Transfer-on-Death Deed (TOD Deed)

As discussed in How to Avoid Probate of Real Estate, a transfer-on-death deed is a new and popular tool to avoid probate. If you own property in a state that recognizes TOD deeds, a TOD deed is often the best choice to avoid probate. Unlike life estate deeds and right of survivorship deeds, a TOD deed form avoids probate without sacrificing control. A property owner that creates a TOD deed retains the right to change or revoke the deed during life without the consent of the beneficiaries.

A transfer-on-death deed form works like a beneficiary designation on a bank or investment account. The property owner names someone to inherit the property at the owner’s death. During the owner’s life, the owner can change his or her mind. The property owner may cancel the designation, sell the property, or name a different beneficiary or group of beneficiaries. This retained control during life—coupled with the ability to avoid probate at death—makes transfer-on-death deeds an attractive choice for many property owners.

States that Recognize Transfer-on-Death Deeds

Transfer-on-death deeds are the newest type of deed for avoiding probate. Missouri was the first state to recognize transfer-on-death deeds in 1989. Since then, transfer-on-death deeds have gained popularity, spurred mostly by the enactment of the Uniform Real Property Transfer on Death Act (URPTODA) in 2009. URPTODA was promulgated by the Uniform Law Commission as a model act for states to use in creating their laws. The enactment of a model act like URPTODA can prompt states to act more quickly when considering legislation.

Since URPTODA was introduced, 16 states have enacted it. Other states have created their own laws that are similar to URPTODA. More than half of U.S. jurisdictions now recognize some form of transfer-on-death deed. These jurisdictions include:

* States that have adopted the Uniform Real Property Transfer on Death Act

As of 2023, New Hampshire, Kentucky, Rhode Island, and Connecticut, are all considering the adoption of URPTODA. Regardless of whether these states enact URPTODA, there is a definite trend toward recognition of transfer-on-death deeds.

Other Names for Transfer-on-Death Deeds

The term transfer-on-death deed is often abbreviated to TOD deed or simply TODD. Some states that recognize have their own names. In Arizona, Arkansas, Colorado, and Missouri, TOD deeds are called beneficiary deeds. In Illinois, a TOD deed is called a transfer-on-death instrument. In Nevada, a TOD deed is called a deed upon death. These names all refer to the same type of deed.

TOD Deeds vs. Lady Bird Deeds

A transfer-on-death deed serves the same purposes as a lady bird deed (also known as a ladybird deed or enhanced life estate deed). Both provide continued control during life and pass the property at death. Lady bird deeds are only recognized in a handful of states (including Florida, Texas, and Michigan). Although the two deeds serve the same purposes, they are based on different sources of law and are not identical.

If a state only offers TOD deeds, then a TOD deed is often the best choice for avoiding probate. But there some states, like Texas, may offer both TOD deeds and lady bird deeds. In those states, it can be a close call between a lady bird deed and a TOD deed. In Texas, for example, lady bird deeds are often a better choice than a TOD deed for the reasons listed in our discussion of Texas TOD deeds vs. lady bird deeds.

Benefits of Transfer-on-Death Deeds

Transfer-on-death deeds have several advantages that make them popular estate planning tools. The Uniform Law Commission identified three primary benefits of transfer-on-death deeds.

• For avoiding probate, a TOD deed is an inexpensive alternative to a living trust. People have long used living trusts to avoid probate, but—according to the Uniform Law Commission—the cost of establishing and funding a trust can be “prohibitively expensive for smaller estates.” TOD deeds allow lower-income families to avoid probate using a more straightforward means, without the expense of a living trust.
• A TOD deed allows the property owner to keep control of their property. If the owner wants to change or revoke the deed before death, he or she may do so. The TOD beneficiary named in the deed has no interest in the property and no say in the matter. This retained control distinguishes TOD deeds from other deed forms—like life estate deeds or joint tenancy with right of survivorship—that forfeit at least some control to the desired beneficiary.
• TOD deeds are proven. Although there were concerns when TOD deeds were first introduced, these concerns have proven to be unfounded. According to the Uniform Law Commission, “the TOD titling process has been well received by recording officers, real estate attorneys, and the title insurance industry. TOD deeds are no longer novel and the citizens of the remaining states should also benefit from the opportunity to transfer real property outside of probate simply and effectively.”

