How a Transfer on Death Deed Avoids Probate

On a literal level, most wealth is transferred on death. But a Transfer on Death deed is separate from setting up a will or funding your assets into a trust. Transfer on Death, also known as TOD, is a clause or deed designating a beneficiary as inheritor of an asset or account upon your death, bypassing any other processes and passing straight to them.

For assets that can be transferred upon death via a TOD deed or clause, doing so removes them from your total probatable estate. TOD deeds are especially valuable when you have a certain asset you really want to get to a loved one as soon as possible, such as a profitable piece of rental property, or an asset of certain sentimental value. In most cases, TOD deeds refer specifically to real estate.

What is a Transfer on Death Deed?

A title is an ownership document proving that you are the certified owner of an asset. A deed is a document transferring that ownership right to someone else. A Transfer on Death deed is a document that acts as a deed for a chosen beneficiary yet remains invalid until you have passed away.

To create a transfer on death deed, you need to either be the sole owner of the property you intend to transfer, or you need to create the deed in tandem with your co-owner. Both owners must die before a TOD deed can go into effect. If one of you dies, the surviving owner can revoke the deed if they so wish. Couples who co-own their home, for example, can create a TOD deed – but it won’t go into effect until they have both died.

You can also designate more than one beneficiary for any given property, but you will have to clear up how the property is divided between them (usually either as a joint tenancy with right of survivorship or tenancy in common).

Successor beneficiaries can also be added to a TOD deed, in case the primary beneficiary dies before the current owners of the property.

A TOD deed does not mean you’ve signed your home or property away automatically. The deed only goes into effect once you have died, provided you are still the owner of the property. You may still mortgage or even sell the property at any point in time, invalidating the deed.

Transfer on Death deeds are not universally available. The states that currently allow for some type of TOD deed include Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Illinois, Indiana, Kansas, Maine, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. Ohio has a Transfer on Death affidavit, which is the same thing in practice. In some states, a similar type of deed can be drafted, but under a different name and with slight variations in function, such as a Lady Bird deed.

What Are the Benefits of a Transfer on Death Deed?

There are a few benefits of a TOD deed over the alternative, such as transferring via will or sharing ownership while living.

If you decide to make your beneficiary the co-owner of a property, for example, you are limited by their interests and decision making when seeking to sell or mortgage your property. Any decisions regarding how the property will be used will have to become mutual decisions. You lose total control by sharing it before your death.

Funding property into a living trust is another alternative to transferring it via a will, or through a TOD deed. But a living trust can be a much more complicated affair and is much more expensive than a simple deed.

Where a deed is just a document proving that a property is now legitimately owned by a chosen beneficiary, a trust is a legal entity that must be actively managed and maintained by a compensated trustee throughout the rest of your life, all the way to the transfer of property and dissolution of the trust.

A TOD deed only becoming active upon death also means that you continue to reap the benefits and tax advantages of living and using your primary residence, which isn’t possible if you had transferred it through another type of deed, for example.

And if your beneficiary decides to sell, any gains realized throughout the property’s lifetime will be based on a new basis value determined on your date of death, rather than the date the deed was created.

Last but not least, a TOD deed skips probate.

What is the Probate Process?

Probate is the means by which the local courts oversee the distribution of an estate after a person has died. The purpose of the probate process is to determine the legitimacy of the will and its heirs.

The probate process differs in length and procedure from state to state, and even from county to county. In California, probate can take anywhere from a few months to well over a year. The smaller your estate, the quicker the probate process. Small estates – under a total value of roughly $166,250, not counting certain excluded assets – can create an affidavit for an expedited probate process, further reducing the time and money your family must spend to see your estate fully distributed.

Probate cannot be skipped, but it can be minimized, to the point of irrelevance. Any assets and property you own can feasibly be distributed upon or before death by gifting below the yearly gift tax exemption limit, creating and funding trusts, and transferring assets through beneficiary designations like TOD deeds.

Why Would I Want to Avoid Probate?

The larger and more complex your estate, the more you have to lose from an extended probate process. Distributing your estate through other means, especially beneficiary designations, can save your family a lot of grief.

Meanwhile, smaller estates benefit from beneficiary designations by reducing the value of their probatable estate, to the point that they can argue for an expedited process at the end of the day.

TOD deeds are not the only way you can avoid probate, but they can be a powerful tool to reduce your probatable estate without transferring everything you own into expensive or complicated trusts. Consult an estate planning professional to learn more about how you can utilize beneficiary designations and trusts to simplify your future bequeathment.


Skip to content