Dying with Real Estate

Dying with Real Estate

Much of estate planning is tailored to those items that can pass outside of probate and those that cannot.  An example of something that can transfer outside of probate is real estate. Others include insurance proceeds, investments, and bank accounts.  Upon the death of the decedent, these items will transfer to previously named beneficiaries, notwithstanding the decedent’s will.  A will is aimed to deal with those items of property that are not automatically conveyed upon death.  examples include household items, family heirlooms and possibly real estate.  A will has to be submitted to a probate court as part of a “probate estate.”  This is where all the debts of an estate are paid, and proceeds distributed to beneficiaries named in a will or heirs.  By taking certain steps in advance of death, a property owner can be sure that real estate transfers directly to beneficiaries without going through a costly and time-consuming probate process.

About 27 states have a mechanism by which real property is conveyed to another upon the owner’s death.  In some states, the mechanism is referred to as a Transfer on Death Deed.  Ohio’s statutory process previously utilized the Transfer on Death Deed, but since 2009 uses what is called a Transfer on Death Affidavit or TOD Affidavit.  The purpose is to allow the transfer of real property outside of the probate process.

The law provides that an owner of real property or any interest in real property may designate their entire interest, or specified part of their interest, in their real property be transferred upon death to a specified beneficiary or beneficiaries.  If the TOD Affidavit is filed, upon the owner’s death, title to the real property vests with the beneficiary or beneficiaries listed in the affidavit.

There are a couple of important considerations.

  • The TOD Affidavit must be recorded in the county in which the property is located prior to the owner’s death.
  • The beneficiary on a TOD Affidavit may not claim an interest in the real estate prior to the owner’s death. The recording of the TOD Affidavit does not alter the current owner’s interest in the property and the conveyance only occurs upon the death of the owner.
  • The owner may name one or more beneficiaries and even contingent beneficiaries that would take ownership if the beneficiaries die before the owner.
  • The transfer occurs when the beneficiary files a death certificate and affidavit with the recorder’s office.

Although the TOD Affidavit may be a useful tool to handle the conveyance of real property outside of probate, it is important to consult with an attorney and a tax professional to be sure the TOD Affidavit is prepared correctly, and any estate tax consequences are fully understood.