For a Transfer on Death Deed to be effective, it must be recorded with the Circuit Court during the property owner’s lifetime and the designated beneficiary must be alive at the time of the death of the property owner. Property owners are able to list an alternate designated beneficiary in the event that their named beneficiary dies before them.
Transfer on Death Deeds are particularly useful if your main asset is a single piece of real property that you wish to leave to a specific able-bodied adult. Once you record your TODD with the Circuit Court the property remains 100% yours during your lifetime. You can still sell the property, refinance the property, or even revoke the TODD and list a different designated beneficiary. The TODD will supersede any Last Will and Testament that you have in place. Meaning if your Will leaves everything to your son, but your TODD leaves the house to your daughter, the daughter will still get the house.
One thing to consider when contemplating a Transfer on Death Deed is homeowner’s insurance. If you have a TODD and you die, it is possible that your homeowner’s insurance will lapse upon your death. This may happen not because of your death, but because the property immediately transferred out of your name upon your death. Your homeowner’s insurance company may take the position that the property is no longer insured because you transferred it out of your name at death. If the property were to be damaged after your death but before your beneficiary purchased homeowner’s insurance the damages may not be covered by insurance. If you decide to use a TODD to streamline the probate process, then make certain that you inform your beneficiary to purchase a new homeowner’s policy immediately upon your death.
Another thing to consider when using a Transfer on Death Deed is that the beneficiary must be alive to receive his or her interest in the real estate. This is particularly important if you want the property to pass to the beneficiaries’ children if he dies first. If the designated beneficiary dies, the deed fails, then the property does not pass to the beneficiaries’ children through the deed. If no one else is listed on the TODD, then the property may default to the residue clause in your Last Will which may leave the property to the grandchildren, if it was set up that way. But, if the TODD had two beneficiaries, and one dies, the property goes to the surviving beneficiary.
If you are concerned about your Last Will and Testament being lost or destroyed before it can be recorded with Circuit Court, then a TODD may be a partial solution. The TODD is recorded while you are still alive, so in the event of a lost Will, at least your wishes with regards to your real estate will be known.
Transfer on Death Deeds are a useful tool when engaging in estate planning, but they are not for everyone. The attorneys at John W. Lee, PC offer a free estate planning consultation to help you decide how to best proceed when contemplating the future.
