Oregon law now permits a Transfer on Death Deed (“TOD Deed”) that allows the owner or owners of real property to execute a deed that names one or more beneficiaries who will succeed to ownership at the owner’s death without a probate. However, as with any estate planning device, TOD Deeds have several pros and cons to consider. A TOD Deed creates no current legal or equitable interest in a beneficiary, can be revoked at any time, and does not affect the rights of the transferor’s creditors. As such, the completion and recordation of a TOD Deed is not a completed gift for tax purposes. The owner retains control over the property and cannot only revoke the deed, but can transfer title to third parties. Accordingly, the TOD Deed is superior in many ways to tenancies with right of survivorship or life estates as the transferor retains control and ownership.
- When a TOD Deed May Be Indicated. TOD Deeds are most likely to be advantageous for smaller estates with simple dispositive plans without multiple beneficiaries or contingencies. The TOD Deed may also be useful for unmarried or unregistered partners as it can be easily revoked if the relationship does not continue. In addition, a TOD Deed could be used for funding a revocable trust when lifetime transfers are problematic, such as property being marketed for sale, or property encumbered by a trust deed or other security instrument that prevents a current change of title.
- When to Avoid a TOD Deed. The TOD Deed may be unsuitable for larger estates, particularly if the estate plan is complex and/or the transferor desires to provide for even fairly basic contingencies. For example, people with several children typically want to provide that grandchildren would take a parent’s share in the event the parent were to predecease the transferor – easily done with a will or trust. A TOD Deed cannot accomplish such contingency planning very effectively (at least as the law is currently drafted). Alternate beneficiaries take a share only if none of the primary beneficiaries survive the transferor. Also, a blended family may not be an appropriate situation for a TOD Deed given that the surviving spouse would still retain the ability to revoke or execute a new TOD Deed naming only his or her surviving children. Finally, when a transferor anticipates that the beneficiaries will want to sell the property quickly, a TOD Deed is not ideal. Under the TOD law, interested persons and creditors have 18 months in which to contest or make claims on property transferred by a TOD Deed. Such uncertainties make title insurance very difficult to obtain during the 18-month period, thus making the property equally difficult to sell. In contrast, a traditional probate or trust administration allows sale almost immediately.
- Practical Points. Professional guidance is still important even if a TOD Deed seems to be a good fit, both to confirm that a TOD Deed does makes sense in the circumstances and to ensure that the actual language of the TOD Deed accomplishes the transferor’s wishes. There are many aspects of TOD Deeds that are unlike conventional deeds and beneficiary designations – making them tricky to draft. Beneficiaries of a TOD Deed must be identified by name – class gifts (such as “to my children”) are void. Similar to wills and trusts, if a transferor’s marriage is dissolved after the recording of the deed and the transferor’s spouse is named as beneficiary, all provisions in favor of the former spouse are revoked by law unless the deed specifically provides otherwise. On the other hand, an omitted spouse or child is not protected under the TOD Deed statute. A subsequent marriage or birth after the execution of a TOD Deed does not change the TOD designation. Further, when multiple concurrent interests are transferred to designated beneficiaries, the designated beneficiaries receive equal and undivided interests with no right of survivorship – there is no mechanism for providing different percentages of ownership among beneficiaries. A trust can be a beneficiary of a TOD Deed, but one should be careful to name a specific trustee along with the trust rather than simply “the XYZ trust” as the statute requires naming of specific persons rather than a class of persons. Keep in mind also that the title transferred by a TOD Deed is subject to all existing mortgages or others liens, so the transfer needs to be coordinated with other elements of an overall estate plan. Finally, note that a TOD Deed must be recorded prior to the transferor’s death in order to be effective.
In summary, TOD Deeds can be a useful tool, but must be used wisely. Given that real property is often the single largest portion of any decedent’s estate, TOD Deeds should be considered and drafted as carefully as a traditional will or trust.