A transfer-on-death (TOD) deed is a tool that has recently become available to Washington residents to assist with estate planning. It offers a quick and relatively painless way to transfer real property (such as a home) to a beneficiary once the owner passes away. But there are some issues to consider before deciding whether or not a TOD deed is right for your estate plan.
Transfer-on-Death Deeds in Washington State
A TOD deed, also called a beneficiary deed, is a legal method of property transfer first enacted by Washington State legislature on June 12, 2014. In general, a TOD deed allows a beneficiary to be assigned receipt of the deed to a piece of real estate upon the death of the original owner—without going through the probate process. For uncomplicated estates, this can save both the time and expense of probate court. There are some important requirements that must be met in order for a TOD deed to be valid:
- Testamentary capacity. A TOD deed has the same requirements of legal and mental capacity that comes with creating a will. That is, the person must be of sound mind and memory in order to make decisions about the disposition of his property.
- Properly recordable requirement. A TOD deed must contain the same information as any other properly recordable “inter vivos” deed—a transfer between living persons. In other words, a TOD deed must contain all of the necessary legal information that any other deed such as a quitclaim or warranty deed must have.
- Signed and notarized. A TOD deed must be properly signed and witnessed before a notary agent to be considered valid.
Once the basic legal requirements are met, a TOD deed must then be filed with the County Records Office in order to be valid. Once filed, it is then a “nontestamentary” document, which means that it does not require a will or probate court to take effect.
Weighing the Pros and Cons
A TOD deed can be a great tool for the uncomplicated estate plan, and there are other benefits along with avoiding probate. These benefits primarily involve retaining control over the property. The property owner (or grantor, in this case) is able to revoke the TOD deed at any time while he is alive, and the beneficiary has no rights or control over the property until the grantor passes away. The grantor also can (and should) make a list of alternate beneficiaries for the TOD deed, in case the primary beneficiary is unwilling or unable to assume control of the property when the time comes.
One downside to consider is that a TOD deed carries any mortgages, liens, taxes, or other claims that are associated with the property directly over to the new owner. If the property is in any way encumbered, this can leave the beneficiary saddled with unexpected debts if he accepts the deed. While probate court does take time and it costs the estate some money, the estate is bound to pay off creditors before distributing assets to beneficiaries named in a will or trust. This means, if the estate has other assets that can be used to pay off the debts on the property, the recipient may receive the property unencumbered by those debts, which can be a real gift.
A TOD deed can also get complicated with multiple beneficiaries. While you can choose multiple beneficiaries and each will receive an equal share, should one beneficiary pass away, he is removed from the TOD deed and the other beneficiaries receive equal shares of what’s left. There is no inheritance of a TOD deed claim. For example, if you have two children named in your TOD deed and one passes away before the other, the surviving child will receive the full share of the property. The children of the deceased (your grandchildren) will not be entitled to a share of the property. In cases like this, where you may want grandchildren or other family members to inherit, it’s best not to rely on a TOD deed, as it may not be able to reflect your full wishes adequately.