Many people that are considering estate planning have heard of the legal process of administering a deceased person’s estate known as probate. A person may have named death beneficiaries on bank accounts, retirement accounts, and investment account to avoid those assets going through probate. However, a probate would still be necessary if a person owns real estate in his or her name. This is very common for the surviving spouse that previously owned property in joint tenancy with a deceased spouse.
What is a Transfer on Death Deed?
In 2008, the Minnesota legislature enacted Minnesota’s transfer on death deed statute. A transfer on death deed, commonly known as a TODD, transfers the title to a person’s home or other real property to their chosen beneficiaries upon the person’s death. The TODD is an instrument of conveyance that must be signed by the person owning the real estate before a notary and recorded with the county recorder or registrar prior to the owner’s death. The TODD does not create an interest in the property until the owner dies. Therefore, the owner has complete control over the property in the same manner as before the TODD was signed and recorded. Additionally, the owner can revoke the TODD or name new beneficiaries through a new TODD as desired. Upon the owner’s death, the beneficiary records an affidavit with a death certificate to pass title to the property.
When to properly use a Transfer on Death Deed
Transfer on death deeds are advantageous to avoid probate and to keep it simple. Transfer on death deeds allow a person to transfer title to real estate to their heirs (children, grandchildren, etc.) without the necessity of probate in one simple instrument. A TODD is very effective as an estate planning tool to avoid probate and keep in simple in the right circumstances. The ideal situation to use a TODD is where a person owns real property and wishes the property to pass to his or her only adult child, or two (2) adult children that are financially stable and get along well enough to work together to list the property, sell the property, and divide the proceeds accordingly.
When to avoid a Transfer on Death Deed
A TODD is not recommended for all situations and can create huge family disputes when used in the wrong situation. As I have told countless clients, “cash divides nicely, but brick and mortar does not.” I highly recommend against the use of a TODD when three (3) or more family members are set to receive the property. The cost of a simple probate is much less expensive both financially and emotionally than a family dispute regarding real property.
Additionally, I caution the use of a TODD in the following situations:
• Owner wants property to pass to minor children;
• Owner wants property to pass to more than one child, when one lives in the property;
• There is a large mortgage or other hefty expenses to maintain the property and not much liquid assets;
• Owner wants property to pass to adult children or step-children that do not get along well;
• Owner has a large enough estate requiring payment of estate tax; or
• Owner is at substantial risk for incurring substantial long term care and needs medical assistance planning.
In sum, a TODD can be a very effective estate planning tool to avoid probate and keep in simple in the right circumstances. However, good advice is necessary to caution against using a TODD in the wrong circumstances. Please contact a Minnesota estate planning attorney to determine if a TODD is right for your estate planning needs.