In a letter to Jean-Baptiste Le Roy in 1789, Benjamin Franklin coined the phrase, “nothing can be said to be certain, except death and taxes.” However this article discusses that, while death is certain, probate doesn’t have to be. Will substitutes (and popular probate avoidance techniques), such as beneficiary designations on life insurance and retirement accounts, as well as joint accounts, have become increasingly popular in the last century. Such designations pertain to the transfer of personal property assets at the death of the account holder. With the recent advent of the transfer on death deed, probate avoidance techniques have developed for real property as well. The article explores not only the reasons to avoid the probate process and the intention for the transfer on death deed to accomplish just that but also the origins of transfer on death deed legislation and the uncertainties that remain in those states that haven’t enacted some form of legislation to recognize the transfer on death deed.
The article discusses that, prior to the invention of the transfer on death deed, the only ways for real property owners to avoid probate were through: (1) deeds that transferred some property interest at the time of the transfer, which required the real property owner to give up some ownership and control; or (2) deeds to revocable trusts, which are sometimes considered to be cost prohibitive and unnecessarily complicated. Instead, with the transfer on death deed, the real property owner is simply designating a beneficiary to receive ownership of the real property at the owner’s death, not giving up any property rights currently or incurring the expense of creating a trust.
The article then explores the benefits of a transfer on death deed, which include: (1) the retention of control by the real property owner or grantor; (2) no gift tax implications; (3) creditor protection for the beneficiary until the death of the real property owner; (4) creditor protection for the estate; (5) lower costs than transferring real property through a trust or through probate; and (6) the ability of the real property owner to revoke the transfer at any time and change the beneficiary. Despite these benefits, states aren’t consistent with how they treat transfer on death deeds. There are states that recognize them through common law, by statute or not at all. The author suggests that each state should enact a suggested form of the Uniform Real Property Transfer on Death Act (URPTODA) to resolve the uncertainty.
The article does point out that, without the certainty brought about by the universal enactment of the URPTODA, litigation will continue regarding such things as the required formalities for transfer on death deeds, who can be a grantor or a beneficiary of an effective transfer on death deed and whether a life tenant with reserved additional powers retains the power to revoke the remainder interest or convey it to a third party without the joinder of the remainder beneficiaries. On the other hand, the URPTODA brings clarity to such issues as: (1) the formalities that are required for a valid transfer on death deed; (2) the effect of the execution of the transfer on death deed to the interests of the grantor and beneficiaries; and (3) the revocability of, and process to revoke, a transfer on death deed.
For attorneys who live in a state that’s enacted some version of URPTODA or where its enactment is a possibility, this article is worth reading. It’s also worthwhile for others who advise clients who acquire property in multiple states.