Using a Transfer on Death Deed

10/27/2008

By Jennifer A. O’Neill and John M. Giblin

PROBATE vs. NON-PROBATE. “I need a will” is a phrase attorneys and financial advisors hear frequently from clients. It is common belief that a will somehow puts everything in order upon a death. For many clients, a will can and does facilitate an orderly distribution of assets after death. But, as the nature of assets and ownership interests have changed, the legal methods of distributing assets has changed too. More and more, clients who think they “need a will” may achieve a better result with more modern non-probate transfers.

To understand why a will may not be the way to go anymore, a little background is necessary.
Historically the probate process has been the most common method of transferring assets upon death. Probate is a court process during which the judge gives a personal representative, often called an executor, the authority to manage and distribute the assets of the deceased. During the probate process, the personal representative pays the debts of the deceased individual and distributes the remaining assets to heirs or beneficiaries. Once the debts are paid and the assets are distributed, the probate administration is complete, the personal representative’s authority is ended, and the court file is closed.

A modern probate administration generally takes one year for completion and costs several thousand dollars in attorneys fees and other administrative expenses. A common misconception is that having a will requires probate, or conversely, the lack of a will requires probate. Actually, the nature of each asset determines how that asset will be distributed upon death. There are several methods to convey assets without probate, including joint ownership with rights of survivorship, beneficiary designations, and administration through a trust. As the probate process becomes more complex and expensive, many individuals desire more efficient, affordable and private non-probate transfers. The Transfer on Death Deed is one tool that can be used to accomplish non-probate transfers.

MINNESOTA’S NEW TRANSFER ON DEATH DEED. On May 18, 2008, Governor Tim Pawlenty signed a bill allowing the use of a Transfer on Death Deed (“TODD”) in Minnesota. Created by Minnesota Statutes §507.071, a TODD is “a deed that conveys or assigns an interest in real property, including a mortgage, judgment, or any other lien on real property, to a grantee beneficiary and that expressly states that the deed is only effective on the death of one or more of the grantor owners.”

A TODD, when signed and properly filed in the County Recorder’s office where the real estate is located, will avoid the necessity of a probate proceeding to pass title of the real property described in the TODD. As a result, the TODD can save time and money transferring real estate to desired beneficiaries.

The TODD is a deed which does not become effective until the Owner/Grantor dies. On the death of the Owner/Grantor, the real estate described in the TODD transfers to the person or persons who are listed as recipients (Grantees) in the TODD. Essentially, the TODD is similar to the Payable on Death (POD) designation for a bank account. The only document necessary to transfer the real property described in the TODD after the Grantor’s death is an affidavit affirming Grantor’s death and a certified copy of the Grantor’s death certificate.

Preparation of a Transfer On Death Deed is very similar to a warranty deed or quit claim deed in that the document includes the name of the current owner as Grantor and the intended recipient as the Grantee. The full and accurate legal description is required. Although a TODD is recorded with the appropriate county recorder where the real estate is located, it is important to understand that the TODD does not transfer any interest in the real estate until the death of the Grantor, or Grantors as the case may be, at which time the deed becomes effective.

For the remainder of the Grantor’s life, he or she continues to own the full property interest and retains all management and decision-making powers. The Grantor can sell, mortgage, or otherwise convey the property interest without the consent of the Grantee. If the Grantor wants to change the Grantee, the law allows for revocation of the TODD, or execution and recording of a new TODD naming a new Grantee.

To be effective, a TODD must be filed in the real estate recording office in the county where the real property is located before the Grantor’s death.

WISCONSIN TRANSFER ON DEATH DEED. Transfer On Death Deeds (“TODDs”), have been available in Wisconsin since 2005. They have proven to be a simple, inexpensive and effective tool to transfer a real property interest at the death of the owner, and have become very popular with attorneys, property owners and beneficiaries alike. The requirements for a TODD in Wisconsin are similar to those in Minnesota. A TODD is executed by the property owner and the death beneficiaries are named. An accurate legal description and tax parcel ID number are included. The original document must be recorded in the office of the register of deeds in the county where the property is located. Because the TODD does not immediately transfer title to the real property, no Wisconsin transfer tax return is required, nor is payment of a transfer tax. After the death of the Owner/Grantor, the TODD beneficiaries must record an HT-110, Termination of Decedent’s Property Interest, along with a copy of the death certificate and the most recent tax statement. The beneficiaries receive title to the property and a step up in basis to the fair market value of the real property as of the date of death.

For some people the TODD may be the most effective way to pass real estate to desired beneficiaries. However, careful consideration should be given to determine if the TODD is appropriate for your particular circumstances. There are many ways to transfer real property and many considerations to evaluate. Lommen Abdo attorneys would be happy to assist you in determining if the TODD is right for your particular circumstances. For a no obligation evaluation, contact John Giblin (in Minnesota) at 612-336-9336 or johng@lommen.com or Jennifer O’Neill (in Wisconsin) at 715-381-7113 or joneill@lommen.com. Other Lommen Abdo attorneys providing estate planning services include Robert Abdo, Glenn Kessel and Scott Nelson.

John Giblin is certified by the Minnesota State Bar Association as a Real Property Law Specialist. A key emphasis in John's practice is real estate, including new construction, financing, leasing and transfers. John, a member of Lommen Abdo's Minneapolis office, also provides estate planning services, including wills, trusts, powers of attorney and probate. He is listed in the Best Lawyers in America Consumer Guide.
 
Jennifer O’Neill brings insightful understanding to the sometimes difficult process of planning for the future. A member of Lommen Abdo’s Hudson Office, Jennifer has a strong base of knowledge and a wealth of personal and professional experience that allows her to understand complex concepts and explain them in simple language. She focuses on estate planning and elder law. A keen awareness of wills, trusts, powers of attorney, probate, and long-term care planning helps Jennifer guide clients through a wide range of valuable options to give them peace of mind.