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How to Create a Transfer on Death Deed for Your Home
[Prefer to listen? You can find a podcast version of this article here: E168: How to Create a Transfer on Death Deed for Your Home]
As I’ve mentioned before in previous thoughts about estate planning, I believe that estate planning is an act of love. Putting a plan together to take care of your family and reduce the administrative burden on them when you pass is a loving and considerate way to show you care. It’s not always fun to think about, but it is extremely important.
There are often many steps and moving parts when putting an estate plan together. The process can involve creating documents, titling accounts, and designating beneficiaries.
Beneficiary designation is one of the most important and essential parts of an estate plan. When we think of beneficiaries, we often think of setting them up on IRAs and other accounts. But beneficiaries can be defined for other assets, as well.
One such example is the use of a Transfer on Death Deed, which can be used to designate a beneficiary for your house.
Since the home is often one of the most valuable assets a person can own, this is a pretty significant part of a person’s estate. But most people don’t have any specific transfer instructions set up for their home when they pass which means it goes through probate.
So what is the advantage of setting up a Transfer on Death Deed for your house and how does it work?
What is a Transfer on Death Deed?
A Transfer on Death Deed (or “TODD”) is a short legal document that defines who the house passes to once the current owner dies (or current owners if it’s jointly held).
If a house is owned by an individual, the TODD would define who the new owner is after the current owner passes. If the house is jointly owned, the TODD would go into effect after the last surviving owner on the title passes.
Not every state recognizes a Transfer on Death Deed. As of this publish date, 30 states allow the use of a TODD. If you plan to make use of this document, be sure to verify that it is a valid document in your state.
What Are the Benefits of a Transfer on Death Deed?
The primary benefit of a Transfer on Death Deed is to avoid probate. Probate is the court-supervised, legal process of settling the estate of a deceased person. A last will and testament is useful in dictating the wishes of the deceased but assets in the will still go through probate.
Assets (like your home) that go through probate are subject to the time and expense that comes with it.
Probate can take anywhere from a few months to over a year, depending on the state of the decedent and the details of the estate.
There is also a cost to probate. Probate fees can often be between 4% and 7% of the value of the estate or more depending on the situation.
With these factors in mind, it can be helpful to try to avoid probate as much as possible. In fact, many attorneys encourage people to try to “keep as much out of the will as possible” in order to save time and money for the family.
So how do you keep assets out of probate? By properly naming beneficiaries – and in the case of your home, a beneficiary designated by a Transfer on Death Deed.
Without a TODD, the house goes through probate which means a delay in the asset being passed to the proper recipient and the cost subtracted from the estate.
But with a TODD, the house passes immediately to the beneficiary. The only paperwork involved is notifying the county recorder’s office with a death certificate or an affidavit confirming the death of the deceased person.
As you might imagine, this is much more convenient for the beneficiaries and is the primary benefit of using this document.
A Transfer on Death Deed can also be used to pass the house to a trust upon the death of the owner(s). This can be especially useful if minor children are involved who can’t legally own property.
How to Create a Transfer on Death Deed
So how do you actually set up and execute a TODD? It’s not necessarily difficult, but it does involve some legwork.
The first step is to create the document. It’s never a bad idea to consult an attorney if you feel more comfortable going that route. An attorney licensed in your state will be able to give you the best guidance for this type of legal document.
If you feel comfortable, you can also do it yourself. There are many online templates that you can use as well as online legal services that can help you create the TODD. One example is RocketLawyer, which has a Transfer on Death Deed template you can use (no affiliation or endorsement implied).
When filling out the TODD, the key points to complete include the following:
- The owner(s) on the title – also called the “grantor(s)” (presumably you if you are filling it out)
- The legal description of the property
- The beneficiary (or beneficiaries) named on the TODD – also called the “grantee(s)
The legal description of the property can be found on your current title. It’s usually a sentence describing the lot, plat, and other basic details of your property.
It will also ask you where tax statements are to be mailed, which would typically be the person filling out the form – the current owner(s) of the property.
Once the document is created, it needs to be notarized in most states. This can be done by taking the TODD to your local bank if you’re a customer, other outlets like a UPS store, or you can use an online notary service.
Once the document is notarized, you need to take it to your county recorder’s office. Let them know that you want to file a Transfer on Death Deed for your home and they will help you with the process (there is generally a small fee). It usually takes 15-20 minutes for the actual processing depending on how busy they are that day.
Once the process is complete, they will give you an updated TODD that is stamped and confirmed. They will mail you another “official” version as well.
Once you have the document complete, you will want to store it along with your other estate documents such as your will and/or trust. Also, be sure to give a scanned copy to the beneficiary or beneficiaries named in the TODD.
You now have a finished Transfer on Death Deed for your house which will bypass probate and cause it to pass directly to your beneficiaries upon your death.
Is a Transfer on Death Deed Right for You?
A TODD is a useful legal instrument that is a good choice for many. If you’re wondering if it’s right for you, a few reasons to consider it include:
- You want your home to pass immediately to your heirs without long delays.
- You want to remove the value of your home from your probate estate so that expenses are lower.
- You want to pass your home to a trust upon your death, possibly to benefit heirs who are minor children.
- You want to be very specific about who gets your home and reduce the chances of your wishes being misinterpreted or contested.
- You want to bypass probate without the expense and maintenance of a trust.
Every situation is different, but a Transfer on Death Deed can be a valuable estate planning tool under the right conditions.