Over half the states have enacted legislation allowing transfer on death deeds. Missouri was first in 1989 and, after a pause of nearly a decade; other state legislatures began enacting the "Uniform Real Property Transfer on Death Act." This comment provides a brief and incomplete educational overview of transfer on death deeds. Always consult an experienced attorney in specific situations.
Several legal issues have surrounded the traditional deed. Once effective, it could not be revoked. Transferring title to a home outright may create taxation issues. In the context of elder abuse, unscrupulous family members who became legal owners of the family home via a traditional deed could threaten to evict an elderly occupant. If the deed contained language that attempted to make it revocable, it was said to be an invalid attempt to make a will. The traditional deed must be "delivered" to be effective. Thus, a deed locked in a desk that was discovered after the death of the grantor (one making the deed) was frequently deemed ineffective.
If the major asset of one's estate is a house, why not make it easy to transfer this property to the heirs without a will or probate? In fact, why not create a form with instructions that an individual could complete without having an attorney? These considerations are fueling the movement to allow transfer on death deeds.
Of course, no system is without risk. Fraud, duress, undue influence and lack of mental capacity issues still exist. In fact, if only a notary is required, and the deed need not be "delivered" or immediately recorded to be effective, then these concerns may be heightened. Additionally, an incorrectly completed form may be invalid.
Typical inheritance disputes will occur even with the preparation of a transfer on death deed. Homesteads have some legal protections from creditors and are granted property tax benefits; however, a beneficiary of a transfer on death deed may lack these. State legislatures and court decisions are engaging these issues.
While one must consult state specific law, the following are the typical characteristics of a transfer on death deed:
1. It may be revoked prior to death.
2. It only transfers land and hence is not a substitute for a will.
3. It must contain the proper legal description of the land (one made by a surveyor). One may obtain this information from the current deed. This must be completely correct or the document is invalid.
4. It is only signed by the grantor and the beneficiaries need not sign it. Essentially any human being, but not an entity, may be named as a beneficiary. Marriage or kinship is not required.
5. It must be recorded in the public records prior to the grantor's death. However, traditional deed delivery is not required.
6. One may designate both a beneficiary and an alternative beneficiary. Many statutes indicate a time period of days (perhaps five) that the beneficiary must survive the grantor in order to acquire title to the land.
7. A transfer on death deed does not shield the property from the grantor's creditors. However, the beneficiary's creditors have no claim to the property during the grantor's lifetime.
8. Land described in a transfer on death deed may not be subject to Medicaid estate recovery or have any taxation consequences beyond any other property in probate. A transfer on death deed should not impact the beneficiary's right to governmental benefits. However, legislation may alter this. Always consult a Medicaid, benefit, and taxation expert prior to creating a transfer on death deed.
9. An agent acting through a power of attorney may not be able to create a transfer on death deed.
10. A transfer on death deed may be revoked by a subsequent transfer on death deed, by a separate cancellation document as designated by statute, a traditional deed, or by a divorce between the grantor and the beneficiary. Provisions in a will do not typically impact a transfer on death deed.
11. A transfer on death deed does not impact the grantor's homestead rights, ability to mortgage the land or sell it to someone else, or trigger mortgage "due on sale" provisions.
12. A transfer on death deed does not contain the traditional deed warranties. The beneficiary only obtains whatever rights the grantor has.
13. Upon the death of the grantor, the beneficiary must record an "affidavit of death" or other designated statutory form in order to obtain title to the property.
14. A clerk recording the transfer on death deed or related document may request proper personal identification of the person recording these documents.
15. If the particular state where the land is located does not recognize a transfer on death deed, the deed is invalid. Hence, one must determine the status of state law.
One should investigate the possible benefits and limitations of a transfer on death deed. However, do-it-yourself legal actions inevitably create legal problems. For this reason, one should always exercise appropriate due diligence.
This comment provides a brief and incomplete educational overview of a complex topic and is not intended to provide legal advice. Always consult experienced legal, taxation, and estate planning professionals in specific situations.