Transfer on Death Deeds — Pros & Cons

Last month’s article discussed a Life Estate Deed and the pros & cons of this estate planning document.  This month is related, but a discussion of a different estate planning document, the Transfer on Death Deed (TOD Deed).  Over 31 States currently allow the use of TOD Deeds. Indiana allows the use of POD (payable on death)/TOD (transfer on death) on any type of property interest including bank accounts, investments, and even titles to vehicles since 2009.  However, this article discusses the use of TOD Deeds to transfer Indiana real property.

A TOD Deed is a written document that is executed by the person(s) or a person with authority who has a legal ownership in the real property to transfer their interest upon their passing.  The TOD Deed MUST be recorded in the recorder’s office where the real property is located prior to death.  The beneficiary can be a single person, multiple beneficiaries, or even to a trust.  The person(s) who own the real property can always amend the TOD Deed and even revoke it during their life upon filing the proper paperwork in the County where the real property is located, and the original TOD Deed was recorded.  The owner(s) of the real property has all benefits of full ownership of the real property.  Upon death of the owner(s), simple paperwork is recorded to show the passing of the owner(s) and proof of title will transfer without delay, or probate.

A few of pros of the TOD Deed is it avoids probate and that delay.  It automatically transfers on death and is less expensive and simpler than estate planning instruments such as a revocable living trust.

As to cons, it is in the public eye.  Once recorded it can be viewed by anyone.  Another con is it doesn’t start the 5‑year clock for asset protection/Medicaid planning.  I recommend beneficiaries of the TOD Deed be added as “additional insureds” on the real property so there is no lapse of coverage of loss during the time the owner(s) passes and when the new owners/beneficiaries get replacement insurance coverage.

The TOD Deed bypasses or supersedes a Last Will and Testament if it is in place before passing.  Also, a TOD Deed is still subject to claims of creditors of the owner(s) upon death.

Like any estate planning, it is important to discuss with your legal, financial, and accounting team for the plan that fits your needs.