Transfer on Death? A Good Option.
In 2008, the Minnesota legislature enacted a law permitting the use of transfer on death deeds (“TODD”) to convey Minnesota real estate. A TODD is a deed which conveys real estate to a grantee (called a “grantee beneficiary” in Minnesota’s statute), but is not effective until the death of the grantor.
One benefit of using a TODD is the avoidance of a probate proceeding (the process necessary to transfer property via a will), which can be expensive and lengthy. A TODD acts like payable on death designations on bank accounts, and allows for an automatic transfer of assets (in this case, real estate) to intended beneficiaries upon death. TODDs are most commonly used for estate plans that do not warrant the more expensive establishment and administration of living trusts.
A TODD is distinctive because the transfer of title it is not effective until the grantor owner dies. The TODD does not interfere with the grantor owner’s complete ownership and control of the real estate during the owner’s lifetime because the TODD transfers the property interest only upon the death of the grantor owner. There is no requirement that a grantee consent or accept a TODD. In fact, the grantor owner can record the TODD without ever giving notice or making delivery to the grantee.
Another primary benefit of a TODD is that it can be revoked by the grantor owner at any time prior to death without the consent or signature of the grantee. Practically speaking, the TODD provides greater freedom to the owner than comparable estate planning options. The grantor owner can mortgage the real estate and can sell all or part of the real estate to a third party. These actions do not require any involvement of the grantee.
The interest transferred to the grantee by a TODD is subject to all conveyances, encumbrances, and contracts made by the grantor owner, or to which the real estate was subject during the grantor owner’s lifetime (for example, mortgages and medical assistance liens). This means that if there was a mortgage on the real estate conveyed at the time of the grantor’s death, the grantee would receive the real estate subject to the mortgage and would have to pay the mortgage in order to remove the mortgage from the title. However, the grantee would not be personally liable for the debt (the lender could foreclose on the real estate, but couldn’t sue the grantee to collect on the loan). Unless secured by a mortgage or judgment on the real estate conveyed, other debts of the grantor owner do not attach to property conveyed by TODD.
A TODD is not revoked by a will. A TODD can be revoked by simply recording another TODD deed or by recording a revocation according to the requirements of the statute. If there are multiple TODDs recorded for the same property, the TODD with the latest acknowledgment date is the effective transfer and revokes all prior TODDs. Importantly, a TODD must be recorded in the county where at least part of the real estate is located prior to the grantor owner’s death in order to be effective. If unrecorded at the time of death, a TODD is ineffective.
To illustrate the advantages of a TODD, consider the options: Jane owns real estate; she wants her son Tom to inherit the real estate. She can convey the property to herself and Tom as joint tenants (a joint tenancy deed), and on her death Tom would become the sole owner. However, if Jane later wants to sell or mortgage the property, Tom must consent and also sign the deed or mortgage. If Jane changes her mind and wants to give the property to her son Max, she can only give her undivided one-half interest. Tom would retain his undivided one-half interest.
In the alternative, Jane could convey the real estate to Tom, reserving a life estate for the duration of Jane’s life (a life estate deed). If Jane later wants to sell or mortgage the property, Tom must join in the deed or mortgage in order for the entire interest in the real estate to be mortgaged or sold. Jane’s interest in the property is limited to her life estate interest. She can sell her life estate, but this only gives the buyer the right to possess the property as long as Jane is alive. If Jane wants Max to inherit the property instead of Tom, Tom must consent.
A TODD gives Jane more flexibility in choosing how to dispose of the real estate. Jane can convey the real property to Tom by a TODD. If Jane later decides she needs to mortgage the real estate, she can do so without Tom’s consent. If Jane decides to sell the property, she can without obtaining Tom’s consent. If Jane wants Max to inherit the property, she simply conveys the property to Max using another TODD.
TODDs offer an additional option when planning for the disposition of real estate. Of course, each legal matter is unique so you should consult with an attorney to determine the best solution for your specific circumstances.
Written for: The Women Today Magazine