Transfer on Death/TOD Deed: What It Is and When to Use It

A transfer on death deed is a property deed that automatically transfers ownership of an asset to a specified beneficiary when the owner dies. The objective is to avoid having the asset go through probate, a court-supervised process that distributes a person's assets after death.

A TOD deed is relatively simple and inexpensive to set up, unlike trusts, which can work similarly to protect your assets from probate. 

Here's what to know about transfer on death deeds and how to set one up.

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• With this type of deed, you'll designate a beneficiary who will automatically own the property upon your death.

• If you don't live in a state that allows TOD deeds, but own property in a state that does allow TOD deeds, you might still be able to use a TOD deed — but check with an estate planning lawyer.

• You typically can still use the property as you wish while alive. A TOD deed generally does not affect the current owner's rights. The beneficiaries don't have access to assets until the owner dies^[0]

  Cornell Law School Legal Information Institute. Transfer-on-Death (TOD). Accessed Mar 10, 2023.

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• You (and, depending on where you live, a person to whom you give power of attorney) can change or revoke the TOD deed while you're alive.

• Depending on where you live, you may be able to name a contingent beneficiary in case your first beneficiary dies before you do.

TOD deeds are available in several U.S. states and the District of Columbia. These states allow TOD deeds: Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Illinois, Indiana, Kansas, Maine, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin and Wyoming. In addition, Ohio has a TOD affidavit rule similar to a TOD deed^[0]

TOD deeds typically include the following, though specific requirements may vary by state.

• A legal description of the property.

• The names of the grantor (the current owner/owners).

• The names of the intended beneficiaries.

• According to state law, language that specifies a transfer to the "grantee beneficiary" upon the death of the owner.

• Notary provisions or witness signatures, depending on the state requirements.

• Registration and filing with your county property records (there may be a small fee).

Some states may offer specific transfer on death deed templates for free download. However, if you want extra help or professional advice about whether this deed is right for you, consider hiring an estate planning attorney.

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• Avoid probate. Property with a TOD deed typically does not have to pass through the probate process to transfer to its beneficiaries. In some states, probate is a long, expensive process and can subject your assets to additional taxes.

• Avoid federal gift tax paperwork. Giving away property while alive may count as a gift in the eyes of the IRS and may require the giver to file a gift tax return. TOD deeds may avoid this by transferring the property after you die.

• Maintain Medicaid eligibility. You may not qualify for full Medicaid benefits if you've transferred property during the five years before applying. Property with a TOD deed doesn't count as an instant transfer of the property and thus shouldn't affect your eligibility^[0]

  UNT Dallas College of Law. How A Transfer On Death Deed Affects Medicaid Benefits. Accessed Dec 19, 2023.

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• It might prevent property from being used to repay Medicaid benefit costs. For example, U.S. federal law allows states to claim a person's property after death to recover Medicaid costs for long-term medical care. However, in some states, property with TOD deeds may not be part of your estate and can't be claimed by Medicaid.

» MORE: Why joint tenants with right of survivorship (JTWROS) status can avoid probate too

• Creditors may come after the new owner(s) of the property. State laws vary, but if the decedent had any debt, creditors typically have a set period of time to file a claim on the decedent's assets, even if those assets have been transferred to someone else. This can make it hard to get title insurance on the property immediately, which can in turn make it hard to sell the property^[0]

  For example, State Bar of Montana. You’ve been warned: Lurking issues remain with transfer on death deeds. Accessed Dec 19, 2023.

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• Beneficiaries may get equal shares of the asset. In some states, such as California, multiple beneficiaries on TOD deeds can't inherit unequal shares of the property, and you can't name a backup beneficiary^[0]

  California Law Revision Commission. Revocable Transfer on Death Deed: Follow-Up Study. Accessed Dec 19, 2023.

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  . In addition, your estate plan may be too complex for a TOD deed if you have multiple children to whom you'd like to pass property.

• Not available in many states. If you live in a state that doesn't allow TOD deeds, you'll need to find an alternative estate planning method.

• Unintentional disinheritance. If the owner doesn't update the transfer on death deed after the birth of a new child or grandchild, someone might be excluded inadvertently when the owner dies.

• Raises the risk that estate planning documents don't match. Things can get tied up in probate court if the transfer on death deed indicates that a property should go to one person but the will says it should go to someone else.

• May create uncertainty if a beneficiary dies before the property owner does. If that occurs, questions may arise about whether the beneficiary's heirs inherit the beneficiary's share or if the property should be divided among the surviving beneficiaries.

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