Transfer-on-death deeds have several other characteristics that also contribute to their popularity.

• A TOD deed is not a taxable gift while the owner is still alive. Because the owner retains control over the property, a transfer by TOD deed is an incomplete gift for tax purposes. No gift taxes are owed and no gift tax return need be filed.
• A TOD deed can save taxes after the owner’s death. Federal law treats person named as a beneficiary in a TOD deed as having acquired property from a deceased person. This allows the income tax basis in the property to be adjusted to fair market value at the owner’s death. This basis step-up permanently avoids tax on any appreciation that accrued while the deceased owner owned the property.
• A TOD deed can help property qualify for state tax and asset protection benefits. Many states provide special tax and asset protection benefits to a person’s principal residence (homestead). These benefits can include reduced property tax rates, a cap on increases in value for property tax purposes, and enhanced asset protection benefits. Depending on state law, a TOD deed can preserve these benefits. Because the transfer does not occur until the owner’s death, the owner can continue to qualify for these benefits during life.
• A TOD deed is not a disqualifying transfer for Medicaid purposes. When a person applies for Medicaid, the state Medicaid office will look at any uncompensated transfers (gifts) within a lookback period (usually five years). If the Medicaid applicant made gifts, the Medicaid office may use the value of those gifts to calculate a penalty period that will prevent the applicant from qualifying for Medicaid for a period of time. Many states do not treat a TOD deed as a gift for purposes of calculating the penalty period.
• A TOD deed can keep the property from going to the government after an owner’s death. States have Medicaid recovery rules that allow the state Medicaid office to file claims against a deceased Medicaid recipient’s assets. Some states limit Medicaid recovery to assets that are part of the deceased recipient’s probate estate. In those states, TOD deeds can keep the property from going to the government to repay Medicaid benefits. Because the property is transferred without probate, it is outside of the probate estate and not available to satisfy Medicaid recovery claims.

Requirements for Transfer-on-Death Deeds

Transfer-on-death deeds are designed by state law to be user-friendly. While the exact requirement for transfer-on-death deeds can vary by state, a few general principles apply.

• A TOD deed must include the elements of a regular deed. These elements include a valid legal description, page formatting and font size requirements, and state-specific signature and notary acknowledgment requirements. Depending on state law, these elements may also include a statement of consideration, the warranty of title, and the manner in which multiple owners will hold title to the property.
• The TOD deed must state that the transfer will occur at the transferor’s death. This language makes it clear that the deed is a TOD deed and not a lifetime transfer.
• The TOD deed must be recorded before the transferor’s death in the public records in the county where the property is located. This requirement helps ensure that the deed is a valid nonprobate transfer made while the transferor was still alive.

Transfer-on-death deeds may have limitations that do not apply to other deeds. For example, some states—including Texas—provide that a transfer-on-death deed cannot be created by an agent under a power of attorney. This limitation does not apply to other forms of deed, which can usually be signed by an agent under a valid power of attorney.

Particular care should also be taken when the property is owned jointly with right of survivorship. As a general rule, the right of survivorship will trump the transfer-on-death deed. On the death of the first owner, the property will pass to the surviving owner as provided by the right of survivorship. Because the transfer-on-death deed does not become effective until the death of the surviving joint owner, the surviving owner can revoke the deed before his or her death.

How to Create a Transfer-on-Death Deed

Transfer-on-death deeds are created by state laws that describe the requirements. These requirements can be very specific and often involve the use of a particular form. Deviation from the particular form can cause problems with the transfer-on-death deed. These problems could invalidate the deed or create title problems that require litigation to resolve.