Legacy Assurance Plan: Transfer on Death Deeds Can Be Helpful Parts of an Estate Plan, But Sometimes They Can Backfire

Summary: There are many different types of techniques and tools you can utilize when you create your estate plan. Each comes with its own set of positives and negatives. Transfer on death deeds can be helpful devices but, in some situations, they can have severe drawbacks, as well. For some people looking to create an estate plan, there may be better ways to accomplishing their desired goals while minimizing or avoiding the risks that can be involved with transfer on death deeds.

State statutes authorizing the recognition of transfer on death (TOD) deeds are becoming increasingly common in recent years. Missouri was the first pass such a law in 1989 and, even just a decade ago, the number of states with TOD deed statutes was a small minority. Today, more than half of all states have TOD deed statutes, with California having enacted one in 2016.

Some people might see a TOD deed as a “magic” solution for avoiding probate when it comes to one’s real estate which, for many folks, can be the bulk of their over wealth. TOD deeds generally are short, simple and easy to execute. Properly created, executed and maintained, they will succeed in avoiding probate.

What’s not to love, right?

Well, like with almost any estate planning option (or legal option in general,) there are plusses and minuses. In addition to the positives mentioned above, there are negatives that can sneak up on the unwary user. For example, there are ways that your TOD deed can fail to accomplish what you want. For example, if you outlive the beneficiary (or beneficiaries) you name on your TOD deed the, when you die, that property goes into your personal estate and must be distributed by means of probate administration. If one of your goals for your TOD deed was to avoid probate then, in that scenario, your objectives would not have been realized.

In addition to probate, there are other circumstances where the courts might have to become involved, even if that was not your desire. If you name as a beneficiary someone who’s still under the age of 18 when you die, then a court proceeding to appoint a guardian and/or conservator for that child is likely going to be necessary.

Finally, what happens if you become mentally incapacitated? It is possible that, in this situation, the ability to makes changes to the deed may be lost because you lack the capacity to do so yourself and no one else has the legal authority because you are still alive.

One method that may avoid these potential pitfalls while still giving you the ability to avoid probate is a revocable living trust. While, technically, a trust can fail to avoid probate if the grantor outlives all of the beneficiaries, this is much less common than in a deed scenario, as most people approach living trusts and wills differently from death beneficiary designations (like TOD deeds) and create a much larger group of beneficiaries and alternate beneficiaries. If you have a beneficiary who is underage, your trust can simply instruct your trustee to continue managing that child’s assets until such time as you want that wealth distributed to that beneficiary. Finally, if you become mentally incapacitated, your trust will continue to function just as fully and vibrantly as it did before. The management of your trust simply transitions from being handled by you to being handled the successor trustee you personally named when you set up your estate plan.

For some people, TOD deeds can be useful parts of an estate plan. For others, then may offer more risk than benefit, as they are not without their potential pitfalls. An experienced estate planning attorney can help you determine what components should be used to comprise your optimal estate plan that will best achieve your goals.

This article is published by the Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services-company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at www.legacyassuranceplan.com.