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What a Transfer-On-Death Deed Can Do For You


What a Transfer-On-Death Deed Can Do For You

The last thing you want when you die, is for your passing to spark a battle royale among your loved ones. A transfer-on-death deed can be an important estate planning tool to avoid such chaos.

A transfer-on-death deed is also known as a Lady Bird Deed. The name came from the Lyndon B. Johnson era. When President Johnson deeded property to his wife, Lady Bird Johnson, the name stuck. “When a Lady Bird Deed is drafted correctly, these deeds will transfer your real property to your heirs upon death. Unlike a bank account, where you can name a beneficiary to an account, you can’t name a beneficiary to your house,” explains Patrick Simasko, principal of Simasko Law. “These deeds are the next best thing. Until your death, you have the right to sell, lease or convey your property.”

Why this can be ideal

What’s the big advantage of a transfer-on-death deed? “You avoid the cost and delay of probate. There is an automatic transfer of your real property upon death to named beneficiaries. This transfer also allows beneficiaries to avoid paying any filing and inventory fees for a house that would be associated with the probate process,” says Simasko.

With any real property there’s always Uncle Sam to worry about. However, with a transfer-on-death deed, there is no county transfer tax or state transfer tax to be paid, says Simasko. Your property will also not lose a step up in basis under IRS Code 1014 and 2036(a), he says.

You avoid the cost and delay of probate. There is an automatic transfer of your real property upon death to named beneficiaries.

“The beneficiaries can sell the house at your death and not pay taxes on the proceeds. Another advantage is that you avoid the hassle of transferring liability insurance. By keeping the property in your name for your lifetime, you avoid unnecessary transfer paperwork for both taxes and insurance,” says Simasko.

There’s more good news. For Medicaid planning, you are allowed to keep your home or one primary residence as an exempt asset. These deeds keep your home in your name and allow you to keep this exemption during your lifetime when applying for Medicaid. This is critically important, explains Simasko because Medicaid has the right to file a lien on your loved one’s probate estate to get reimbursed for the benefits paid while living in the nursing home. “This means that if the home or any other asset has to go through probate, Medicaid can be reimbursed for the benefits that they paid out. However, with a Lady Bird Deed, there is no divestment for Medicaid purposes, the home never goes through probate, and no lien will be attached.”

Understand the particulars

However, there is much to know about transfer-on-death deeds. “In my experience the first thing people think is that a TOD is perfect. You still need to talk to an attorney or financial planner to be sure it’s good for you,” says Bijan Golkar, a certified financial planner with FPC Investment Advisory.

a transfer-on-death deed may be too simple for a complex estate

For one thing, a transfer-on-death deed may be too simple for a complex estate. “If the only thing you own is a house, this is a good option,” says Golkar.

It’s important to know the rules. “Generally, they cannot be revoked by will, only by recorded revocation, and they may be not useful where minor beneficiaries are involved. The property also generally remains subject to debts of the decedent,” says Sam Long, of counsel at the law firm of Shackelford, Bowen, McKinley & Norton.

In California, Golkar says there are requirements, “the property must be a single family home, or condo, can’t have more than four units, farming land of more than 40 acres,” among other things.

not all states allow them

Know too, that not all states allow them. “In states like New York, it is not possible to create a deed that transfers ownership of the property to a third party that is not currently in the title upon the owner’s death,” says Alan Doran, general counsel of OneTitle National Guaranty Company.

But for many people, a transfer-on-death deed is an important piece of the estate planning pie. Says Simasko, “Used with other estate planning tools, like a will, trust, power of attorney, and patient advocate, you can protect yourself on a legal and financial level.”

Comments
Anonymous
Anonymous   |     |   Comment #1
I find this article poorly done.  It does not emphasize sufficiently that only roughly one half of the fifty states allow TOD deeds.  Here is a reference:

