The fundamentals of estate planning and real estate conveyances have always been joined at the hip, particularly for families in the Midwest where real estate often represents a significant portion of the value transferred upon death. The bond between real estate and estate planning grew even stronger when Nebraska’s Unicameral adopted the Uniform Real Estate Transfer on Death Deed Act (Act) in 2012.
A transfer on death deed (TOD deed) is a revocable instrument that conveys ownership of real property from one person to another upon the death of the grantor or owner. It is signed and filed by the grantor during the grantor’s lifetime, but the transfer of property does not become effective until the grantor’s death.
The capacity to create and/or revoke a TOD deed is the same as the “testamentary” capacity to make a will. The formalities of executing a TOD deed are also very similar to those required for making a will. TOD deeds must be filed within thirty days of their execution.
Under the right circumstances, a TOD deed is a simple but effective way to avoid instituting a probate proceeding to transfer property from a decedent to a third party, while still allowing the grantor to retain complete ownership of the property during his or her lifetime. A TOD deed is similar to a conveyance of property subject to the grantor’s reservation of a “life estate” – i.e., possession and income rights to the property until death. However, unlike a conveyance of property subject to a life estate, TOD deed may be revoked at any time and it does not create any legal rights in the TOD deed’s grantee (known as the beneficiary).
Ownership of property subject to a TOD deed is significant for both the grantor and grantee/beneficiary. For example, property that is subject to a TOD deed may still considered an asset – or resource – of the grantor for Medicaid qualification. For tax purposes, since the property is considered to be transferred upon death, the grantee/beneficiary enjoys the benefit of a step-up in basis by reason of the grantor’s death.
The grantor under a TOD deed retains the right to transfer, pledge or otherwise encumber the property during his or her lifetime. Conversely, the grantee/beneficiary has no right to transfer, pledge or encumber the property because the grantee/beneficiary has no interest in the property until the grantor’s death. This also means that the property is entirely shielded from creditors of the grantee/beneficiary.
The Act provides residents with an estate planning mechanism that, when utilized properly, can efficiently transfer real estate from generation to generation. Ultimately, the usefulness of a TOD deed undoubtedly depends on the specific property owner’s circumstances and those of the intended beneficiary or beneficiaries.