Julie Jason: Is a TOD deed right for you?

Every now and then, the Uniform Law Commission, a non-profit legal organization, proposes a law that states adopt. One such law allows you to title your house in transfer-on-death form.

Called a TOD deed, this mechanism works somewhat like an IRA account’s beneficiary designation. That is, when you open an IRA account, you are provided a beneficiary designation form to fill out naming who you want to be your beneficiary in the event of your death.

The TOD deed essentially does the same thing. Say you want your house to go to your daughter, Mary. Your deed would be titled: “John Jones, transfer-on-death, Mary Jones.”

In such a case, the house transfers to Mary, subject to mortgages and liens, with a lawyer’s help, but not as part of the assets that need to be probated by the court. Keep in mind that probate courts help decedents’ assets transfer to heirs; if an asset transfers through a TOD or other “will substitute,” the court does not need to effect the transfer.

TOD deeds are a creature of statute. That is, only those states that have TOD deed laws permit TOD deeds. My home state, Connecticut, does not have such a law just yet, but a proposed bill is currently under consideration. I personally would like to see it passed. Why should Connecticut be in the minority? The majority of states have TOD deed laws in place.

If you would like to check your state, I’ve posted a list on my website at juliejason.com/blog/tod-deed.

To further understand some of the benefits of TOD deeds, let me quote the ULC (“URPTDOA” is the model TOD deed law):

“URPTDOA is an alternative to expensive estate planning for simple estates. People with a high net worth or a complex estate often use trusts and gifting strategies to transfer wealth outside of probate, but those strategies are prohibitively expensive for smaller estates. . . URPTDOA fills the gap by providing a way for families, with the aid of an advisor, to easily transfer title to real property outside of probate.”

“URPTDOA allows owners to retain control of their property. . . With a TOD deed, the owner retains all rights in the property, including the right to change his or her mind and revoke the deed or sell the property. The TOD beneficiary has no interest until the owner’s death.”

“URPTDOA has been proven effective in other states . ... Today, more than half of the states allow transfers by means of a TOD deed. Despite some initial resistance in those states to the new procedure, over time the TOD titling process has been well received by recording officers, real estate attorneys, and the title insurance industry. TOD deeds are no longer novel and the citizens of the remaining states should also benefit from the opportunity to transfer real property outside of probate simply and effectively.”

Ben Orzeske, chief counsel at ULC, believes TOD deeds provide “a simple, inexpensive method of transferring real property to a beneficiary when the owner dies, without going to court for probate.”

Those are the arguments in favor of TOD deeds. What are some potential detriments? Without a doubt, the biggest potential issue is that a TOD deed (and any will substitute) can undermine an expensive estate plan. As a result, it is vitally important to get the counsel of the lawyer who drafted your estate plan before taking any TOD actions.

From my perspective working with high net worth families and communicating through my columns and lectures with families of all financial means, people are unaware of how important it is to review the titling of assets. Will substitutes can and do simplify life in the right circumstances — and create headaches when they are not part of the estate plan.

I guess the rule should be: Don’t surprise your lawyer with an unplanned TOD.

Let me also add a special note about my home state, Connecticut. For those concerned about Connecticut’s financial state of affairs, Connecticut will not lose probate fee revenue by adopting the TOD deed legislation. Connecticut charges probate fees on non-probate assets.

So, the motivation for TODs should not be to avoid probate, but to make the probate process easier. And, once again, don’t try to re-title assets without your lawyer.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2018 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.