http://www.nolo.com/legal-encyclopedia/free-books/avoid-probate-book/chapter5-1.html
Anonymous
Anonymous   |     |   Comment #4
Have to agree with you.  I read the entire piece thinking "oh what a good idea".  I wish I had read your comment first, with your helpful link.  My state is one of the many where this is not permitted.  I wasted my time on the article . . . unless I want to move!  Mere mention of New York late in the article, as an exception, does not offer readers a realistic picture of how very many states do not offer TOD deeds.  That so many exceptions exist needs to be revealed early in the article, with at least a link like the one you provided, if not a list of the states.  The writer is not respectful of her readers' time.
Anonymous
Anonymous   |     |   Comment #6
My state is not listed on this site but a Transfer on Death or Lady Bird is allowed. I have one. This list needs to be updated. 
Anonymous
Anonymous   |     |   Comment #14
I agree.  I think the OldGuy could do a much better job on this subject.
WhoReallyKnows
WhoReallyKnows (anonymous)   |     |   Comment #3
Won't holding your home in community property with rights of survivorship serve the same purpose for husband and wife in California?
Anonymous
Anonymous   |     |   Comment #16
Joint tenancy deed works in any state and you are protected from creditors having one made and recorded. TOD is just a will with instructions that a special deed to be recorded after the death, nothing more than that.
Very few people can use TOD do to mortgages, lens, creditors and greedy lawyers. 
Anonymous
Anonymous   |     |   Comment #18
No, this TOD is not recorded AFTER DEATH. It is recorded at the time it is done. It changes nothing as far as buying, selling, renting, borrowing on the house etc. The house is still in your name (if single), property taxes are still in your name only. Mine was done as soon as I picked it up. I filed it myself rather than my lawyer to save a couple his fee for doing it. 
I had a neighbor who has a life estate that his lawyer cousin did for him in the 70's when I moved in across the street from him. Our property was joint until my husband passed and I had this done. Cost $150. In the state where I live you can have stock, bonds, checking, savings, CD's, IRA's, life insurance all with beneficiaries to avoid probate. A motor vehicle worth less that $60,000 will not go through probate, nor watercraft worth less than $100,000 will go through probate. All house furnishings, jewelry, collections worth less that $15,000 will not have to go through probate. Built in stoves, ovens, dishwashers, refrigerators, carpeting, drapes etc go with the house and are not categorized as furnishings in my state. 
Anonymous
Anonymous   |     |   Comment #20
Correction to the last sentence of the first paragraph. Should read "I filed it myself after I read it, signed it in front of my lawyer and one of his staff and it was notarized. He kept a copy and made a copy for each of my children. 
I went to the car read it again. Immediately drove down to the County Building and went to the Reg of Deeds and had it filed and Registered. Doing it myself save the lawyers fee. I think the recording fee was $17 in my state. 
Anonymous
Anonymous   |     |   Comment #5
I appreciate this article. Too many people do not know about this. Many lawyers do not tell their clients about this because it may not be appropriate for them but another reason is ignorance and or job security. 
Anonymous
Anonymous   |     |   Comment #7
So how does the TOD apply in Texas.  Suppose the owner of the property goes in the nursing home but has a lady bird deed.  Also medicaid kicks in to cover the cost of nursing home care since the owner is basically worthless and the home is titled TOD.  Later on the original owner dies and the ownership of the home is transferred to the beneficiary.  In Texas, will medicaid then go after the beneficiary to recover the cost of the nursing home care up to the value of the home?
Anonymous
Anonymous   |     |   Comment #8
One other question in previous comment #&, isn't there a look back period of five years on this?  
Anonymous
Anonymous   |     |   Comment #11
TODs are not for poor or even middle class people or property with creditors attached or mortgages in effect or kids from previous marriages, TOD is a perfect subject for the attorneys to attack it and tie it up in courts for years or until there is no assets left to go after.
Anonymous
Anonymous   |     |   Comment #19
TOD is just like a bank account with beneficiaries. If there is a mtg the mtg goes with the house. It cannot be contested unless the document was made when a person had dementia or it was sign under duress. 
Anonymous
Anonymous   |     |   Comment #9
TOD looks simple but is a trap too. If the inheritant has unpaid debt, perfect time for the creditors to file their claims and if the inhertant has other house, the property exemption will cease on one of them.
Furthermore, if there is a mortgage on the property and the inhertant has no means to service it or it is not allowed to be assumed, good luck with keeping the property.  There can not be a TOD on a reverse mortgage or if there are legal proceeding against the owner.
Those are a just few samples of the bad side of TOD, I'm sure a good attorney can find hundreds of loop holes to stop such transfer just by declaring the desist as mentally ill.
The best way to transfer is by joint tenancy in common in the title and you can add variations or conditions to the title when and how and how many percents of the deed to transfer the rights to.
There is no probate, courts of any kind and reverse mortgage is not affected and the title is clear on transfer and no liens can jump in since there is no transfer of title at all. I bet many attorneys know all of these but are keeping it to themselves.
Anonymous
Anonymous   |     |   Comment #10
JT is effective upon execution and recording, not at death which (apparently) a TOD is.  Also transferring to a JT could require court action to partition/sell the property if all JTs don't want to take a subsequent action relative to the property.  A revocable trust may be a vehicle or a POA  may work and retains control in the grantor/trustor.
Anonymous
Anonymous   |     |   Comment #12
#10, JT can take effect immediately or upon death of one of the owners. You can make exclusions in the title to what ever conditions you might like to take prior or after death. In my opinion JT is better transfer than POD.
Anonymous
Anonymous   |     |   Comment #24
JT is either effective immediately OR is not effective!
Anonymous
Anonymous   |     |   Comment #13
My understanding is that most people in Texas do the lady bird deed to protect the home from medicaid recovery.  I am still wondering that after the death of the original owner if medicaid can then go after the beneficiary.
Anonymous
Anonymous   |     |   Comment #15
#13, If you are on Medicaid or thinking to be, Texas can legally put lien on any property you own before 5 years look back period or any property transfer after death. In other words, TOD can not escape Texas asset transfer laws, the beneficiary may be held responsible.
Anonymous
Anonymous   |     |   Comment #17
Thanks.  Actually it concerns the home that my mother owns and I will inherit her home per her will.  Instead of a lady bird deed, we opted for a long term care policy to cover her expenses if she ever has to have care in the nursing home.  The policy is $3K per year and I have always wondered if the lady bird deed would have protected the home from medicaid recovery without the need for the expensive long term care policy.  
Anonymous
Anonymous   |     |   Comment #21
If you are on medicaid a home should be used to help pay if there is no one living in it. We should all pay for the nursing home care ourselves rather than let other taxpayers pay for it. Remember there are home care people that can come into the home to help and also others that can move in the home with the person that needs care and it costs much less than a nursing home. There are also monitoring devices that can be hooked up to watch the person if you have concerns. 
Anonymous
Anonymous   |     |   Comment #23
"We should all pay for the nursing home care ourselves rather than let other taxpayers pay for it."

