A Transfer on Death Deed, also known as a beneficiary deed or TOD Deed, is a legal document that automatically transfers real estate (i.e., real property) to a beneficiary when a property owner dies. 

With a Transfer on Death Deed, you continue to own the property until your death. You retain the power to sell, rent, or refinance the property freely. Following your death, the title automatically transfers to your beneficiary. 

A Transfer on Death Deed involves two parties: 

• The grantor is the property owner who wishes to transfer the real estate after their death. 
• The beneficiary is the party who will inherit the property upon the grantor’s death.

Include this document with your estate plan to expedite property ownership transfers and ensure real estate bypasses the probate process.

Some states, such as Florida, Michigan, and Vermont, use Ladybird Deeds (also called Enhanced Life Estate Deeds) instead of Transfer on Death Deeds. Both deed types transfer real property from a grantor to a beneficiary outside of probate. However, they have differences. 

Ladybird Deeds immediately transfer future ownership to a beneficiary while granting the current owner a "life estate." Life estate is the right to use and control the property for the current owner’s lifetime. This differs from a Transfer on Death Deed, which creates a future transfer. 

LawDepot’s Transfer on Death Deed questionnaire will tailor either a Ladybird Deed or a traditional Transfer on Death Deed, depending on your state.

Creating a Transfer on Death Deed has several advantages, including the following:

Avoid probate

Probate is the legal process of verifying and validating a deceased person’s estate. During probate, the court reviews the deceased’s estate documents to ensure they’re legally enforceable. While the court reviews these documents, beneficiaries may be unable to access inherited real property or assets.

Unlike probate, a Transfer on Death Deed allows your beneficiary to gain immediate access and ownership of the property upon your death. An automatic ownership transfer provides beneficiaries with security and peace of mind during difficult times.

Maintain privacy

Probate proceedings are public records, meaning anyone can access details about your estate after you’ve passed away. A Transfer on Death Deed offers a significant advantage by maintaining privacy for both you and your beneficiary, as the transfer of ownership isn't recorded in probate records. 

Minimize taxes and capital gains

With Transfer on Death Deeds, beneficiaries can experience significant tax savings. First off, a beneficiary typically does not owe federal gift tax on property they’ve inherited through this deed type.

In addition, a beneficiary may experience tax benefits if they ever decide to sell the property they inherit from a Transfer on Death Deed. Capital gain taxes are usually calculated based on the property's value at the time of the decedent's death (as opposed to when the decedent purchased the property). This can lead to significant tax savings.

While a Transfer on Death Deed has many benefits, some potential pitfalls exist. To avoid potential consequences, it’s advised to seek legal advice.
 
A Transfer on Death Deed requires meticulous completion. The court may demand probate if the document omits crucial information. Some risks to consider when using a Transfer on Death Deed include:

Accidental disinheritance

A Transfer on Death Deed operates independently from your Last Will and Testament. If you don’t review and update the document following significant life events, such as the birth of a child, marriage, or divorce, it may lead to unintended disinheritance.

This oversight could mean your property doesn't pass to your intended heirs as other estate planning documents outline.

Contradicting estate documents

While designed to avoid probate, a Transfer on Death Deed can inadvertently trigger it by containing conflicting information with other estate planning documents. Ensuring consistency and alignment across all your estate planning instruments is crucial to prevent legal challenges and court interference.

Unenforceability

A Transfer on Death Deed is legally valid only if it contains a precise and accurate legal description of the property. Any errors or inconsistencies in this description can render the Transfer on Death Deed invalid, potentially subjecting the property to probate and creating complications for your intended beneficiary.

Vulnerability to creditors

Although a Transfer of Death Deed helps avoid probate, it doesn't necessarily shield the property entirely from your creditors. Depending on state laws, creditors may still be able to make claims against the transferred property.

While a Transfer on Death Deed offers a streamlined way to transfer real estate, several other estate planning tools can achieve similar goals, each with its own nuances and potential benefits.

