The transfer on death deed (or TODD) is an estate planning instrument that is being adopted by state legislatures across the country. The Uniform Law Commission promulgated the Uniform Real Property Transfer on Death Act in 2009, and it or similar statutes have been enacted by 12 states and the District of Columbia. Washington’s bill authorizing the transfer on death deed, House Bill 1117 (PDF of full text), was signed into law by Governor Inslee in March and goes into effect next week, on June 12, 2014. Here is what you should know about it:
1. What is a transfer on death deed?
A transfer on death deed is (here comes the legalese) an instrument for non-testamentary disposition of real property--or in plainer English, a way of transferring land upon the owner’s death without a will. The deed describes the property being transferred and gives it to the designated beneficiary upon the death of the owner (or “transferor” in the language of the law). It is then filed with the public records office of the county auditor for the jurisdiction where the property is located, and title transfers to the beneficiary upon the transferor’s death.
2. Why would somebody want a transfer on death deed?
The TODD offers several potential benefits to landowners and their families over more traditional estate planning instruments, such as wills and trusts.
One potential benefit is avoiding probate. Because the property transferred under a TODD passes according to the deed instead of according to a will, the property does not need to pass through the probate process. While probate in Washington is often a fairly simple process, it can take time, and many people would rather avoid it altogether. With a TODD, the property is transferred upon the transferor’s death without involving the court.
A TODD may also appeal to landowners because the property remains alienable-- that is, available for the transferor to sell before his or her death. A TODD, unlike an irrevocable trust or a joint tenancy, does not prevent the landowner from selling the entire property to a third party, so long as the subsequent deed mentions and specifically revokes the TODD.
A TODD can help in tax planning. If a property owner creates a joint tenancy with an heir in an effort to avoid probate, the transfer creates a present property interest. As a completed gift, that interest may be taxable. With a TODD, the beneficiary does not have an interest in the property until the transferor dies, so gift tax will not be an issue.
3. What are the potential downsides to a transfer on death deed?
The TODD is a brand new instrument in Washington, so the ins and outs of its use remain untested. One issue has cropped up, though. TODDs seem to differ from wills in their treatment of DSHS liens for long-term care services rendered to the transferor. If property is transferred by will via the probate process, proper notice to creditors will prevent creditors from attaching liens to the property beyond 4 months after the transferor’s death. The TODD statute allows DSHS liens for long-term care services to attach up to 2 years after the transferor’s death. For beneficiaries, this could be disadvantageous for at least two reasons: first, the attachment of a lien to the property as much as 20 months after the window has closed for all other creditors would be an unwelcome surprise; second, the possibility of a DSHS lien attaching may make title companies wary of issuing title insurance for a TODD deed during that period.
Transfer on death deeds have the potential to simplify both the estate plan and the process of settling the estate. That said, as in all estate planning decisions, it is vital to coordinate your various estate plan assets and instruments. If you would like to discuss incorporating a transfer on death deed into your estate plan, please contact the Law Offices of Zachary T. Jackson, PLLC to set up an appointment.
P.S. If you loved the show Scrubs as much as I did, you've probably been thinking of this throughout this article (you're not alone):