Be careful. Transfer on death deeds are not the quick fix some think they are.
We've been asked many times lately whether a Transfer on Death Deed can replace a Living Trust. The short answer is no. Here are seven reason why.
1. Your Transfer on Death Deed Beneficiary Will Be Liable for Your Debts. When you die, your beneficiary will be liable for your debts for three years.
Your living trust beneficiaries are not liable for your debts.
2. Your Transfer on Death Deed Beneficiary Can't Sell Your Property for Three Years. Because your beneficiary will be personally liable for your debts for three years after your death, no title company will insure title to a buyer until the three-year window expires. Therefore, your beneficiary will have to wait three years to sell the property.
Living trust beneficiaries can sell inherited property whenever they want to.
3. You Can't Name a Contingent Beneficiary on Your Transfer on Death Deed. If your beneficiary dies before you, you need to prepare and record a new transfer on death deed. If not, your property will go through probate.
You can name contingent beneficiaries in your living trust.
4. Notice Requirements When You Die. When you die, your transfer on death deed beneficiary must send written Probate Code notices to your heirs advising them of their right to contest the transfer.
The successor trustee of your living trust will send notices to heirs and beneficiaries as part of the trust administration. Your beneficiary does not have to do anything except receive her inheritance.
5. Complicated Signing. With a typical grant deed, you will need to sign it before a notary. With a transfer on death deed, you will need to sign it before a notary and get two witnesses to sign it, similar to a will, and then record it within 60 days.
When you create your living trust, you will need to sign and notarize your trust transfer deed which your estate planning attorney will prepare and record for you.
6. No Divorce or Asset Protection for Your Transfer on Death Deed Beneficiary. A transfer on death deed will transfer your property outright to your beneficiaries with no way to leave it to them in a protected trust.
Your estate planning attorney can include provisions in your living trust to create springing asset protection trusts for your children. Instead of your children receiving their inheritance outright, they can receive it in an asset protection trust that will significantly protect it from divorce and lawsuits.
7. No Protection for Young Children. If your minor child is the beneficiary of your transfer on death deed, your property will be under the control of his guardian. But when your child turns 18, he takes control. Most people don't want their 18-year-old to have full control of the family home.
Your estate planning attorney can include provisions in your living trust to create springing asset protection trusts for your children. You can name a trusted family member or friend to be trustee of the trusts until your children are mature enough to manage their own inheritance.
Our firm does not prepare or recommend transfer on death deeds because there are too many ways they can fail. A living trust is a tried and true way to leave your home and all of your assets to your beneficiaries and avoid probate.