Understanding these alternatives is crucial, especially since not every state recognizes Transfer on Death Deeds. Some common options include:

Revocable Living Trust

Revocable Living Trusts are more comprehensive legal arrangements that can direct various assets, including real estate. They allow for management and distribution after your death, according to your instructions, while avoiding probate. You retain control over the assets during your lifetime.

While a Transfer on Death Deed pertains only to real estate, a Revocable Living Trust offers more flexibility and versatility. However, Revocable Living Trusts are typically more complex and expensive than a Transfer on Death Deed.

Last Will and Testament

A Last Will and Testament allows you to specify how you want your assets, including real property, distributed to beneficiaries upon your death. It offers the most flexibility in naming beneficiaries and outlining wishes.

The key difference between a Transfer on Death Deed and a Last Will and Testament is that most Wills must go through the probate process, which can be time-consuming, costly, and a matter of public record.

Gift Deed

A property owner can give their property to their intended beneficiaries at any point during their lifetime using a Gift Deed. Gifting immediately transfers ownership. This is unlike a Transfer on Death Deed, where the current property owner maintains the title until they pass away, at which time the ownership is transferred to the beneficiary.

Once the property is gifted to the beneficiary, the owner directly and automatically loses control of it and can no longer freely sell it.

Survivorship Deeds

A Survivorship Deed automatically transfers real property to the surviving owner(s) if one co-owner dies. Similar to a Transfer on Death Deed, it bypasses probate. 

For a Survivorship Deed to be enforceable, another name must be on the home's title during the grantor's life. For example, Survivorship Deeds are commonly used when two people purchase a house together. An owner’s share of the property will seamlessly transfer to their co-owner upon passing away.

Currently, 32 states and the District of Columbia permit Transfer on Death Deeds. In states where they’re not used, “Ladybird Deeds” or “enhanced life estate deeds” may be accepted instead.

However, some states do not permit Transfer on Death Deeds or Ladybird Deeds. In these states, the main alternative is a Living Trust. Furthermore, you can still ensure your real property is transferred according to your wishes. Consider creating an alternative document (such as a Last Will and Testament) or seeking legal advice to transfer your property.

The states that do not permit Transfer on Death Deeds or Ladybird Deeds, include:

• Alabama
• Connecticut
• Delaware
• Iowa
• Kentucky
• Louisiana
• Maryland
• Massachusetts
• New Jersey
• North Carolina
• Pennsylvania
• Rhode Island
• South Carolina
• Tennessee

In these states, you can use a Revocable Living Trust or Last Will and Testament to document the transfer of your property following your death. Though probate may not always be avoided, these documents can provide some clarity and direction to streamline beneficiary proceedings. 

LawDepot offers a convenient, step-by-step questionnaire that customizes a Transfer on Death Deed to add to your estate plan. We collect the following information for your contract:

1. Property details

Identify the type of property you want to transfer. This may be residential, commercial, or undeveloped land. Include the property location and the legal land description. The legal land description must be included in the document to make it enforceable.

2. Grantor details

The grantor is the person who owns the property. Include their name, address, and marital status. A Transfer on Death Deed can only have one grantor.

3. Grantee details

The grantee is the beneficiary, or the party to whom the property will transfer upon the grantor’s death. Indicate whether the grantee is an individual, trust, or corporation, and specify who should receive future tax statements.

Similar to a Last Will and Testament, a Transfer on Death Deed can be contested. However, it can be more challenging to dispute because the property automatically transfers ownership after the grantor dies.

The most common reasons for someone to contest a Transfer on Death Deed are conflicts with the Last Will and Testament or invalidity (such as an incorrect legal land description). Individuals looking to challenge a Transfer on Death Deed must act quickly and provide evidence to support their claims.

A grantor can revoke a Transfer on Death Deed at any time. The intention to withdraw the document must be recorded to avoid disputes over the estate following the grantor's death.

To revoke a Transfer on Death Deed, the grantor can:

• Create a revocation of the Transfer on Death Deed, sign it, and get it notarized.
• Record a new Transfer on Death Deed. Most states will recognize the most recent Transfer on Death Deed.
• Transfer or sell the property. The beneficiary has no rights if the grantor no longer owns the property at their death.