If you own property you have to think about how you’re going to pass that property on after you pass away. Some people use living trusts to do that. I for one think it’s often the way to go. But I’ll admit that I’m not a lawyer and I also admit that this is not the only option.
A relatively new idea (available in many but not all) is using the transfer on death (TOD) title. If you own real estate this way, it will be re-titled to your beneficiary when you die. And the best part is, this re-assignment happens without going through probate.
What is TOD?
Transfer on Death is super simple. The title tells it all – it transfers property when the current title holder dies. That’s it. Up until now, it’s been a great mechanism to re-title financial assets like bank and brokerage accounts and it’s especially useful to people who would otherwise put assets in their own name (almost always a rotten idea). But recently many states have introduced the TOD as way to hold and move real estate too.
How It Works
To put a TOD in effect for your property all you have to do is re-title it and record the new title. That typically won’t trigger any tax levy because you aren’t selling or disposing of the asset. You should be able to get this done for under $100 in recording fees. Chump change.
Then, once you die, the beneficiary produces the death certificate and gets the real estate re-titled in their own name. Talk about rest in peace – nothing to worry about here friend.
And it gets better. You can change the beneficiary anytime you like (before you die). All you have to do is set up a new TOD title and record it. Once you do that, the old registration (and beneficiary) are removed from title.
And in case you have a concern, while you are alive, the beneficiary has no claim or control over the property. They are just next in line…that’s it.
The Real Benefit
If done right, the TOD designation should help your family avoid probate and that’s the main goal of estate planning. In effect, the TOD replaces your trust for the disposition of this particular asset. You just have to be sure what the laws are in your state and that you comply with those laws.
What You Should Do
As I said, some states recognize the TOD classification and others do not. If I was going to use a TOD for real estate, I’d first speak with an estate planning attorney to make sure what the particular rules are and to be sure it was the best option.
In my opinion, if you have limited assets and don’t need a trust for other reasons, the TOD (and a strong Health Powers Directive) may be all the estate planning you need. In some cases, you might have a trust and still use the TOD if you want a particular asset to flow to your beneficiary outside the trust. Again, before doing anything, speak to a qualified estate planning attorney.
Does this TOD idea ring your bell? If so, why? What potential problems might it solve for you?