A transfer on death deed — also called a TOD deed, beneficiary deed, or revocable transfer on death deed — is a legal document that allows a property owner to designate one or more beneficiaries who will automatically receive ownership of real estate upon the owner’s death without going through probate. It is one of the simplest and least expensive ways to transfer real estate to heirs while avoiding the time and cost of the probate process.
Transfer on death deeds are available in about half of U.S. states and the District of Columbia. Where they are available they can be a valuable estate planning tool especially for people whose primary asset is their home.
How a transfer on death deed works
A transfer on death deed works similarly to a beneficiary designation on a bank account or life insurance policy. The property owner — called the transferor — records a deed that names one or more beneficiaries who will receive the property at the owner’s death.
During the owner’s lifetime the deed has no effect. The owner retains full ownership and control of the property — they can sell it, mortgage it, rent it, or revoke the deed entirely at any time without the beneficiary’s consent. The beneficiary has no rights in the property while the owner is alive.
When the owner dies the property passes automatically to the named beneficiary simply by recording a simple document — typically an affidavit of death — with the county recorder. No probate is required and the transfer happens quickly and privately.
Benefits of a transfer on death deed
Transfer on death deeds offer several significant advantages as an estate planning tool:
- Probate avoidance — property transferred by a TOD deed passes directly to the beneficiary without going through probate saving time, expense, and the public exposure of probate proceedings
- Retained control — unlike a life estate or an outright gift the owner retains complete control of the property during their lifetime including the right to sell, mortgage, or revoke the deed at any time
- Simplicity — a TOD deed is a relatively simple document that is generally less expensive to create than a living trust
- Flexibility — the owner can change or revoke the deed at any time as long as they are mentally competent simply by recording a new deed or a revocation document
- No gift tax consequences — because the beneficiary receives no present interest in the property the recording of a TOD deed does not trigger gift tax
- Step-up in basis — when the beneficiary inherits the property they typically receive a stepped-up tax basis equal to the fair market value of the property at the time of the owner’s death potentially reducing capital gains taxes if they later sell
How a transfer on death deed differs from a life estate
Both a transfer on death deed and a life estate can be used to transfer real estate to heirs while avoiding probate but they have important differences:
- Control — a TOD deed allows the owner to retain full control of the property and revoke the designation at any time without the beneficiary’s consent. A life estate significantly restricts the owner’s ability to sell or mortgage the property without the remainderman’s consent.
- Revocability — a TOD deed can be revoked at any time simply by recording a revocation. A life estate deed is generally difficult to undo without the cooperation of the remaindermen.
- Creditor protection — in a life estate the remainderman has a present legal interest in the property that may be subject to their creditors. In a TOD deed the beneficiary has no present interest so their creditors generally cannot reach the property during the owner’s lifetime.
- Medicaid considerations — the Medicaid implications of TOD deeds and life estates differ and vary by state. Consulting with an elder law attorney before using either tool for Medicaid planning purposes is important.
What happens if the beneficiary dies first
If a named beneficiary dies before the property owner the outcome depends on the terms of the deed and state law. Some TOD deeds allow the owner to name alternate or contingent beneficiaries who receive the property if the primary beneficiary predeceases the owner. If no alternate beneficiary is named and the primary beneficiary dies first the property may need to go through probate.
To avoid this problem it is important to name alternate beneficiaries when creating a TOD deed and to review and update the deed after any significant family change.
Transfer on death deeds and Medicaid
The interaction between TOD deeds and Medicaid is complex and varies significantly by state. Key considerations include:
- In some states the transfer of property at death through a TOD deed may be subject to Medicaid estate recovery because the property technically remained in the owner’s estate until death
- In other states TOD deeds may avoid Medicaid estate recovery because the property passes outside of probate
- Recording a TOD deed generally does not affect Medicaid eligibility during the owner’s lifetime because the owner retains full ownership and the beneficiary has no present interest
Because the rules vary significantly by state anyone using a TOD deed as part of Medicaid planning should consult with an elder law attorney who is familiar with the rules in their state.
States where transfer on death deeds are available
Transfer on death deeds are available in approximately half of U.S. states. States that have enacted TOD deed laws include Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Illinois, Indiana, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming among others. The specific rules and requirements vary by state.
If you live in a state that does not allow TOD deeds alternative probate avoidance tools such as a revocable living trust or a Lady Bird deed may be available depending on your state.
How to create a transfer on death deed
The requirements for creating a valid TOD deed vary by state but generally include:
- The deed must be in writing and identify the property by its legal description
- The deed must clearly identify the beneficiary or beneficiaries
- The deed must be signed by the owner
- The signature must be notarized in most states
- The deed must be recorded with the county recorder or register of deeds in the county where the property is located before the owner’s death — an unrecorded TOD deed has no legal effect
Some states provide official TOD deed forms that must be used. An estate planning attorney or real estate attorney can help ensure the deed is properly drafted and recorded.
How to revoke a transfer on death deed
A TOD deed can be revoked at any time during the owner’s lifetime by:
- Recording a revocation document with the county recorder
- Recording a new TOD deed that supersedes the original
Simply destroying the original deed or telling the beneficiary you have changed your mind is not sufficient — the revocation must be recorded with the county recorder to be legally effective.
Key terms to know
- Transfer on death deed — a deed that transfers real estate to named beneficiaries at the owner’s death without probate
- Transferor — the property owner who creates a TOD deed
- Beneficiary — the person or persons who will receive the property at the owner’s death
- Probate — the court supervised process of validating a will and distributing an estate
- Step-up in basis — an increase in the tax basis of inherited property to its fair market value at the time of inheritance
- Revocation — the cancellation of a TOD deed which must be recorded to be effective
- Lady Bird deed — an enhanced life estate deed available in some states that provides similar benefits to a TOD deed
- Medicaid estate recovery — the process by which a state seeks reimbursement from a deceased Medicaid recipient’s estate
Sources
- American Bar Association — Public Resources
- Uniform Law Commission — uniformlaws.org
- National Academy of Elder Law Attorneys — naela.org
- USA.gov — Estate Planning
This article is for general informational purposes only and does not constitute legal advice. Transfer on death deed laws vary significantly by state. Consult a licensed attorney for guidance specific to your situation.