Transfer on Death Deed

A transfer on death deed is a deed, recorded during the owner's lifetime, that transfers an interest in real property to a designated beneficiary effective at the owner's death. The model statute is the Uniform Real Property Transfer on Death Act, whose short title section reads: "This [act] may be cited as the Uniform Real Property Transfer on Death Act." Like every uniform act it has force only where a legislature enacts it, and the landscape is genuinely mixed: some states enacted the uniform act, some had their own transfer on death deed statute before it existed, some authorize the same instrument under the name beneficiary deed, and some have no such statute at all. The provisions quoted here come from the uniform act itself, with corroboration from Arizona's beneficiary deed statute; check what is in force where the property sits before relying on any of it.

Two features define the instrument and both are stated as mandatory rules rather than defaults. It is revocable: section 6 provides that "a transfer on death deed is revocable even if the deed or another instrument contains a contrary provision", so a promise not to revoke does not bind, though the promisee may have a remedy under other law. And it is nontestamentary: section 7 provides simply that "a transfer on death deed is nontestamentary", which is why it passes the property outside probate.

The capacity required to make or revoke one is the same as the capacity required to make a will (section 8), and the deed needs no notice to, delivery to, or acceptance by the beneficiary during the transferor's life, and no consideration (section 10).

Recording is the requirement people fail. Section 9 provides that a transfer on death deed must contain the essential elements and formalities of a properly recordable inter vivos deed, must state that the transfer to the beneficiary is to occur at the transferor's death, and "must be recorded before the transferor's death in the public records in [the office of the county recorder of deeds] of the [county] where the property is located." A signed deed sitting in a drawer is not a transfer on death deed. Arizona's beneficiary deed statute says the same thing in its own words: such a deed "is valid only if the deed is executed and recorded as provided by law … before the death of the owner or the last surviving owner."

It cannot be revoked by your will, and that is deliberate. Section 11(a) provides that an instrument revokes a recorded transfer on death deed "only if" it is a later transfer on death deed revoking it expressly or by inconsistency, an express instrument of revocation, or an inter vivos deed expressly revoking it — and only if that instrument is acknowledged after the deed being revoked and itself recorded before the transferor's death. Section 11(c) adds that once recorded, the deed "may not be revoked by a revocatory act on the deed", so destroying the paper achieves nothing. The act's Comment explains the reasoning: "revocation by an instrument not specified, such as the transferor's will, is not permitted", because a transfer on death deed operates on real property, "for which certainty of title is essential", and that certainty would be impossible if an off-record document such as a will could revoke a recorded deed. Arizona reaches the same result in an enacted statute: a beneficiary deed "is not revoked by the provisions of a will."

During the owner's life the deed does nothing at all, and section 12 lists the six things it does not do. It does not affect an interest or right of the transferor or any other owner, "including the right to transfer or encumber the property"; does not affect the transferee's rights even with notice; does not affect a secured or unsecured creditor or future creditor of the transferor; does not affect "the transferor's or designated beneficiary's eligibility for any form of public assistance"; does not create a legal or equitable interest in the beneficiary; and does not subject the property to claims of the beneficiary's creditors. The Comment to that section spells out the practical consequences most owners actually worry about: the deed does not "sever a joint tenancy or a joint tenant's right of survivorship; trigger a due-on-sale clause in the transferor's mortgage; trigger the imposition of real estate transfer tax; or affect the transferor's homestead or real estate tax exemptions."

On the public-assistance point, read the section and stop there. Section 12(4) addresses eligibility during the transferor's life, and its Comment says "including Medicaid", while noting that the drafting committee "specifically disapproves of the contrary approach" taken by one state's statute — so even this limb varies. It says nothing about recovery against the property after death, and section 15 makes the property reachable for allowed claims, so any question about whether a transfer on death deed puts a house beyond a state's estate recovery is a question for a lawyer in that state rather than one this page can answer.

At death the beneficiary takes the property as it is, not as they hoped. Section 13(b) provides that "a beneficiary takes the property subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens, and other interests to which the property is subject at the transferor's death", and deems the deed's recording to have occurred at that moment for those purposes. The mortgage does not disappear. Section 13(d) adds that the deed "transfers property without covenant or warranty of title even if the deed contains a contrary provision", so the beneficiary gets no title guarantee from the transferor's estate. Arizona's statute is to the same effect on encumbrances.

