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Beneficiary Designations – Part 3 (TOD Deeds)

After discussing the basics of beneficiary designations and then how to avoid common mistakes, we now turn to a less familiar form of beneficiary designation: the transfer on death (TOD) deed for real estate and vehicles.

The information in this article reflects general trends among states. It is, however, important that professionals look to state law to determine the treatment of a transfer on death designation. This is even more the case with these form of TOD designations since state law is much newer and less uniform than beneficiary designations discussed in our first two articles.

Transfer on Death Deed – Real Estate

It has long been common for retirement plans, life insurance, stock portfolios, bank accounts and commercial annuities to be distributed easily and without probate through beneficiary designations. A transfer on death (TOD) deed enables an owner of real property to execute a deed during life naming the individual who will receive title to the property upon the owner’s death. Just like a regular deed, the TOD deed must be prepared, signed, notarized and recorded by the property owner (“owner”). In addition, the deed must state that it will not go into effect until the owner’s death (i.e it is revocable). Therefore, unlike regular deeds, since TOD deeds can be revoked, the beneficiary does not have a present interest in the property. Upon the death of the property owner, assuming there have been no revocations, the beneficiary will receive title to the property without the involvement of the probate court.

Currently, a little over half of all states allow TOD deeds. These states are: Alaska, Arizona, Arkansas, California, Colorado, the District of Columbia, Hawaii, Illinois, Indiana, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Virginia, Washington, West Virginia, Wisconsin and Wyoming. Each state has its own rules and regulations governing the use of TOD deeds. As such, it is important to review the law of the state where the property is located before moving forward with a TOD deed.

Transfer on Death Deed – Vehicles

Additionally, some states allow vehicle owners to name TOD beneficiaries for their vehicles. To be effective, the designation must be listed on the vehicle’s title. Again, designating a TOD beneficiary of a vehicle does not give the beneficiary a legal interest in the vehicle. The vehicle owner can still sell the vehicle, give it away or name someone else as the beneficiary.

Fewer states currently allow TOD designations for vehicles. These states are: Arizona, Arkansas, California, Connecticut, Delaware, Illinois, Indiana, Kansas, Missouri, Nebraska, Nevada, Ohio, Vermont and Virginia. In addition, California, Indiana and Ohio allow individuals to use TOD beneficiary designations for small boats.

Recording Process

Typically, a TOD deed must follow traditional deed formalities with respect to the recording process. The deed must be in writing, signed by the owner, include a legal description of the land (exact requirements must be followed) and be filed at the local courthouse. Additionally, it must contain the names and addresses of the beneficiaries and state that the transfer of the owner’s interest will not occur until the owner’s death (i.e. it is revocable).

In many states (such as Virginia), the TOD deed must be recorded prior to the death of the property owner. Other states have alternative timing requirements.

Because of the number of requirements and deed formalities, property owners should consult with legal counsel to ensure that proper procedures are followed. Additionally, because laws vary by state, an attorney should look to the laws of the state in which the property is located to determine what is required.

TOD Deed Beneficiaries

The beneficiary of a TOD deed can be a person or an entity (e.g., an organization, institution, church, charity, etc.). While an owner can designate multiple beneficiaries, including primary and contingent beneficiaries, beneficiaries cannot be a designated class of persons in some states.

Beneficiaries must be specifically identified by name, address and, often, their relationship to the property owner. If, upon the owner’s death, the beneficiary cannot be identified with certainty, then the property could be transferred to the owner’s probate estate, negating the purpose of the TOD deed. Therefore, a TOD deed should be carefully reviewed before it is recorded to ensure that adequate identifying information has been provided.

Beneficiaries do not need to accept the transfer for the deed to be effective, as delivery and acceptance are not required. Thus, title to the TOD deed property will vest upon the owner’s death. If desired, the beneficiary can disclaim the property interest. In order for a beneficiary to claim title, most states require evidence of the owner’s death, typically in the form of a death certificate or an affidavit of death.

Because a TOD deed does not contain traditional deed warranties, the beneficiary will receive the title subject to all of the original owner’s interests. Therefore, all of the owner’s previous mortgages, liens and judgments remain attached to the property and will be the responsibility of the beneficiary. This can create potential financial issues and risks for the beneficiary.

Revoking a Deed

While state law may differ slightly, most states provide that a TOD deed can be revoked by taking one of three actions.

  • Record a subsequent TOD deed. When there are two or more TOD deeds, the most recently executed deed controls. To be effective, the deed must be properly recorded.
  • Execute an instrument of revocation (also referred to as a revocation deed). The revocation must occur before the death of the owner.
  • Sell or transfer all interest in the property and properly record the sale or transfer.

Some states may provide additional ways that a TOD deed may be revoked, such as after divorce from a spouse previously named as beneficiary on a TOD deed.

Advantages of TOD Deeds

Where TOD deeds can be used, there are a number of potential benefits. These include:

  • Keeping the property from the claims of the beneficiary’s creditors during the property owner’s life (as compared to creating a joint tenancy)
  • Creating a more effective transfer for income tax purposes (as compared to joint tenancy)
  • Keeping the property away from the time-consuming, public and sometimes expensive probate process.

Let’s focus on the last point. Once an estate plan is completed, including updated documents, account titling and beneficiary designations, many times this leaves a residence, vacation property and/or personal property, including vehicles, as the remaining assets to be transferred under the will. Since these assets can carry significant value, keeping them out of probate will save expense, including the actual probate fee, which is usually based on a percentage of probate asset value.

In addition to saving the time and expense, keeping real estate and vehicles out of probate can reduce the decedent’s probate estate to the point where qualification of an executor is not needed. Many states have some form of Small Estate Act, which allows for an affidavit procedure instead of the normal probate process when the probate estate is below a certain amount. This removes a significant burden from the party who would otherwise have to qualify as executor with the court.


A properly executed TOD deed can be an effective means of transferring real property. Each state, however, has its own rules governing the use of TOD deeds. Because states differ regarding the types of property that can be transferred and the technical filing requirements, it is important to look to the laws of the state where the property is located when preparing a TOD deed. Someone considering a TOD deed to transfer property should work with an attorney who is knowledgeable about the various state law requirements to ensure that the property is transferred as intended and the goals of the owner are accomplished.

Any information presented here is general in nature, believed to be reliable as of the date published and is not intended to be and should not be taken as legal, tax, investment or individual financial planning advice. Competent, licensed professionals should be consulted when implementing any kind of financial, estate, tax or investment strategy.

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