Estate Planner's Arsenal: Transfer on Death Deed
The "Estate Planner's Arsenal" series highlights specific estate planning tools and their uses.
The Transfer on Death Deed ("TODD") is a relatively new tool in the Minnesota estate planner's arsenal. TODDs became available in 2008 after Minn. Stat. Section 507.071 was signed into law. The Transfer on Death Deed is a deed that allows a person to transfer real estate at death without the need to go through probate, similar in concept to pay-on-death ("POD") accounts. If you own real estate and probate avoidance and easy transfers are estate planning goals, then a transfer on death deed may be useful.
TODDs can convey many interests in real property such as fee interests, life estates, interests in mortgages, liens, remainder interests, etc. The deeds name beneficiaries to receive the property upon the grantor owner's death. Transfers can be made to single or multiple beneficiaries, and even successor beneficiaries if necessary. Beneficiaries can be both people or entities.
To receive the property, beneficiaries must survive the grantor by at least 120 hours and file certain paperwork. Beneficiaries receive a stepped-up cost basis in the property, meaning that the beneficiary's cost basis in the received property is the fair market value of the property on the date of the decedent's (grantor owner's) death. Note that once transferred, the property is still subject to whatever mortgages, liens, Medical Assistance claims, and other encumbrances that were attached to the property prior to the transfer.
Aside from avoiding probate, TODDs serve many other uses. TODDs are a relatively low-cost transfer method. They do not convey any current interest in the real property, meaning that the grantor owner maintains full control of the property until death and receives all the benefits from the property, such as receipt of rents and ability to sell the property. TODDs can be revoked at any time before death and are also revoked upon events such as divorce. TODDs must be recorded in the county where the property is located, but it is not necessary to deliver the deed to the beneficiary prior to death or even to give the beneficiary notice of the deed.
There are pitfalls to watch out for when using transfer on death deeds, which are beyond the scope of this introductory article. For example, failure of one spouse to sign the deed of conveyance will leave the property subject to that spouse's marital rights. Similarly, the consent and signature of both spouses is necessary to transfer interests in any homestead property. Note that if other people who own an interest in the property do not join in the TODD, the property will still pass to the beneficiary, but will still be subject to that un-conveyed interest.
Transfer on Death Deeds can be a low cost way to distribute real property at death, maintain control of the property during life, and avoid the time and expense of probate, especially for those people with relatively simple estate plans. Transfer on Death Deeds should be drafted with care as there are many requirements that must be met in order to avoid unintended consequences. Consult with an estate planning attorney to see how these deeds can benefit your estate plan.