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Using Transfer-on-Death Deeds to Avoid Probate
When it comes to planning your estate, you naturally want to make things as easy as possible for your beneficiaries. The last thing you want is for your property to get hung up in probate while your loved ones wait to receive their inheritance. When you Will your property to your beneficiaries, though, this is exactly what happens… Luckily, there are ways to avoid this time-consuming and sometimes cumbersome process. These are called Will Alternatives – these are anything that have payable on death beneficiaries and include, among other things, Transfer-On-Death Deeds (TODDs), which is a statutory deed for the transfer of your real property without the need for probate. However, it is important to understand that there are pros and cons with using these and you should consult with an estate planning attorney to understand whether such Will Alternatives will be effective and integrate your estate plan.
What are the pros and cons of TODDs?
TODDs allow you to retain complete ownership and control over the property until you die, with your beneficiary having no entitlement to the property before you pass. This means that you will still be responsible for paying taxes on the property and you retain the right to sell your property, mortgage it, or otherwise do anything with it that you would normally have the right to do. Upon your death, it will automatically entitle your beneficiary to the property without the need for probate. And, one feature that a TODD has that other similar to it like a Lady Bird Deed do not have, is that if your named beneficiary predeceases you, you are able to provide how you want the property to be passed in that circumstance, e.g. to that beneficiary’s descendants per stirpes. In addition to the foregoing, TODDs are revocable so If you change your mind about your intended beneficiary or your estate plan changes where a TODD is no longer appropriate, you can always change it by recording a revocation or by recording a new TODD.
The TODD is a truly flexible option; however, it does have several cons. First, because the TODD is a Will Alternative, it will automatically override any previous arrangement you’ve made with respect to the disposition of your real property, e.g. it will trump your Will. Additionally, it will not warrant title. This means that although title may pass to your beneficiary, that beneficiary may run into a title company not being willing to simply issue a title policy and may make the beneficiary jump through other hoops. And, the biggest con of a TODD is that the statute that governs it clearly states that it has a claw-back provision regarding probate. What this means is that if it turns out that probate is required for some other reason and there are insufficient funds in the probate estate to cover claims filed against it, the statute provides the executor/administrator of your estate to pull the property out of the TODD and bring it into the probate estate to satisfy those outstanding claims.
In addition, if a TODD is not completed accurately with respect to the legal description (which does not come from your tax notice or appraisal), names, beneficiary transfer information, etc., the TODD will likely fail and your loved ones will be faced with probate anyway.
Contact The Law Firm of Blanche D. Smith
While TODDs can be an important tool in your estate plan, whether or not it will be an effective vehicle in your plan will depend upon an analysis of your particular assets and liabilities, as well as how your plan will likely play out in the long term. To learn more about using transfer on death deeds to avoid probate—or for any other questions you might have about estate planning—please feel free to reach out to The Law Firm of Blanche D. Smith by calling us at (936) 301-0111 or by filling out the contact form below.