Survivorship title beats the deed. Section 13(c) provides that if the transferor is survived by one or more other joint owners, the property "belongs to the surviving joint owner or owners with right of survivorship", and the transfer on death deed is effective only if the transferor was the last surviving joint owner. Arizona says the rights of a surviving joint tenant or a surviving spouse in survivorship community property "shall prevail over a grantee beneficiary named in a beneficiary deed."

Lapse, and no survivorship among beneficiaries. Section 13(a)(2): "the interest of a designated beneficiary is contingent on the designated beneficiary surviving the transferor. The interest of a designated beneficiary that fails to survive the transferor lapses." Concurrent beneficiaries take "in equal and undivided shares with no right of survivorship" under (a)(3), though (a)(4) reallocates a lapsed share among the others where two or more were named for concurrent interests.

Creditors and family allowances can reach it, and states did this two different ways. Section 15 offers two alternatives. Alternative A defers to other state law, such as Uniform Probate Code section 6-102, under which recipients of non-probate transfers can be required to contribute toward allowed claims and statutory allowances where the probate estate is insufficient. Alternative B, for states that did not adopt that comprehensive approach, provides that "to the extent the transferor's probate estate is insufficient to satisfy an allowed claim against the estate or a statutory allowance to a surviving spouse or child, the estate may enforce the liability against property transferred at the transferor's death by a transfer on death deed", apportioned among multiple properties in proportion to their net values, with a deadline for commencing the proceeding that each state fills in for itself.

1. Confirm the state authorizes one. The instrument exists only under a state statute, and some states have none.

2. Prepare it like a deed. Section 9 requires the essential elements and formalities of a properly recordable inter vivos deed, plus an express statement that the transfer occurs at the transferor's death.

3. Record it before death, in the county where the property is located. This is the step that makes it effective and the one most often missed.

4. Live normally. Section 12 means the owner can sell, refinance, encumber and claim their homestead exemption exactly as before, and the beneficiary has no interest to consent to or interfere with.

5. Revoke, if at all, by a recorded instrument. A later transfer on death deed, an express revocation, or an inter vivos deed with an express revocation clause, acknowledged afterwards and recorded before death. Not by will, not by destroying the paper.

6. At death, title passes as the property stands, subject to every encumbrance and with no warranty, and subject to the state's rules on creditor claims and family allowances.

A hypothetical example of what the beneficiary actually receives. Marcus records a transfer on death deed on a house worth $420,000 carrying a $190,000 mortgage. On his death his daughter takes title. Her equity is $420,000 − $190,000 = $230,000, and the $190,000 is still owed: section 13(b) passes the property subject to the mortgage, so she must keep paying it, refinance it, or sell.

Now the creditor question. Marcus's probate estate holds $9,000 of cash against $61,000 of allowed claims, a shortfall of $61,000 − $9,000 = $52,000. In a state that enacted the uniform act's second alternative on creditor liability, the estate may enforce that $52,000 against the property transferred by the deed, so the house is not out of reach merely because it never entered probate. What that shortfall does to her equity depends on whether she can fund it: $230,000 − $52,000 = $178,000 if it has to come out of the property's value. Figures are illustrative, and which creditor rule applies depends on the state.

Pros

• Probate avoidance for the single asset that most often drives a family into probate, without a trust and without transferring anything during life.
• The owner keeps complete ownership: the right to sell, refinance and encumber is expressly preserved, and the beneficiary has no interest to consent to anything.
• Under the act's own Comment it does not sever a joint tenancy, trigger a due-on-sale clause, trigger real estate transfer tax, or affect a homestead or property tax exemption.
• It is revocable whatever the deed says, and revocable without the beneficiary knowing.
• Recording costs a county fee rather than a legal engagement, and the capacity needed is the same as for a will.

Cons

• It exists only where the state authorizes it, under varying names and rules, so the answer depends entirely on where the property is.
• It fails silently if it is not recorded before death, which is the commonest way it goes wrong.
• The beneficiary takes subject to every mortgage, lien and other interest, with no covenant or warranty of title.
• It cannot be revoked by a will or by destroying the document, so revoking it takes a second recorded instrument that people forget to prepare.
• A beneficiary who dies first lapses, and concurrent beneficiaries hold with no right of survivorship between them.
• Survivorship title held by another owner beats the deed entirely.
• Creditors and statutory family allowances can reach the property after death, under whichever of the act's two alternatives the state adopted.
• It moves one parcel. It appoints nobody, handles no incapacity, and coordinates with nothing else in the plan.