If you're lucky enough to own your primary residence in one of the 30 states that offer TOD (Transfer on Death) Deeds (also called "beneficiary deeds" in some states), it's a great way to transfer your house at death and avoid probate without needing a living trust. 

A Transfer On Death Deed (TODD) takes effect upon your death.

You register the deed now with the county recorder's office to specify a beneficiary for a piece of real estate at the moment of your death. Your beneficiary can then claim their ownership by going to the county records office and presenting a valid death certificate. (In some states like California, there may be a few additional steps that must be completed, but it is far simpler than the probate process.  And can be done without the need of a lawyer.)

Transfer on death deeds can be revoked at any time and are automatically revoked if you sell the property (because you will no longer own any right to that property at your death if you sell it).

The states that have pay-on-death deeds have a statute that generally specifies an approved statutory form with limited flexibility.

However, if this form fits your situation, it offers a low-cost way to avoid probate without the hassle of setting up a living trust and transferring property to the trust. 

Which one wins if you have a will and a transfer and death deed?

Transfer on death deed will prevail over a designation in a will because the transfer on death deed takes effect immediately upon death, and at that moment, the will no longer has any power over that property. It is not part of the estate, which is how it avoids probate.

If you have a transfer on death deed and living trust, which one wins?

This is kind of a trick question because if you have a living trust and have set it up properly, that means you have transferred ownership of the property to the trust. if you have properly set up a living trust, your deed should say something like it's owned by the John Doe Revocable Living Trust, (of which John Doe is the trustee and beneficiary). 

The trust doesn't die, so there can't be a transfer-on-death designation for property owned by a trust. What happens in a trust is that a successor trustee takes over as trustee of the trust and becomes the new beneficiary of the trust upon the original trustee's death. But through all of that time, the trust owns the property. And that ownership does not change. Just the trustee and the beneficiary change. Once that happens, the successor trustee can dissolve the trust and take direct ownership as beneficiary. And that is how a trust transfers ownership and avoids probate. 

Why would I make a living trust if I can make a transfer on death deed?

Living trusts offer flexibility that a statutory TOD can't offer. Living trusts can have clauses that say, the successor trustee takes over in cases of incapacity.

There are legal documents you can set up to appoint someone to handle your financial affairs in case you lack the capacity to do so, without setting up a living trust. But people often use living trust to handle this contingency.

But if you are considering using a living trust just to avoid probate and your situation is simple, a transfer-on-death deed may fit the bill just fine.

Limitations on Transfer on Death Deeds

There are often limitations Transfer on Death Deeds because they are based on a standardized statutory form. So you may face limits on the number of beneficiaries you can name or whether you can name alternate beneficiaries.

In California for example, you can't name alternate beneficiaries in case the beneficiary predeceases you. The best you can do is name joint beneficiaries, and the survivors will take the share of any beneficiary who predeceases you.

For example, if you had three children and wanted each child to keep their share, even if they predeceased you and have it go to their offspring, you could do that in a living trust. But in many states, all you can do in a transfer on death deed is name all three children as joint beneficiaries who will own the property equally, and each gets a larger share if one of the children predecease dies. (However, with a TODD you could simply create a new TODD if one of your children predeceased you, and designate who gets their share in the new deed.)

In the living trust, you could set it up more complicated to say if one of the children died, then their children would get their share rather than sharing it between the siblings.

On the other hand, if you just have a simple situation where you are a single parent, and want to leave your property to a single child, a transferred death deed can be an ideal and easy way to avoid probate at little cost.

Tools for Making a TODD Yourself

States That Allow Transfer on Death Deeds (as of 2022):

  1. Alaska
  2. Arizona
  3. Arkansas
  4. California
  5. Colorado
  6. District of Columbia
  7. Hawaii
  8. Illinois
  9. Indiana
  10. Kansas
  11. Maine
  12. Minnesota
  13. Mississippi
  14. Missouri
  15. Montana
  16. Nebraska
  17. Nevada
  18. New Mexico
  19. North Dakota
  20. Ohio
  21. Oklahoma
  22. Oregon
  23. South Dakota
  24. Texas
  25. Utah
  26. Virginia
  27. Washington
  28. West Virginia
  29. Wisconsin
  30. Wyoming

Some other states might have similar mechanisms but under different names or procedures. It's always wise to consult local legislation or a local attorney to understand the current rules in a particular state.

Ladybird Deeds

A Lady Bird deed, often referred to as an "enhanced life estate deed," is a legal document that changes the rights to real estate property ownership. It allows the owner (grantor) to retain complete control over the property during their lifetime, including the ability to sell, lease, or mortgage the property without the beneficiary's consent. Upon the grantor's death, the property automatically transfers to the beneficiary without having to go through probate.

Key features of a Lady Bird deed:

  1. Control: The grantor maintains full control over the property during their lifetime.
  2. Avoidance of Probate: Upon the grantor's death, the property transfers directly to the beneficiary without the need for probate.
  3. Flexibility: The grantor can change the beneficiary or sell the property without the beneficiary's consent.
  4. Tax Benefits: In many cases, because the transfer is only effective upon death, the grantor doesn't incur gift tax, and the beneficiary can benefit from the "step-up" in basis, which can reduce capital gains taxes if they later sell the property.

States That Allow Lady Bird Deeds (as of 2022): While the use and formal recognition of Lady Bird deeds vary by state, they are most commonly associated with and used in:

  1. Florida
  2. Texas
  3. Michigan

Other states may have similar mechanisms or might recognize the concept, but the specific rules, nomenclature, and characteristics might differ.


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