What Is a Transfer on Death Deed?

Many people transfer real estate ownership following their death by bequeathing it in their will. However, these properties must go through probate, which can be lengthy and stressful for beneficiaries.

A transfer on death deed could be a suitable alternative if you want your beneficiaries to assume ownership as quickly as possible. 

What Is a Transfer on Death Deed?

A transfer on death deed (TOD) is an alternative to leaving property to a beneficiary in your will. They're sometimes referred to as beneficiary deeds or revocable transfer on death deeds. 

The difference between a transfer on death deed and making a will is that a TOD allows your beneficiary to assume ownership independently of the probate process.

Furthermore, you can only use a transfer on death deed for transferring ownership of real estate. You can't use it to bequeath other assets, so you'll usually need to write a will as well. 

How Does a Transfer on Death Deed Work?

If you make a transfer of death deed, your property passes to your named beneficiary when you die. Many people choose a relative or friend as their beneficiary, but you can also select a charity or business. It's also possible to bequeath your property in shares to multiple beneficiaries.

Your beneficiary doesn't gain any rights to your property until your death. Therefore, you remain responsible for maintaining your property and paying the mortgage. If you don't pay off the mortgage before your death, the unpaid balance transfers to your beneficiary.

How Do I Claim a Property?

If someone left you property using a transfer on death deed, you can claim it at the county recorder's office by signing an affidavit confirming their death. You'll need to take a copy of their death certificate to file your claim with the county clerk.

How Do I Get a Transfer on Death Deed?

You can usually download a free template from your state or county website. Alternatively, you can draw up your own deed. It should include your personal information, a detailed description of your property and details of your beneficiary, including their relation to you.

Some states require you to use precise wording and provide an accurate legal description of your real estate assets. You can often find this wording online. Failing to use the proper format can cause issues with transferring your property, so it's best to ask a lawyer to help you draw up the deed if you're unsure. 

You'll need to sign your completed deed, and some states require your spouse to sign it, too — even if they don't co-own the property. However, you don't need to ask your beneficiary to sign. Depending on your state, you may also need to have your deed notarized and witnessed. 

Once you've signed and notarized the deed, you can file it with the country recorder's office, county clerk's office or county office of land records. Some states charge a small fee to file transfer on death deeds. Filing is essential, as an unrecorded transfer of death deed will be invalid. 

Which States Allow Transfer on Death Deeds?

Transfer on death deeds are only legal in certain states. If your state doesn't permit these deeds, you could consider bequeathing your property in your will or placing it in a trust. The following states recognize transfer on death deeds:

• Alaska
• Arizona
• Arkansas
• California
• Colorado
• District of Columbia
• Hawaii
• Illinois
• Indiana
• Kansas
• Minnesota
• Missouri
• Montana
• Nebraska
• Nevada
• New Mexico
• North Dakota
• Ohio
• Oklahoma
• Oregon
• South Dakota
• Texas
• Virginia
• Washington
• West Virginia
• Wisconsin
• Wyoming

Can I Create a Transfer on Death Deed for a Jointly-Owned House?

Whether you can transfer ownership of your share in a jointly-owned property using a transfer on death deed depends on how you own it. If you're "tenants in common," you're free to bequeath your share to anyone you like. When you die, your beneficiary will co-own the property with the other tenant. 

Things become significantly more complicated if you and the co-owner are joint tenants. The co-owner automatically assumes ownership of your share if you die before them (and vice versa), and you can't use a transfer on death deed to stop this from happening. However, your property could pass to your beneficiary if your co-owner dies before you, as you'll gain ownership of their share upon their death. 

If you and your co-owner wish for your shares to go to the same beneficiary, a transfer on death deed can be a suitable option. You can complete separate deeds or file one jointly.

Can I Revoke a Transfer on Death Deed?

You can revoke a transfer on death deed by filing a revocation at the same office where you filed the deed. Some states offer free revocation documents on their websites. If not, you can usually find the correct format in your state's statutes.

You can't revoke a transfer on death deed by writing a new will. If your will and a transfer on death deed bequeath your property to different beneficiaries, the TOD takes precedence.

What's the Difference Between a Transfer on Death Deed and a Living Estate Deed?

Some states also permit living estate deeds. Often called Lady Bird deeds, living estate deeds operate similarly to TODs by allowing you to transfer property ownership on death while bypassing probate. 

However, a living estate deed causes you to relinquish some of your interest in your property before your death, which could cause issues if you wish to sell it. Meanwhile, a transfer on death deed becomes invalid if you sell your property. 

Does Estate or Gift Tax Apply to Properties Bequeathed Through a Transfer on Death Deed?

Your property will usually be liable for estate tax. Whether it's liable for gift tax depends on the rules where you live. Some states don't impose gift tax if you use a transfer on death deed because your beneficiary assumes ownership after your death. 

Will a Transfer on Death Deed Affect My Medicaid Entitlement?

As you can't use a transfer on death deed to transfer ownership of your home while you're alive, you can't use it to lower the value of your assets to claim Medicaid entitlement. However, some states will protect your house from Medicaid estate recovery (MERP). An irrevocable Medicaid trust could be a good alternative if you want to claim Medicaid or protect it from MERP after your death. 

Is a Transfer on Death Deed a Good Idea?

A transfer on death deed can be a suitable option if you want to save your beneficiaries the hassle of going through probate, especially if you own real estate in multiple states. These deeds are also straightforward to create, making them a convenient option if you need to deal with estate planning quickly. 

However, transfer on death deeds don't include title warranties, which could complicate matters if someone else claims rights to the property. Furthermore, they don't offer credit protection, which means they may be sold to pay off your debts when you die.