Pros and Cons of Transfer on Death Deeds

Many of our estate planning clients’ top priority is to keep their estate out of probate. Everyone has been through, or heard about, horror stories involving probates, lawyers, and family fights.

When our clients put their property into a trust, all of that property passes to their beneficiaries without any probate proceedings. However, not all of our clients create trusts. Clients with simpler estates often choose to use will-based planning instead. The good news is that people with wills and simple estates can often keep their estates out of probate too! Your estate planning attorney can talk to you about options to keep different types of property out of probate. This article will focus on one option for real property (land).

A Transfer on Death Deed (TODD), formerly known as a Beneficiary Deed, is like a pay-on-death beneficiary designation for a piece of property. The TODD is recorded at the county office, just like any other deed, and says “upon my death, I give this property to this person.” If all of our assets are accounted for with designations and TODDs, we can avoid probate entirely. This can save our heirs a year or more of time tied up in probate court and thousands of dollars in attorney fees.

Of course, there is always a catch. The downside to a TODD is that, generally, once you pass away and the property transfers to your children, they will not be able to sell it for one year. The reason for this is that title companies will not issue title insurance for a year if there is no probate proceeding because they want to make sure there are no outstanding creditor claims.

If your house is paid off, I typically say it is worth it to avoid probate, even if it means the kids have to keep the house for a year. They might spend a year cleaning all your junk out anyway. On the flip side, if your house has a substantial mortgage, some clients realize that their children cannot afford to be burdened with the mortgage and property tax payments for a year before they can sell it, so they decide not to do a TODD. When a client decides not to do a TODD, they are either letting their estate go through probate, gifting the property to the children while they are still alive (which has negative capital gains tax consequences and should not be done without consulting your attorney), or establishing a trust.

If you would like to discuss TODDs for yourself or someone in your life with a simple estate, call our office at 406-727-2200.