When estate planning, real property owners often compare transfer on death deeds vs. living trusts. In fact, both of these legal documents are great estate planning tools for transferring real property to loved ones! Plus, both allow the grantor to own and manage the property while living, and transfer it upon death. However, most attorneys would recommend a living trust as the best estate planning tool to transfer real property – here’s why.
What Are Transfer on Death Deeds?
When assessing a transfer on death deed vs. living trust for estate planning, we first need to understand what a transfer on death deed can and cannot do. A transfer on death deed allows a property owner to execute a deed that names a beneficiary. Upon the owner’s death, this beneficiary will obtain the title of real property. Additionally, this process allows for property distribution without probate. Finally, note that a transfer on death deed is revocable at any time prior to the owner’s death.
Restrictions of Transfer on Death Deeds
For a transfer on death deed to work, the beneficiary must be living at time of the owner’s death and should not be a minor. Additionally, the real property to be transferred must be a single family home. Furthermore, the deed must be signed and dated before a notary public. Finally, the owners must record the deed within 60 days of it being notarized. If any aspect of the transfer on death deed is inconsistent with the legal requirements under California law, the deed will be considered invalid.
“Our family learned the downside of a transfer on death deed the hard way. Our grandpa signed one thinking it was an easy way to give the property to our dad when he died.” K. Storm
“Unfortunately our father unexpectedly died before grandpa which made his transfer on death deed useless. Grandpa’s estate had to be probated since he did not have a trust.” K. Storm
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What Are Living Trusts?
On the other hand, a living trust is a written legal document that places assets into a trust for the benefit of the grantor until they pass away. Upon the grantor’s death, the assets within the trust are transferred to specified beneficiaries. Like transfer on death deeds, living trusts are revocable prior to the grantor’s death. However, they can also manage assets besides real property.
Transfer on Death Deed vs. Living Trust
Benefits of Transfer on Death Deeds
When comparing a transfer on death deed vs. a living trust, most legal professionals will tell you a living trust is a better estate planning tool. That said, a transfer on death deed is a simple estate planning option for a person whose only asset is their primary residence. Additionally, it is useful when there is not enough time to create more comprehensive estate documents.
Downsides of Transfer on Death Deeds
That said, there are several downsides to transfer on death deeds when compared to living trusts. For example, if a beneficiary dies before the grantor, a transfer on death deed is no longer valid. In other words, there is no “Plan B” for estate distribution. Second, if the beneficiary is a minor, this will pose a legal problem with distribution. Third, if property is held as joint tenants with rights of survivorship, the tenant wishing to transfer property through a transfer on death deed must outlive the other tenant. Otherwise, the joint-tenant will receive the property.
Another important consideration is if the property owner becomes mentally ill. In this situation, they may have no one to revoke the transfer on death deed, which may impact their ability to get Medicare. Last, and most important, real property may end up being probated if the grantor dies before validly executing and recording their transfer on death deed.
Living Trusts: A Better Solution
Though setting up a transfer on death deed is quicker than establishing a living trust, the better solution for a property owner is to create a complete estate plan. More specifically, this plan should include a living trust, financial power of attorney, healthcare directive, and pour-over will.
When compared to transfer on death deeds, living trusts provide benefits both during and after the death of the trust maker and property owner. For example, a living trust can ensure the grantor’s assets are managed according to their wishes. Additionally, living trusts can distribute assets to minors. Finally, a grantor can designate a trustee other than themselves to assume the administration of the trust in case of incapacitation or death. Unfortunately, a transfer on death deed offers none of these protections. Plus, it comes with inherent problems that are typically undiscovered until after the grantor has died.
Get Help With Your Estate Planning – Call A People’s Choice
Contact A People’s Choice to discuss the benefits of preparing a transfer on death deed vs. living trust. We can direct you to resources that will help you decide which tool is best suited for your estate planning needs. More importantly, we can help you draft and file all of your estate planning documents at a lower cost than an attorney. Contact us today for free information at 800-747-2780!
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Have question about transfer on death, I have only one property, no other assets, is this a better option for me, only one beneficiary Also, would the property be reassessed for taxes. What is the cost of a TOD. Am sure there is many more things I need to know.
Hello, As for tax implications, you would need to speak to a tax expert. But we always reccomend a Trust over a Trnasfer on Death Deed. The “TOD” can cause issues when the time comes to transfer the property. While a Trust is a far more secure way to pass on property to a loved one.
Thank you for your explanation of TOD and Living trusts. Is it common for a beneficiary to pay for the costs of getting a Living Trust or TOD? What have you seen?
Having a beneficiary pay for someone else’s estate plan would seem highly unusual.