A transfer on death deed (“TODD”) is a document that an owner of real property can use to name someone, called a “beneficiary,” who will take the property when the owner dies. A TODD allows the owner to transfer real property at his or her death without having to go through the court system. The owner just has to record the TODD in the county where the real property is located. When the owner dies, the beneficiary simply must record a copy of the owner’s death certificate in the county where the real property is located to transfer title into his or her name.
Why Doesn’t Everyone Use a TODD?
It sounds almost too good to be true. So why doesn’t everyone use a TODD? The main drawback of a TODD is the fact that for a period of 18 months after the date of the owner’s death, the validity of the TODD can be challenged and creditors of the owner can file a lien against the property. Under Oregon law, challenges the validity of a TODD can be brought before a judge on the grounds of capacity, fraud, or undue influence. In addition, a TODD does not affect the rights of the owner’s creditors. Property that is transferred is subject to all encumbrances, liens, and restrictions. Any creditor of the owner can enforce a liability against the property. As such, when a title insurance company issues a policy they will most likely exclude coverage for any claims that arise within 18 months of the owner’s death.
What Happens if the Property has a Mortgage?
Another consideration is whether the property has a mortgage. Most mortgages have a due-on-sale clause which states that the lender may require payment in full of the loan upon the sale or transfer of the ownership of the property. If the beneficiary is a relative of the owner, a due-on-sale clause should not be triggered. It is unknown if a lender would be willing to waive a due-on-sale clause if the beneficiary is not related to the owner.
What Is the Big Deal About the 18-Month Claim Period?
The 18-month claim period after the owner’s death could be problematic if the beneficiary wishes to sell the property within 18 months of the owner’s death. New buyers may not want to assume the liability of any potential claims.
What Are Some Benefits of Using a TODD?
The main benefit of using a TODD is avoiding having to go through the court system, called a “probate,” to transfer the real property. Probates are expensive and lengthy. If an owner of real property dies and the property is titled in his or her individual name without a way to automatically transfer title on this property, then the property will have to go through probate to transfer title. A TODD is one way to automatically transfer title on real property at the owner’s death without having to go through the court system.
Another benefit of using a TODD is the property owner retains all his or her rights in the property while he or she is alive. The TODD is fully revocable, it creates no present interest in the beneficiary, the property can be sold without any notice or permission from the beneficiary, and the property is not subject to the beneficiary’s creditors. In addition, because the transfer occurs at the owner’s death, the property should be given a stepped-up basis which could result in minimal or no capital gains taxes if the beneficiary wishes to sell such property.
A TODD can be a useful estate planning tool, but you should contact an estate planning attorney to discuss whether a TODD is the best way to accomplish your estate planning wishes. Have questions? Contact us to learn more.