By Jeffrey R. Wolfe, Senior Vice President and Manager, Wealth Planning Strategies
Many people are aware of the concept of a Transfer on Death (TOD) designation with a financial asset. This contractual arrangement between you and the entity holding the assets—like an investment account, for example—allows the entity to distribute the accounts directly to the named beneficiaries upon the account owner’s death, as directed by the account owner, without having to go through the probate process. It’s a common planning technique available with a multitude of entities.
Over the past several years, many states have allowed the TOD concept to be applied to real estate. About half of the states now allow for some process to file a deed with your local recorder of deeds office, often called a Transfer on Death Deed or sometimes a Beneficiary Deed. This deed allows the landowner to stipulate that upon the landowner’s death, the real estate will pass to the beneficiaries named in the deed. This process is also designed to avoid probate.
Filing such a deed does not change your current ownership or responsibilities. You would still own the home, owe any mortgage obligations and taxes, and be responsible for the maintenance and upkeep of the property. The deed is simply there as a contingency to transfer the property upon your death.
It’s important to note that these deeds are revocable, but typically you would need to file a new deed revoking any previous designation. Moreover, each state that allows such transfers will have specific filing requirements to both establish the TOD/Beneficiary Deed and to process the new ownership after the grantor of the deed has died. Usually, if there are taxes or mortgages associated with the property, those obligations also pass to the new owner.
While TOD/Beneficiary Deed planning may not be for everyone, or allowable in every state, it is an asset transfer technique that may fit your personal legacy goals. Consider working with your legal advisor to determine whether a TOD/Beneficiary deed may be right for you.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.