A few months ago, the newsletter provided information about “Will Substitutes”, legal instruments that transfer property to beneficiaries at the donor’s death without benefit of the probate process. This month we’ll take a longer look at “transfer-on-death deeds” (TODD) which became available in Virginia in July 2013. The law is important as it allows a property owner to pass property, such as a personal residence, directly to designated beneficiaries without estate administration. Often, a personal residence is the main item of value in the estate.
Virginia’s TODD is revocable, and does not require the designated beneficiary to acknowledge the intended transfer. Other possible means of transferring ownership outside of probate are adding a joint tenant to the deed or designating a legal remainder interest in the property. Unlike adding another owner to the deed, TODD does not transfer any immediate ownership right, so the beneficiary’s creditors cannot gain access to the property. With no transfer of ownership, the TODD does not create a gift that would be subject to federal gift tax.
To be effective, the TODD must be recorded in county land records before the owner’s death. The property owner can change the designated beneficiary or revoke the TODD, and must record a subsequent deed for the change to take effect.
Among the advantages of the TODD are avoiding the time and expense of probate to transfer ownership of the property. The expense of probate includes probate tax, charged by the state as well as the locality. For those who like to do-it-yourself, there is a statutory formprovided in the legislation A major downside to the TODD is the apparent ease of creating the future transfer which might convince a homeowner to go it alone without consulting an attorney or a title company. The tricks are ensuring that the TODD contains all the elements and formalities of a properly recorded deed, and that proper consideration is given to naming beneficiaries and alternate beneficiaries. The deed must be recorded before the owner’s death, and a properly recorded TODD preempts devising the same property in a will.
There are other estate planning tools that can achieve probate avoidance and provide more comprehensive and customized protection. A revocable trust allows a property owner to arrange for future transfer of real property as well as plan for management of real and personal assets in case of incapacity. Properly created, a revocable trust can provide divorce and creditor protection for beneficiaries, as well as management of assets for benefit of minor or incapacitated beneficiaries.
