Recently there has been a lot of talk about Transfer on Death Affidavits, also known as TOD affidavits. These affidavits can be a powerful tool in controlling the transfers of assets but are not appropriate for all people. In some situations, they can be a disaster. You may be wondering if you need a TOD affidavit in your estate plan. Let’s look at some different examples of how TOD affidavits work.
What is a Transfer on Death Affidavit?
A transfer on death affidavit allows an owner of real estate to designate one or more beneficiaries who will receive the property upon the death of the original owner. It is not a “deed” itself, but rather a sworn statement, filed at the Recorder’s office, that attaches to the deed stating whom the owner would like the property to transfer to upon his death. A person named as a TOD beneficiary does not have a present interest in the real estate. The beneficiary has no rights to the property until the grantor has died. At the death of the original owner, the TOD beneficiaries file an affidavit and death certificate directly with the Recorder, avoiding the probate process.
Example 1: A is married to B. A owns a house with a TOD affidavit that transfers the house to C, her child from a former marriage, upon her death. A dies.
If A is married, then the affidavit needs to include a statement by B waiving his dower rights in the house. If the statement is not included, B may have an interest in the property as a spouse and the title will not transfer free and clear to C when A dies.
Example 2: A is single. She has a TOD affidavit on her house to transfer her house to her child C. A later marries B. She dies without changing her plan.
If A has a TOD affidavit to her house, and then later gets married, the TOD affidavit effectively bars any dower right A’s subsequent spouse would have had to the property. Therefore, C would receive the property upon A’s death and B could be evicted from his home.
Example 3: A is single. B is her friend. A promises B can have the house when she dies. A puts a TOD affidavit on her house to transfer it to B upon her death. A sells the house without telling B. A then dies.
B has no rights to the property until A passes away. A is free to change her estate plan however she likes until her death or legal incapacity.
Example 4: A is single. A has a TOD affidavit that leaves the house to her child D. A takes out a home equity line on the house. A then dies.
D inherits the house subject to the home equity line. This can affect D’s credit, if D fails to pay off the equity line.
Example 5: A is a single person with a disabled child, D. She has a TOD affidavit that leaves the house to D.
A TOD affidavit would leave the house directly to D. If D is not living in the house, this could adversely affect her public benefits. If D is unable to handle the house, it would be more prudent for A to put the house in a trust for D’s benefit.
Example 6: A is a single person with three children, D, E, and F. She has a TOD affidavit leaving the property to all three children.
Upon A’s death, not only do D, E, and F have an interest in the property, but their spouses also now have a dower interest in the property and it cannot be sold without their consent. Any creditors of D, E, or F may also claim against the property. Using a TOD affidavit to transfer a house to multiple owners can make property management difficult. If property is held by several individuals, all decisions have to be unanimous. Each individual must agree on who will pay costs and expenses (taxes, condo fees, utilities, etc). If the property will be sold, it is wiser to allow the entire estate to pass via a will or trust, so there is one person in charge of the selling the property and distributing the money equally after the property is sold.
Example 7: A is a single person with three children, D, E, and F. She has a will or trust that lays out specifically what she would want to happen upon her death. She has a TOD affidavit with only child E.
A’s will only governs property that passes through probate. Because a TOD affidavit passes property outside of probate, the transaction is not governed by the will. Similarly, a trust governs only property that is titled to the trust. If the house is not held in the trust, the entire estate plan may change. If A had the intent of leaving everything to be divided equally among the three children, that result will not happen. Instead, the house will go directly to E, and only the remainder of the estate, excluding the house, will be divided among all three children. Child E will receive a much larger share than A intended.
While transfer on death affidavits can be very useful tools, they may not be appropriate for your personal estate plan. There is no one size fits all in estate planning. You should consult with an attorney to find out how you can build an estate plan that is carefully tailored to meet your personal needs.