Q: I have my bank accounts set up as payable on death to my children. Why can’t I list my home as payable on death also?
A: Payable on death (POD) provisions are common on bank accounts. As most of you know, when you name a POD beneficiary on a bank account, that person owns it as a matter of law on the day that you die.
The beneficiary doesn’t have any ownership rights during your lifetime, but when you die, there is a smooth and easy transfer of ownership without the need for probate.
POD provisions are also available on other types of assets. For example, you can name a beneficiary on a brokerage account. The beneficiary designation is referred to as transfer on death (TOD) rather than payable on death, but the effect is essentially the same.
So if you can designate a bank account as payable on death, why can’t you arrange the title to your home to include a beneficiary designation? The simple answer is you can.
A few years ago, the folks down in Indianapolis enacted the Transfer on Death Property Act. Among other things, the act authorized the use of transfer on death deeds. A TOD deed allows a person to designate a beneficiary or beneficiaries on real estate.
In fact, you can even name secondary beneficiaries in case one or more of the primary beneficiaries pass before you do.
To use the Transfer on Death Property Act and designate a beneficiary for real estate, you need to prepare and record a TOD deed.
The recorder’s office doesn’t treat the deed as a change in title so you aren’t required to file that silly Sales Disclosure Form which gives those of us in the profession fits or pay the fee associated with it. It also doesn’t convey any ownership interests during your lifetime so you can still sell the property or encumber it without the need to involve the beneficiary.
TOD deeds aren’t common yet, but they are becoming more common in small to mid-size estate plans. TOD deeds are another arrow in the estate planning quiver.
Although TOD deeds are useful, I have concerns about their use. Anytime you are messing with the title to real estate, you need to know what you are doing.
I’m not sure why, but people sometimes think preparing a deed is simple and they do it themselves. I’ve seen a lot of situations when folks have messed up a deed and caused a lot of trouble for themselves and their loved ones. Don’t tackle this on your own. Pay someone a few bucks to make sure it gets done right. Plus, if they attorney screws it up, you have someone you can yell at. It’s a win-win situation.