Is a transfer on death deed smart? Family wants to know how they should transfer ownership of an expensive home.

Q: Do you think it smart to do a “transfer on death” deed on real estate we own? Our home is quite valuable and we want to leave it to our heirs. My home state, Hawaii, does allow this. I just don’t know if it’s a good idea.

What is a transfer on death deed (TOD)?

A: Let’s first address the concept of a transfer on death (TOD) deed. As the name implies, you can sign a document today that you would record or file with the local office that handles recordings of filings of real estate documents. In that document, you designate who gets your property upon your death. When you die, the document becomes effective and transfers ownership of the home automatically to the person designated in the transfer on death deed.

For some transactions, the transfer on death document might be a good idea. But we don’t recommend it for all situations.

Married couples might do this instead of a TOD

Married couples should own their marital home as joint tenants. With joint tenancy, the interest of the deceased spouse transfers automatically to the surviving spouse.

In other situations where non-married individuals co-own a property, joint ownership with rights of survivorship may be a better option. Often, those who want to use a transfer on death deed are usually individuals who don’t have significant or a wide variety of assets. Their biggest, and likely only asset, is their home.

Let’s say you fall into this category. You want to keep your home in your name while you’re alive but want the home to go to your heir upon your death. And, you don’t want to pay for an estate plan, a will or a living trust. In this situation, you might benefit from the transfer on death deed. Upon your death, your sole asset – your home – goes to your heir.

Disadvantages of a transfer on death deed (TOD)?

Sounds good, but in certain circumstances, there could be some disadvantages, particularly if your heirs want to turn around and sell your home immediately after your death.

Here’s a possible scenario. Before transferring title to the property, most title companies want to know that your debts have been paid off. They need to know that you didn’t owe money to the IRS, debtors, hospitals, doctors or others when you died.

When you die and have a will, the executor of your estate has to pay any expenses of debts you owed at your death. The executor will use the proceeds from the sale of the estate’s assets to pay off those debts. Given that there is no probate in a transfer on death deed situation, the title company may not want to insure the sale of the property to whoever buys the property from your heirs. Or they may require a bond or other payments to ameliorate the risk of insuring the new buyer against claims to proceeds of the sale of the property, the only asset in the estate.

Talk to an attorney before you complete a TOD

In your case, you said your home is quite valuable. If this is the case, you’re better off consulting with a competent estate attorney. We think you should discuss setting up a living trust and other options for the disposition of this asset. We don’t think that the transfer on death deed is the way to go when you have an expensive property and likely other assets in your estate. You’ll want to consider state and federal estate taxes issues, and make sure your heirs understand what you want them to do with the property.

Read more about Transfer on Death Deeds (TODs):

Should I set up a trust or use a transfer-on-death (TOD) deed?

Are Transfer on Death Deeds Smart?


©2023 by Ilyce Glink and Samuel J. Tamkin. Distributed by Tribune Content Agency. C1602