What is a “Transfer on Death” Deed?

As the saying goes, “You can’t take it with you.” But when it comes to leaving your property to others, there are a variety of ways to do it—some of them easier than others. One option is a “transfer on death” (TOD) deed.

As the name suggests, a transfer on death deed allows a property owner to designate a beneficiary to inherit real estate after the owner’s death.

How is Transfer on Death Different From Other Ways of Transferring Property?

Unlike property left in a will, property transferred through a TOD deed does not need to go through the probate process. Probate can be time-consuming and cumbersome, and many people prefer to avoid it if they can. With a TOD deed, there is no court involvement in the transfer of property.

Real estate can also be transferred by joint tenancy with right of survivorship (JTWROS). A transfer on death deed is like JTWROS in that both processes transfer property fairly seamlessly outside of probate. However, one major difference between the two is that making someone a joint tenant in your property gives them an immediate ownership interest and say in what you do with the property, which you may not want. (It also means that your joint tenant’s creditors may be able to reach the property during your lifetime).

A TOD deed is different from JTWROS in that the transferee has no rights regarding the property until after the owner’s death. As a practical matter, that means it’s safe from your transferee’s creditors during your lifetime, and if you want to sell the property or mortgage it, you can do so without getting anyone else’s permission.

How Does a Transfer on Death Deed Work?

Transfer on death deeds are used primarily for the transfer of real estate in New Mexico, though other types of property can be transferred using a similar mechanism. To execute a TOD deed in New Mexico, you need to use a particular form. The form must include the legal description of the property and the name of the person you want to inherit the property. It’s a good idea to have a lawyer prepare the form or at least review it to make sure it is properly prepared.

You must sign the TOD deed in the presence of a notary public. In order to be effective, the deed needs to be recorded before your death with the office of the county clerk for the county in which the real estate is located. Interestingly, the deed is effective even if the person inheriting the property is unaware of it—but it’s usually a good idea to talk about your estate plan with your family, including TOD deeds, to avoid confusion after your death.

Pros and Cons of Transfer on Death Deeds

We’ve already alluded to some of the benefits of transfer on death deeds: the avoidance of probate, and the fact that the person who owns the property retains complete control of it during their lifetime. Since real estate is often the most significant asset a person owns, that retained control provides security.

Another benefit of TOD deeds is their relative ease and simplicity. They are fairly simple to create and execute, which means that they are typically less expensive than some other estate planning options. A TOD deed can be put in place quickly if necessary, and can also be revoked just as quickly, by recording a written revocation or a new TOD deed with the county clerk.

Even with all those advantages, however, there are still some potential disadvantages to transfer on death deeds. For example, the property that is subject to a TOD deed may be reached by the transferor’s creditors after their death, if the estate doesn’t have enough assets in it to satisfy the deceased owner’s debts. Also, if the beneficiary named on the TOD deed dies before the property owner, and no contingent beneficiary is named the property will have to go through probate after all.

There can also be some complications if a property owner using a TOD deed co-owns the property with other people.

TOD Deeds and Co-Owned Property

TOD deeds can be used to transfer property that is currently co-owned after the death of current co-owners. For property that is held in a joint tenancy with right of survivorship, any or all joint tenants may execute a TOD deed. Let’s say Alice, Betty, and Clara own a home together. They all want to execute a TOD deed to Denise. After the last survivor of A, B, and C dies, the property goes to D.

What if Alice and Clara want to execute a TOD deed to Denise, but Betty does not? Alice and Clara can execute the deed(s), either separately or together. If either of them is the last surviving joint tenant, the property will pass to Denise after their death. However, if Betty is the last surviving joint tenant, the property will pass to her after Alice and Clara die under the rules of joint tenancy. After her death, the property will pass to whomever she chooses to leave it to.

If Alice, Betty, and Clara co-owned the property without a right of survivorship, they could each leave their share to whomever they chose upon their deaths. In the scenario above, Alice and Clara could each leave their share to Denise using a TOD deed. If Alice and Clara die before Betty, Denise would own ⅔ of the property with Betty owning the remaining ⅓. Eventually, Betty’s share would go to her chosen beneficiary or her heir(s) at law.

What’s the Best Way to Transfer Property to Someone After Your Death?

This is a question that’s difficult to answer in a blog post, because so much depends on the circumstances of the individual doing the planning. A TOD deed may be a good option if a piece of real estate makes up the great majority of your estate, and you simply want a cost-effective way to pass it to your beneficiary or beneficiaries without them having to deal with probate.

However, a living trust may be a better option if:

• You have a large estate or an estate with multiple types of assets
• You want to plan for incapacity during your lifetime; a trustee can take over managing your property, including real estate, if you become incapacitated
• Your estate includes out-of-state property (which can make probate more complicated)
• You want to keep your business private (a recorded TOD deed is public record)
• You want better (though not necessarily complete) protection of property from creditors

In short, the ideal way to decide what is best for your needs is to talk about them with an experienced estate planning attorney. An attorney can help you clarify your goals and take all relevant considerations into account.

To learn more about TOD deeds and planning for the future of your real estate contact The Law Offices of Dana M. Kyle, P.A. to schedule a consultation.