Julie Jason: Many states are embracing transfer-on-death deeds

In some but not all states, if you own real estate when you die, the property will pass to your heirs through the probate process. More than 20 states, however, allow deeds to be registered in transfer-on-death (TOD) form in order to bypass probate.

These laws act much like the nonprobate transfer laws that permit bank accounts, securities accounts and even cars to be registered in transfer-on-death form.

"The transfer-on-death deed is a will substitute that permits the transfer of property to an heir after the decedent's death without the often burdensome, costly and delayed probate process," says Kieran Marion of the National Conference of Commissioners on Uniform State Laws (ULC). The ULC drafts and promotes the enactment of uniform laws that are designed to solve problems common to all states. The ULC adopted the Uniform Real Property Transfer on Death Act in 2009.

While transfer-on-death deeds are not for everyone, they "help many people, especially those whose major asset is real property," says Katie Robinson, spokesperson for the ULC.

Before adopting the TOD deed model act, the ULC considered a myriad of factors that could trigger unintended consequences, such as the capacity of the donor, the effect of other recorded documents, multiple owners, grounds for contesting transfers, the effect of co-ownership with rights of survivorship, delivery, recording of the deed, revocation, the rights of beneficiaries during the donor's lifetime, the incapacity of beneficiaries, disclaimers, probate protections for omitted spouses and the spouse's elective share, Medicaid eligibility and the like.

A number of states had adopted TOD deeds before the adoption of the model act: Missouri (1989), Kansas (1997), Ohio (2000), New Mexico (2001), Arizona (2002), Nevada (2003), Colorado (2004), Arkansas (2005), Wisconsin (2006), Montana (2007), Oklahoma (2008), Minnesota (2008) and Indiana (2009).

After the model act was adopted in 2009, New Mexico (2013) and Nevada (2011) updated their TOD laws, and a number of others states adopted the model act. They are Alaska (2014), District of Columbia (2013), Hawaii (2011), Illinois (2011), Nebraska (2010), North Dakota (2011), Oregon (2011), South Dakota (2014), Virginia (2013), Washington (2014) and West Virginia (2014). Three more states are considering adopting the act (Maryland, Tennessee and Texas).

Some states, such as Connecticut, declined to pass the legislation.

"The Connecticut Legislature's failure to adopt the TOD deed is inexplicable and incomprehensible," said attorney Ernest N. Abate of Abate and Abate LLC of Stamford, Conn. "The law would allow people to transfer a home to a designated beneficiary who would take title immediately upon the death of the grantor without any consideration of the need to pay gift taxes on the transfer or the fear of the loss of control of the home. Avoidance of probate and all that entails is an additional benefit."

Monica Adorno, a reader of this column and a retired CPA and enrolled agent, agrees. She believes that "legal recognition of the TOD designation for real-estate deeds would facilitate orderly and smooth transfers of real property without the necessity of probate administration. This, in turn, would translate to an ease of administration for legal beneficiaries, a reduction of economic costs, simplified estate plans and a lower workload for Connecticut's probate courts."

If you would like to see TOD deeds permitted in your state, contact your state legislators. Ask them to sponsor and support the adoption of the Uniform Act. For some ammunition, the ULC has a handy list of reasons why your state should adopt the Uniform Act at http://tinyurl.com/m2bzcdx. If you need help finding your legislators, email me at readers@juliejason.com. I can also provide you with a copy of ULC's 2009 Q&A explaining how TOD deeds work.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/ comments (readers@juliejason.com). To hear Julie speak, visit www.juliejason.com/events.