Most people are familiar with deeds. Though they come in many different varieties, deeds convey interests in real property.
A deed can be used to convey all of someone’s ownership of property, or it can be used to convey a more limited interest, such as a life estate.
Whatever the case, a conveyance is usually effective as soon as a deed is signed.
A transfer on death deed (or “TOD Deed”) is different, only transferring ownership of the property after the owner’s death. But if properly executed, and if the beneficiary satisfies all the legal requirements for claiming the property after the owner’s death, a TOD Deed can potentially avoid the need for probate.
Requirements of Oklahoma Transfer on Death Deeds
Not every state allows TOD Deeds, and every state has its own rules governing these deeds.
In Oklahoma, a TOD Deed is executed somewhat like a last will and testament, though it is specifically not a will and does not need to satisfy the requirements of a valid will. In addition to being signed by the owners of the property, the document must be attested by two witnesses and notarized.
Related post: What Is The Difference Between a Will And a Trust?
Once it is signed, witnessed, and notarized, the deed also has to be recorded in the office of the county clerk of the county in which the real property is located. Recording must occur before the owner’s death.
The tricky part comes after the owner’s death.
Oklahoma is one of only two states (along with Georgia) that gives beneficiaries under a TOD Deed a limited period of time to claim the property after the owner’s death. Each beneficiary must file a certain kind of affidavit, along with a certified copy of the deceased owner’s death certificate, with the county clerk within nine (9) months of death.
If any beneficiary does not record the necessary documents to claim their interest in the property within nine months, their portion of the property must be probated.
Benefits of TOD Deeds
The main benefit of a TOD Deed is that it can avoid probate.
Let's say Joe wants to leave his house to his son, Dan. If Joe’s will says that the house should go to Dan, Joe’s estate still has to be probated after his death before Dan can get the house.
Related post: 5 Ways To Avoid Probate
But if Joe signs and records a TOD Deed during his lifetime, Dan can obtain title to the house after Joe’s death by filing the required affidavit and death certificate.
Another benefit of a TOD Deed can be less taxes.
Inheriting property allows beneficiaries to take advantage of a tax concept known as “stepped-up basis” that can dramatically reduce the income taxes they have to pay if they sell the property after the owner’s death.
Some people add their children to their house deed during their lifetime, making them joint tenants with rights of survivorship. That can keep the house out of probate if their children survive them. However, it can also lead to expensive tax consequences for the children, since they will not qualify for a stepped-up basis.
Related post: What is Stepped-Up Basis?
A TOD Deed allows you to avoid the need for probate while enabling your beneficiaries to reduce (and perhaps even eliminate) income taxes after your death.
Shortcomings of TOD Deeds
Despite its benefits, TOD Deeds have several limitations.
First, real property may still be subject to probate if all of the beneficiaries under the TOD Deed do not file the proper paperwork to claim their interest after your death.
Second, a minor or incapacitated beneficiary cannot claim property under a TOD Deed. Oklahoma law currently does not allow one person to file an acceptance on behalf of another. This means that if a beneficiary is not 18 or does not otherwise have legal capacity within nine months of your death, at least some interest in the property will have to be probated.
Third, and relatedly, a TOD Deed does not allow you to restrict a beneficiary’s access to their inheritance. Many people like to control when a beneficiary receives their share of an estate, e.g., some at 25, some at 28, and the rest at 30. However, the only way to achieve that is by creating a trust. With a TOD Deed, a financially irresponsible beneficiary would be able to sell the property upon your death and do whatever they want with the proceeds.
Fourth, it does not avoid the problems that can arise when multiple people own real property. Suppose you want to leave your estate equally to your three children. You execute and record a TOD Deed naming them as beneficiaries of your home. After your death, they all accept their interests before the nine-month deadline. However, now they all have to agree on what to do with the property.
If two of them want to sell but the third does not, they would need to file a costly partition lawsuit in order to do so. Even if all of them agree to sell the property, one of them might want to put money into fixing up the house before selling it, while the others may not. Any decision regarding the property is a possible point of contention between the beneficiaries. With a trust or a last will and testament, you name a trustee or personal representative who would make those decisions, reducing the potential for friction between beneficiaries.
Talk With an Attorney About TOD Deeds
Although TOD Deeds have their limitations and may not be the best option for everyone, they can still be a great way to keep real property from having to be probated after your death.
To talk more about your estate plan, contact the Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation appointment.
David M. Postic is a shareholder at Postic & Bates, P.C. His practice focuses on estate planning, asset protection, probate and trust administration, business planning, and real estate transactions.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our blog posts and other publications and resources, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]
