How a Transfer on Death Deed Works - SmartAsset

Part of planning for the future involves getting your estate in order, and determining who you want your assets to pass to when you die. If you have real estate property, and want it to transfer to loved ones without passing through probate, a transfer on death (TOD) deed may be the answer. Because a TOD deed, also known as a beneficiary deed, bypasses probate, it can simplify the inheritance process and reduce costs for your loved ones.

Consider working with a financial advisor as you plan how your estate will be distributed upon your death.

What Is a Transfer on Death (TOD) Deed?

TOD deeds are legal documents that can be filed in local land records offices, and do not require the notice of the beneficiary, though it’s probably a good idea to give them a heads up. Each state has its own requirements as to what the deed entails. TOD deeds are offered in 27 states (and D.C.).

These deeds are revocable once filed. Beneficiaries have no ownership claim to your property while you’re still alive. You maintain full control of the property, including responsibility for any mortgage debt, taxes, liens and the like. Once you pass away, the property will transfer to your named beneficiary, along with any debts attached to it.

A TOD deed includes much of the same information that can be found on typical real estate deeds, including:

The owner’s name
The property’s address
A detailed description of the property

It will also name the person you want to take possession of your property when you pass away, as well as include a statement indicating that you retain possession until your death.

How Transfer on Death Deeds Work

Inherited real estate property documents

A transfer on death deed is quite simple: you just name the person (or persons) who you want to inherit your property after you pass away. Once this document is signed and filed with your local land records office, it is considered valid until replaced or revoked. In the meantime, nothing else changes: You continue to own your home, make applicable mortgage payments, pay property taxes, make repairs and the like.

You can even sell, refinance, rent out or mortgage the property, if you so choose. The TOD deed does not give your beneficiary any control over or claim to your property while you’re still living.

When you die, ownership of the property will pass automatically and immediately to your beneficiary, along with any mortgage balance, liens or judgments on the property. It does not need to pass through probate, and it is not considered a gift (so gift taxes don’t apply).

In order to claim the property, your beneficiary will likely need to provide a death certificate. Depending on your state, they may also need a sworn affidavit. The requirements of this affidavit will vary from one state to the next, so he or she will need to consider the laws of the state in which the property is located.

Eligibility

Transfer on death deeds are not available in every state. Eligibility also depends on the state where the property is located, not where the owner or beneficiary resides.

Currently, TOD deeds (or similar alternatives) are offered in 27 states and the District of Columbia: Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Illinois, Indiana, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Virginia, Washington, West Virginia, Wisconsin and Wyoming. (In Michigan, a Lady Bird deed offers similar benefits.)

Pros and Cons of a Transfer on Death Deed

Before signing a transfer on death deed, there are a few things to keep in mind.

Pros

You retain ownership while you’re still alive. Your beneficiary only takes over once you pass away; until then, you make all decisions about your property, and can even sell it if you choose. This makes a TOD deed a better choice than, say, adding someone as a joint owner on your property. (In that case, you would need their permission before selling, refinancing, mortgaging or even improving the home.)
It is revocable. If you choose to withdraw or revoke your transfer on death deed, you can do so at any time. You can also replace an existing TOD deed with a new one, if desired.
It’s simple. Establishing a transfer on death deed is easy. It just requires signing the document and filing with your county land records office. You don’t even need to let the beneficiary know you’ve done it.
Anyone can be named you beneficiary. You can use a transfer on death deed to pass property to anyone when you die. This includes family members, friends, other loved ones or even charitable causes.

Cons

Joint ownership takes precedence. If the property is jointly owned with someone else, that ownership supersedes a TOD deed. The property will instead transfer to the other owner if you pass away. Once they also pass away, the TOD deed will go into effect (if still valid).
If your beneficiary dies first, your property goes to probate anyway. If you pass away along with or after your beneficiary, and don’t have a backup beneficiary named, your property will go through probate with the rest of your estate.

The Bottom Line

A TOD deed can be used to transfer real estate property to others after you pass away. Because a TOD deed bypasses probate, it can simplify the inheritance process and reduce costs for your loved ones. While a TOD deed doesn’t fall under the gift tax umbrella, there are still estate tax implications to consider and the property can be subject to inheritance taxes. If you do not already have a trust established, however, and want to avoid your property moving through probate after you pass away, consider whether a TOD deed could be the right choice.

Tips on Estate Planning

You don’t need to “go-it-alone” when it comes to estate planning. A financial advisor can provide valuable insight and guidance as you approach and enter retirement. SmartAsset’s free tool can match you with up to three financial advisors in your area in a matter of minutes. If you’re ready, get started now.
Social Security is an important component of many Americans’ retirement plans, but do you know how much your benefits will be? SmartAsset’s free Social Security calculator can tell you how much you can expect to collect based on your current age, income and planned retirement age.