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What’s a Transfer on Death Deed and Do I Need One?

A Transfer on Death Deed (TODD) is a Minnesota real estate document that transfers property upon death. Similar to a named beneficiary on a life insurance policy, upon the death of an individual, a TODD will automatically transfer real estate to a beneficiary without having to go through probate. Sounds simple and a no-brainer, right? For some a TODD is the best course of action, but careful consideration must be given before executing a TODD to prevent possible problems and to ensure it is the best option for each unique situation.

WHEN IS A TODD USED?

When a grantor owns real estate and wants it to transfer automatically upon their death and be kept out of probate, a Transfer on Death Deed can be inexpensive and an ideal tool.

A TODD, upon execution and successful recording, will automatically transfer a property to a beneficiary by filing an Affidavit of Survivorship and certified copy of a death certificate with the county recorder. A grantor can name one or several beneficiaries. However, there can be situations where a TODD can be more problematic than helpful. Here are some things to consider:

First: What is the Reason for the TODD?

If the Grantor is trying to avoid medical assistance claims, the TODD is not the appropriate tool to accomplish this. A TODD does not shelter property from medical assistance claims. There are other options available.

SECOND: IS THERE URGENCY FOR THE TODD?

If the Grantor is in hospice or about to encounter a major surgery, a TODD can be a great option, but time is of the essence. Unlike a Deed that is effective as soon as it is signed, a TODD is not effective until it is successfully recorded. Therefore, signing and recording the TODD as soon as possible is necessary. If the Grantor passes before the recording, it will not take effect. I had a client pass away 18 minutes after I walked the TODD through the county recorder’s office. In this situation we were successful with the recording, but it was a close call that added a great deal of stress on the family at an already challenging time. If at all possible, get this documentation completed as soon as possible. If you do miss the opportunity to get a signed and recorded TODD due to a hospice situation or other medical emergency, don’t fret—there are other options available.

FINALLY: HOW MANY AND WHAT TYPE OF BENEFICIARIES ARE YOU NAMING?

TODDs can ease the transfer of the Grantor passing mom and dad’s property to the kids, avoiding probate. But a TODD might not be the best choice. What if one of the kids has special needs, is going through a divorce, or has a judgment or bankruptcy? This can result in expensive litigation, defeating the reason for the TODD. A trust might be a better option to avoid probate and accomplish the same goal. Keep in mind, that if the kids are married their spouse(s) will also have to sign off on the deed. Sometimes this can be difficult if all parties do not agree.

CAN I DRAFT MY OWN TODD?

I would recommend seeking legal counsel when drafting a TODD. Although it is a simple form to fill out, the thought behind it can be complex. In addition to the considerations listed above, the actual information on the TODD is very important. For example, if the legal description is incorrect or incomplete, the TODD will be rejected or may not convey the entire property.

I had a probate client try to save a few bucks by drafting a TODD on his own for his mother’s condominium. She passed and he thought it would avoid probate and automatically transfer to him. However, he did not include the correct legal description. He only included the condominium unit and not the 1/66th interest in the common areas. This presented a problem because the buyer, of course, didn’t want the unit without any of the common areas to enjoy the amenities. Unfortunately, it ended up in probate to fix the issue. What could have cost a minimal amount ended up costing thousands.

HOW LONG IS THE TODD GOOD FOR?

Once a TODD is recorded, it will remain in effect until it is revoked or the grantor sells the property, and the TODD will expire on its own terms. A TODD is specific to the property. Therefore, if a grantor moves and buys a new property or has multiple properties, a TODD needs to be filed on each one.

As you can see, a Transfer on Death Deed can be a great way to avoid a probate. However, legal counsel should be sought before you make that decision. If you have any questions regarding a Transfer on Death Deed or would like to discuss whether it may be suitable for your situation, please feel free to contact me and I would happy to go over your options with you.

This article was originally published in Real Estate Agent Magazine.

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