Transfer on Death Deed (TODD), also known as a beneficiary deed, is a legal instrument that allows an individual to transfer ownership of real property to designated beneficiaries upon their death, without the need for probate. Like any legal tool, TODD comes with its own set of advantages and disadvantages that individuals should carefully consider before deciding whether it’s the right option for their estate planning needs.
Pros Of Transfer On Death Deeds
- Avoidance of Probate: One of the most significant benefits of a TODD is that it allows real property to pass directly to designated beneficiaries outside of the probate process. This can save time and money since probate proceedings can be lengthy, costly, and subject to public scrutiny. By avoiding probate, beneficiaries can gain quicker access to the property, which can be especially advantageous in cases where immediate action is needed.
- Privacy: Unlike probate, which is a public process, a TODD allows the transfer of real property to occur privately. This means that the details of the transfer, including the identities of the beneficiaries and the value of the property, remain confidential. For individuals who value their privacy or wish to keep their estate affairs discreet, a TODD can be an appealing option.
- Flexibility: TODDs offer flexibility in estate planning since they can be revoked or amended at any time during the grantor’s lifetime. This flexibility allows individuals to adapt their estate plans to changing circumstances, such as changes in family dynamics, financial situations, or estate planning goals. Additionally, the grantor retains full control and ownership of the property during their lifetime, including the ability to sell or mortgage it without the consent of the beneficiaries.
- Protection from Creditors: In many states, real property transferred through a TODD is shielded from the claims of creditors of the deceased grantor. This means that the property is not subject to estate debts or liabilities, which can help preserve the inheritance for the designated beneficiaries. However, it’s essential to note that creditor protection laws vary by state, so individuals should consult with a legal professional to understand the extent of protection available in their jurisdiction.
Cons Of Transfer On Death Deeds
- Limited Applicability: TODDs are not suitable for all types of property or estate planning scenarios. For example, certain assets, such as joint tenancy property or property held in a trust, may not be eligible for transfer via TODD. Additionally, TODDs are typically only available for real property, such as land or residential homes, and cannot be used to transfer other types of assets, such as bank accounts or investment accounts.
- Potential Disputes: Although TODDs bypass the probate process, they are not immune to disputes or challenges from disgruntled heirs or other interested parties. Common issues that may arise include allegations of undue influence, incapacity of the grantor, or errors in the execution of the deed. While such disputes can often be resolved through legal means, they have the potential to delay the distribution of assets and incur additional legal expenses.
- Inflexibility: While TODDs offer flexibility during the grantor’s lifetime, they become irrevocable upon the grantor’s death. Once executed, the terms of the TODD cannot be changed, amended, or revoked by the grantor or beneficiaries. This lack of flexibility means that individuals must carefully consider their estate planning goals and ensure that the terms of the TODD align with their intentions for the distribution of their property.
- Potential Tax Implications: Depending on the value of the transferred property and applicable tax laws, there may be tax implications associated with a TODD. For example, beneficiaries who inherit real property through a TODD may be subject to capital gains taxes if they later sell the property at a profit. Additionally, estate tax laws vary by jurisdiction, and individuals should consult with a tax advisor to understand the potential tax consequences of a TODD in their specific circumstances.
A Transfer on Death Deed offers several advantages, including the avoidance of probate, privacy, flexibility, and protection from creditors. However, it’s essential to weigh these benefits against the potential drawbacks, such as limited applicability, potential disputes, inflexibility, and tax implications. Individuals considering a TODD as part of their estate plan should carefully evaluate their estate planning goals, consult with legal and financial professionals, and ensure that the TODD aligns with their overall estate planning strategy.
Thank you to our friends, the estate planning lawyers at Brandy Austin Law Firm, for the above blog.