD deed, you may connect with your local courthouse and ask them where you should go to record real estate deeds.