Most people are familiar with deeds.
Though they come in many different varieties, deeds convey (transfer) interests in real estate.
A deed can be used to transfer all of someone’s ownership of a property, such as when you buy a house; or it can be used to convey a more limited interest, such as a life estate.
Whatever the case, a conveyance is usually effective as soon as a deed is signed.
A transfer-on-death deed (or “TOD Deed”) is different in that regard.
Oklahoma (and about half of the other states) allow a special type of deed, called a transfer-on-death deed, which is signed during the grantor’s lifetime but only becomes effective after his death.
What are the benefits of a TOD Deed?
The main benefit of a transfer-on-death deed is that the conveyance can avoid probate.
Let's say Joe wants to leave his house to his son, Dan. If Joe provides in his Will that the house should go to Dan, the Will must still go through probate before Dan can get the house.
Related post: What Is The Difference Between a Will And a Trust?
But if Joe signs a transfer-on-death deed, all Dan will need to do is file an affidavit (and a death certificate) with the county clerk to obtain title to the house.
Many people do not wait until death to transfer real estate. For example, you might have heard people talk about signing a deed during their lifetimes to transfer their house to their children.
However, this can lead to unexpected — and expensive — consequences.
By deeding real estate during your lifetime rather than letting your children inherit it after your death, you are preventing them from taking advantage of a tax “loophole” called stepped-up basis.
Does a TOD Deed have any shortcomings?
Transfer-on-death deeds can lead to several potential problems.
First, if the beneficiary named on the transfer-on-death deed dies before you, then the real estate could be subject to probate.
Related post: 5 Ways To Avoid Probate
Second, a transfer-on-death deed doesn't provide a plan in the event of your incapacity. Without someone to manage your property, a guardianship may ultimately be necessary in the event you lacked capacity to transfer or encumber the real estate during your lifetime.
Third, it does not allow you to limit the flow of property to beneficiaries who may be too immature or irresponsible to manage their assets.
In short, a TOD deed does not offer the same scope and flexibility as other estate planning documents such as a Last Will and Testament or a Living Trust.
See if a Transfer-on-Death Deed is Right for You
Although a transfer-on-death deed has its limitations, it can still be a great way to help your real estate from having to pass through probate. And some estate planning is better than none.
To learn more about transfer-on-death deeds, or to discuss what documents you should consider adding to your estate plan, contact the Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation appointment.
David M. Postic is an attorney at Postic & Bates, P.C. His practice focuses on estate planning, probate, real estate, trust administration, business planning, and adoption.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our blog posts and other publications and resources, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]
