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.
The following 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 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.
.png)
What is a Living Trust
Living Trust is the best option if you want a hassle-free and inexpensive process of your assets and Property distribution.
Just Like a Last Will and Testament, Living Trusts are documents created by a person known as a “Grantor/Initial Trustee” who puts property into a Trust and enjoys the benefits of it during their lifetime. Upon the death of the grantor, the property is managed by another person called a “Successor Trustee”.
The people who inherit the Trust property upon the death of the Grantor are the “Beneficiaries”.
In Living Trust, Grantor has full control over the property and can enjoy the property till he dies by naming himself/herself as the Initial Trustee. After the Grantor's death, the Trust Property administration is dealt with by the Successor Trustee; in this way, the Successor Trustee works similarly to that of an Executor of a Will.
What are the Benefits of Creating a Living Trust?
1. Avoids Probate
One of the main benefits of a living trust is that its assets don’t have to go through probate. Probate is a judicial procedure whereby the court determines the inheritors of the assets of a deceased person.
2. Protects your privacy
Unlike Wills, Trusts are private documents. Since there is no intervention of courts in assets distribution, the Trust document is not made a Public record. No one can ever find out more about your distribution of assets by searching public records.
3. Protection of Minor Children
If you have minor children, you might not want them to get ownership of your estate at a small age. You may include it in your trust that you want your minors to receive the property after attaining a specific age. For eg. at the age of 25 or 30 years.
4. Ensure the Privacy of your Document
Since Living Trusts avoid probate, they do not become public records like Wills. No one will have the access to your Trust at any stage to know about your distribution.
5. Protects you in case of Illness or Incapacity
Apart from specifying the distribution of your assets/property after your death, may also include the steps to be taken care in case of any unanticipated situation like illness or unconsciousness of yours when you are not able to communicate your wishes.
6. Avoid Conservatorship with Living Trusts
Conservatorship is the appointment of an agent by the court to oversee the financial management of a person after death or in case of Incapacitation (Incapacitation includes mental illness, physical illness, disability, or addiction to drugs or alcohol).
If you are creating a revocable trust, you can avoid conservatorship and your successor trustee will be the person handling and managing everything in your trust on your behalf.
How to make a Living Trust?
1. Select the Property to be transferred to Trust
Not everything you own can be transferred to Trust. There are certain types of properties and assets like Retirement accounts, Vehicles, cash, etc which cannot be put into a trust.
2. Choose the type of Trust
Choose whether you want to make an Individual Trust or a Shared Trust in case you are married.
3. Name a Successor Trustee for your Trust
Think of a person who is reliable and trustworthy to be appointed as your successor trustee as he will step in your shoes in case you are ill or incapacitated.
4. Choose Beneficiaries
Choose the persons you want to get your trust property after you die. You can include family members, relatives, friends, charities, and organizations as your beneficiary.
5. Make your Trust Document.
After you are done with all of the above, you are ready to create your Trust Document.
Use a reliable, legal, and safe platform like TrulyWill to get your Trust Document ready.
You can start with the Do-it-yourself plan from TrulyWill which is the most convenient way if you have a simple financial and personal life.
If you are still confused with TrulyWill’s platform, you can use the attorney assist feature for any legal advice.
6. Sign and Notarize your Trust
The trust document needs to be executed as per your State laws by signing it in front of a Notary. Unlike Wills, you don't need the signature of witnesses in your Trust Documents.
7. Fund your Trust
Funding of a Living Trust Fund involves the process of transferring assets like money, stocks, bank accounts, businesses, etc. into the Trust.
A trust will own only those properties which are transferred to it. If a property is not transferred to a Trust it might be subjected to probate or Estate tax.
8. Store your Trust in a safe place
Once you are done with all the above formalities of making a Trust, you need to store it in a safe place to avoid being lost or stolen.
Transfer on Death or Trust - Which is Better?
Both living trust and Transfer on Death deeds serve different purposes and benefits. It is not correct to say that a Transfer on Death deed is better than Trust and vice versa.
Whether you need a living trust or a Transfer on Death deed depends upon your needs and requirements. You should first understand your financial and personal situation to decide which one is better for you.
If you are confused, you can connect with an Estate Planning Attorney for guidance and select the best option for you.
