This new type of deed, which became available August 1, 2008, transfers title to real estate at the time of the grantor’s death (Minn. Stat. §507.071). This deed must be recorded prior to the death of the grantor, does not take effect until the grantor’s death, and is revocable at any time up until the grantor’s death. It names one or more beneficiaries who will take title upon the grantor’s death, but conveys no current interest in the property. The recipients are not considered owners during the grantor’s lifetime, so their consent is not needed to manage the property.
A TODD is different from a joint tenancy because the grantee has no rights in the property until the grantor dies. It is different from a life estate, because the grantor can revoke it without the grantee’s consent or signature.
It is similar to a will in that multiple or successor beneficiaries can be named, and the statute governs who takes title if the named beneficiary dies before the grantor. The beneficiary does not have to consent to the TODD or even be aware of it. A TODD cannot be revoked by a will, but can be revoked by another TODD or a current sale or gift of the property by the parent. An Affidavit of Survivorship is recorded to transfer the property to the beneficiary after the grantor’s death, and no probate proceedings are necessary.
A TODD makes sense for people who have a small estate and a want to give it to one or a few people, and who want to retain control of their assets but still avoid probate. However, unintended consequences can arise when multiple, class or successor grantees are named or if some beneficiaries die before the grantor.
• Grantor retains total control over the property during his or her lifetime, including the right to live there, and sell to a third party.
• Grantor can revoke the TODD at any time prior to death.
• Since it does not take effect until the grantor’s death, it is no effect on the grantor’s homestead status, and there is no gift tax consequence.
• The property will receive a step-up in basis for income tax.
• The TODD will eliminate the necessity of a probate proceeding for the property covered by the deed, unless it is necessary to determine the beneficiaries of a class gift.
A Revocable (or Living) Trust can be a substitute for a will in many situations. It provides for continuity of management of assets during the grantor’s lifetime if he can no longer do so, and provides for distribution of his assets after his death. The grantor transfers title to his assets into the trust now, and avoids the necessity of probate after his death. The grantor can be the initial trustee and retain control over his assets, including his home, and appoint a successor trustee to assist him or take over management when he is no longer able to do so. The trustee continues after the grantor’s death to terminate the trust and distribute the assets according to the terms of the trust agreement. This role is similar to that of a personal representative in a probate.
The home owner (as trustee) retains control of his home, can sell, mortgage or maintain it as he wishes, without the consent of his children. However, the home will transfer to his intended beneficiaries after his death without the necessity of a probate proceeding.
A revocable trust can be amended or revoked by the grantor at any time without the consent of any other party.
A person can execute a Will at any time that will transfer title to her home and other property at her death. A Will can be revoked or amended. It does require a probate court proceeding. It can cover all assets owned in the person’s own name that do not have a beneficiary designated, in addition to the home. The person is the sole owner until her death.
The Will can provide that the assets will be transferred directly to the person’s children or other beneficiaries immediately after her death, or provide that the assets will be held in trust until a certain time. Examples include trusts for minor beneficiaries, supplemental needs trusts for disabled individuals who receive governmental benefits, or other trusts designed to reduce the amount of estate taxes owed.
The person making the will retains control over all of his assets until his death, including his home, and can manage them without the consent of his eventual heirs.
Intestate Succession – If a person dies owning a homestead in his own name, and does not have a Will, the homestead will pass to the heirs under Minn. Stat. §524.2-402.
If a person has many children and/or many assets, a Will or Revocable Trust is generally better than a TODD, because those documents can apply to many assets, and it is less likely that many people will end up owning a parcel of real estate.
Although many people want to add their children as co-owners of their home as an estate planning tool or to avoid probate, it frequently causes more problems than it solves. During the period of co-ownership, all owners have to agree on all major decisions regarding the property. This includes sale, refinancing, repairs and maintenance, property taxes, who will live in the home and who will pay all of these expenses. The spouses of all owners must also agree to any sale or refinancing. Disagreements can lead to family disputes and at the extreme, a partition action. There can also be many tax and medical assistance complications. If a parent is ill and expecting to die soon, adding a co-owner or gifting the property can eliminate the need for probate. But if the parent takes these actions early in life or has many children, major problems can result.
The use of other estate planning tools, such as Wills, Revocable Trusts or Transfer on Death Deeds (TODDs) can be more flexible and make it easier to treat all family members fairly. Revocable Trusts and TODDs can eliminate the need for probate which is desirable for some people. However, probate is not as difficult, expensive or lengthy as many people think, and is less likely to cause family disputes as co-ownership of the parent’s home.