When a person buys a house, a real estate deed is signed and filed in the county registrar which effectively transfers the ownership of the property. When this happens, the person buying the house becomes the owner and the house becomes part of their estate.
When this person dies, the usual process is that the house is distributed to a beneficiary according to the provisions of that person’s will. The will is brought to probate for the court to oversee the distribution of the estate. If the house is owned by a trust in a revocable trust estate plan, then it will be automatically transferred to the trust beneficiaries without the need for probate.
But houses can be transferred upon death without probate even if it’s not part of a revocable trust. This is through the transfer on death deed.
What is a Transfer on Death Deed?
A transfer on death deed is an actual real estate deed that adds a beneficiary designation to a real estate property. It functions the same way that beneficiary designations work in bank accounts and insurance policies that transfer the assets upon the death of the owner. With a transfer on death deed, the house can avoid probate and be automatically transferred to the named beneficiaries.
Important Things to Consider Before Creating a Transfer on Death Deed
It sounds easy enough to draft and file a transfer on death deed. But doing it without the assistance of an estate planning attorney can defeat its purpose. So people should be very careful about what they do in their transfer on death deed.
1. Only one person should be named in the beneficiary designation
Ideally, only one person should be named the beneficiary in a transfer on death deed. This makes the process more seamless because only one person has to sign the deed and it creates a definite beneficiary when it’s time for the ownership of the house to be transferred. Naming a lot of people, such as the spouses and kids, can delay the process and make it difficult to get all the parties to cooperate on the real estate deed.
2. Can the beneficiary pay for the expenses of maintaining the property?
Transfer on death deeds are very good options for straightforward transfers. It helps the house avoid going through the process of probate. But there are also instances when a transfer on death deed is not the ideal option, such as if the beneficiary cannot afford the expenses of maintaining the property. Sometimes, it’s better to sell the property and give the beneficiaries the cash instead.
3. Do you really need a transfer of death deed?
Transfer on death deeds may seem attractive at first, especially because they can help the house avoid probate. But if you really think about it, this type of setup does not allow for a lot of backups. Only one beneficiary should be named on the deed. So in case the single beneficiary doesn’t survive the person creating the deed, it can mess up the whole transfer.
Although transfer on death deeds are practical tools and can be very useful, there are also severe limitations on them that can be potentially destructive. It’s important for people to be careful with transfer on death deeds and consider if they really need or want it in the first place. And if they do, they should do it with the help of an attorney.