Transfer-On-Death Deeds: Give Security While Minimizing Your Own Risk

Money and property issues can get tangled up with romantic ones very quickly, especially if you own your home. What do you do if you'd like your romantic partner to move in with you, but he or she is concerned about a secure future? You may not feel entirely ready to sign over the rights to half of your property, but you also don't want your partner put out in the cold by your relatives if you suddenly die. Consider using a transfer-on-death (TOD) deed as a creative solution to the problem.

A TOD Deed Can Create Security For Someone Else, While Minimizing Risk To You.

A TOD deed is a simple way to transfer ownership of your home to someone after you die, without giving that person any rights to the property while you are alive. The beneficiary only gains an interest in the property once you die, and it's entirely revocable any time that you see fit.

It also removes your home from the rest of your estate, effectively keeping it out of the probate process. This also helps cut down on the costs associated with probate, and lets you reduce the amount of taxes and fees that come out of your estate.

There Are Numerous Advantages To A TOD Deed.

There are other advantages to a TOD deed, as well. These include: 

  • It is effective immediately upon your death. Even if other money or property is tied up in the court for some reason (such as a legal dispute among heirs), the TOD deed is automatic.
  • Your heir's lack of legal interest in the property also means that his or her creditors cannot try to put a lien on the property until after the deed has transferred.
  • Your house would not be considered an asset to your beneficiary while you are alive. It couldn't be considered an asset for a lawsuit against your heir, nor used as collateral by your heir for a loan.
  • Your designated heir cannot challenge your right to sell the property or take out a loan on it, if you so desire. 
  • You don't have to tell anyone about the TOD deed (although it does have to be properly recorded with your county in order to be valid). This can keep the information from being the source of family drama. 

There Are Very Few Drawbacks To A TOD Deed.

In comparison, the drawbacks of using a TOD deed are slight. These include: 

  • Your heir might not be able to sell the property right away after you die. Some states impose a waiting period, in order to give anyone who wants to file a claim against the property the opportunity to do so. 
  • Property owners sometimes forget to designate contingent beneficiaries when executing TOD deeds. While this only matters if the original beneficiary doesn't outlive you, it can end up being problematic for subsequent heirs.
  • A disgruntled relative could allege that you weren't in your sound mind when you made out the TOD deed, or that your partner exerted "undue influence" over you in some way. However, this sort of challenge could happen with anything that you leave to someone, so it's not a danger that's specific to a TOD deed.
  • Your creditors could still seek to take possession of your home while you are alive, which could leave your intended heir without much recourse. That's most likely to become a problem if you end up in long-term care, such as a nursing home. In that situation, your home would most likely have to be sold, rather than pass to your intended partner.
  • Your beneficiary also inherits any debts that are included with the property, including mortgages, liens, and taxes. If you intend the gift to be free-and-clear of debt, you need to include provisions in your will or other estate plans so that your heir has the means to pay off those debts. 

If you're considering giving someone a legal interest in your home or other real estate (due to a romantic relationship or any other reason), contact an attorney to discuss the situation. Not every state allows TOD deeds, so it may not be feasible in your situation. In addition, having an attorney involved minimizes the risk that something will be improperly prepared, incorrectly recorded, or easily challenged by those who may not approve of your decision.