What is a Transfer on Death Deed?
If you own real estate, at some point you’ll have to decide what happens to that property once you pass away. If you intend on transferring that property to a loved one, it’s important to understand what a transfer on death deed is and how it can help smoothly transition ownership.
A transfer on death deed is a legal document meant to help transfer real estate from one individual (the transferor) to another (the beneficiary) upon the death of the transferor. Transfer upon death (TOD) deeds are intended to keep that property out of probate, making the process much more streamline (and cheaper) for your loved ones.
How Transfer on Death Deeds Work
Transfer on Death Deeds allow real estate owners to designate one or more beneficiaries to transfer ownership of that property to upon their (the initial owner’s) death. A beneficiary can be a person or an entity/organization you want the property to go to. For example, you can leave a large piece of property to a local charity or your Alma Mater to use at that organization’s discretion. When creating a TOD deed you can name one beneficiary or several individuals to own the property jointly. Just like with any other account or gift, it's a good idea to name a secondary beneficary in case the first doesn't survive you.
In most states, married couples own property jointly, meaning that if one spouse dies before the other, the surviving spouse maintains rights of survivorship. If the deceased spouse created a TOD deed during their lifetime, that property will not be transferred to the beneficiary until the surviving spouse dies (assuming that the surviving spouse does not revoke the TOD, which they would be within their rights to do).
Transfer of death deeds trump wills. If you create a TOD deed that grants property to one individual but later bequeath that property in your will to someone else, the TOD deed will take precedence.
Chapter 64.80 of the Revised Code of Washington helps give a holistic view on what goes in to a valid transfer on death deed.
Benefits of Creating a TOD Deed
There are several advantages to opting for a transfer on death deed versus a will.
One of the biggest of these advantages is avoiding probate. If you leave property in a will to an heir or beneficiary, that property must still go through probate court, which can take years depending on the size of your estate. Transfer on death deeds help to streamline the process.
Taxes are another thing that TOD deeds can help streamline. Beneficiaries of real estate through a transfer on death deed won’t have to pay any gift tax, since receiving property as a beneficiary isn’t an immediate transfer.
Transfer on death deeds also allow for joint ownership which further helps to avoid probate.
Where TOD Deeds are Honored
Washington is one of 31 states (including the District of Columbia) that honor transfer on death deeds (or honor other documents that accomplish a similar goal).
States/districts that honor TOD Deeds:
- District of Columbia
- Michigan (Lady Bird deed)
- New Mexico
- North Dakota
- Ohio (TOD affidavit)
- South Dakota
- West Virginia
Indiviuals who live in a state not listed here may still be able to avoid probate by creating a trust.
You will want to talk to an estate planning attorney to create your transfer on death deed.