We have ALL paid into Medicare one part of which is Medicaid...get off your horse.  It has been paid and if legally one can obtain it...then go for it!
Anonymous
Anonymous   |     |   Comment #28
Here is the way I look at it.  If a lady bird deed after a five year look back period exempts the home from being taken to recover the cost of nursing home care, then so be it.  It is part of the Texas law.  I am sure you take all the deductions you are allowed to take on income taxes.  The ones that have done this in the past, the taxpayers, like me, have paid for it.  So why I am not eligible to get the same benefit as long as I follow the law?  
Anonymous
Anonymous   |     |   Comment #29
You are or may be...see other posts on how to qualify!
Anonymous
Anonymous   |     |   Comment #30
Medicaid is for those that have no resources. 
Anonymous
Anonymous   |     |   Comment #32
So is Obamacare.
Anonymous
Anonymous   |     |   Comment #33
Not true...for those that could not get ins at any price before age 65, Obamacare is a savior!  Preconditions are gone!  On and on!

Medicaid for healthcare is for limited income/assets.  Medicaid/Medi-Cal for LTC has a relative complex income/asset calculation AND unlike for healthcare the latter requires pay back if the assets are there...required by Fed law, not so for Medicaid for healthcare.
Anonymous
Anonymous   |     |   Comment #22
Every state has a 5 year look back. 
Anonymous
Anonymous   |     |   Comment #39
#15, Based on what I read here, there is not a five year look back period.  TOD Deed is not subject to Medicaid Recovery.
22. WILL THE PROPERTY BE SUBJECT TO MEDICAID ESTATE RECOVERY UNDER CURRENT LAW IF I CURRENTLY RECEIVE OR PLAN TO APPLY FOR LONG TERM CARE? No, as the property does not go through the probate system, under current law it is not subject to Medicaid estate recovery, whether you are currently receiving long term care or plan to apply for it.  
http://texaslawhelp.org/resource/transfer-on-death-deed-answers-to-frequently-asked-questions?ref=7k...
Anonymous
Anonymous   |     |   Comment #40
The property is owned at death by the transferor...thus it will disqualify those assets from the get go.
Anonymous
Anonymous   |     |   Comment #41
TODD statute §114.106(b) specifically provides thatproperty conveyed by a TODD is not considered propertyof the owner’s probate estate for any purpose includingTexas Govt Code §531.077 (Medicaid Estate RecoveryProgram)
Anonymous
Anonymous   |     |   Comment #42
Calif law followed that in June...effective for those dying after Jan 1...See an elder law advisor 
Anonymous
Anonymous   |     |   Comment #36
A reverse mtg is a lein on the property. 
Anonymous
Anonymous   |     |   Comment #25
Excellent article. I actually just found out about this a month ago while looking for alternatives for my estate, but I am happy to see it being discussed on this forum.
gbtexas
gbtexas   |     |   Comment #26
Since the issue of joint tenants has been raised, does JT with Rights of Survivorship work well in Texas when the only JTenants in the deed are husband and wife?  If so,would it need to be done at the time of purchase, or can it be applied anytime thereafter?
Anonymous
Anonymous   |     |   Comment #27
JT can be done any time even one day prior to a death of an owner, just go to the county recorder with 2 witnesses or an already notarized JT deed and record it.
Anonymous
Anonymous   |     |   Comment #31
Just be careful of a gift tax and fill out the correct form when filing taxes. 
Anonymous
Anonymous   |     |   Comment #35
#31, adding or removing an owner from a deed is not a taxable event. You can even use a quit claim deed to a spouse, kids or anyone else just by reporting a consideration of $10 on the deed. No money has been exchanged and no taxes are due.
Anonymous
Anonymous   |     |   Comment #38
And, if it was a gift and the transferor later applies for Medi-aid/Medi-cal nursing home there is a claw back for up to 5 years depending upon the state! 
gbtexas
gbtexas   |     |   Comment #34
Thanks for your response.   JT seems to be the best way to go when the only parties involved are the two spouses.