Recently Utah passed a law that allows you to make a deed to name a beneficiary to receive your Utah real estate at your death. Since a home is typically the real estate everyone owns, I will discuss your home in this article. You might be familiar with other assets that pass automatically to named beneficiaries at death, such as life insurance, annuities, and IRAs. A Transfer on Death Deed is meant to work in a similar way. Using a Transfer on Death Deed is intended to pass your home to your named beneficiaries at your death efficiently and without probate.
A Transfer on Death Deed allows you to name one or more beneficiaries to receive your home at your death. The beneficiaries have to be specifically named. You cannot leave your home to “all of my children,” for example. Rather, you have to name them each specifically, like “John Doe, Jane Doe, and Jeff Doe.”
You are free to change your Transfer on Death Deed throughout your life by recording another deed. If you want to change who is to receive your property at your death, you can do so. You can also sell or give your home to different persons without telling the beneficiaries that you are selling your home or giving your home away. Also, you can mortgage your home without involving your beneficiaries. In other words, a Transfer on Death Deed has no effect on what you can do with your home during your lifetime. But at your death, it will very efficiently pass your home to your named beneficiaries – usually.
There are some downsides to be considered before using a Transfer on Death Deed. First is that you can only change or cancel a Transfer on death deed by recording another deed at the county recorder’s office. You cannot be on your death bed and sign a will or letter of instruction giving your home to someone else. A last minute will or letter will not cancel a Transfer on Death Deed. You must prepare and record a new deed to change or cancel a Transfer on Death Deed.
Secondly, it is seriously difficult in a Transfer on Death Deed to make alternate provisions in the event a beneficiary dies or becomes incapacitated before you. A will or trust on the other hand often has contingent beneficiaries or alternate distribution plans built in if a beneficiary dies or becomes incapacitated before you. Your will might say, “I give my estate in equal shares to my children; if any of my children fail to survive me, I give that deceased child’s share to their then-living issue, per stirpes.” You cannot make that same instruction in a Transfer on Death Deed because that instruction does not specifically name each individual to whom the home should pass. Wills and trusts are better suited to making contingency plans for changes that need to happen due to common life events.
Third, if you outlive your named beneficiaries your home will have to go through the court probate process at your death to determine who is to receive your home. A trust is superior to a Transfer on Death Deed in this regard because a home held in a properly drafted trust will avoid probate in any event.
Fourth is that the law is only effective for real estate in Utah. If you own real property in another state, you will still need a will or trust to dispose of that out-of-state real property. And if you are using a will or trust for real estate in another state, it is most likely not worth the trouble to use a Transfer of Death Deed for your Utah property because your will or trust can take care of all of your real property at the same time.
Fifth, sometimes the equity in your home is needed to pay specific gifts to other beneficiaries or to pay final bills and expenses. Using a Transfer on Death Deed removes the home from your estate, so its equity cannot be used for these other purposes. However, this may also be seen as a positive in many situations if you want the home to pass to your named beneficiaries free of any claim from other family members or creditors. Thought has to be given to make sure there are sufficient assets other than your home for the other gifts stated in your will or trust and to pay expenses.
There are other considerations to be given before a Transfer on Death Deed should be used. This law gives you another tool in the tool box to be used at the right time and under the right circumstances. It certainly is not a “one-size-fits-all” law, and should be used only after discussing all of your estate planning options with an experienced attorney.
M. Sean Sullivan is an attorney with 22 years of experience in will, trust, and estate planning law, and has worked with clients from all parts of the United States. His office offers free (and stress-free) initial consultations for your convenience.