A Minneapolis Attorney Explains How to Get a Valid Transfer on Death Deed
In my series on the use of the Minnesota Transfer on Death Deed, I've been explaining the benefits of using the TODD. It is a simple - and relatively inexpensive - process to draft and record a transfer on death deed. If you are still asking "Why should I get one?" let me provide you with a couple of real world examples of the use of a Transfer on Death Deed.
I have a gay couple, Jeff and Nathan, as clients who have been together for 5 years and came to see me about protecting each other in case of tragedy. Jeff owns their home alone as he bought it before he got together with Nathan. Jeff is, of course, concerned that Nathan get the home if anything happens to him.
Can't Jeff Just Add Nathan to the Title of the Home?
Yes. This is a common answer given to people like Jeff, especially by nonlawyer advisors. BUT JEFF MUST EXERCISE CAUTION: If Jeff puts Nathan on the deed to the home, he has given him a gift, which can have current tax implications. Also, Nathan loses the beneficial tax treatment - called a "step up" - received upon inheriting an asset. The tax imlications of this method are covered in other posts but suffice it to say that gifting the home could cause Nathan and Jeff money and hassle.
Another issue no client ever wants to consider? What if Jeff and Nathan break up? Now they still jointly own the home so must deal with it in their dissolution. Does one buy the other out or are they forced to sell the home and split the proceeds?
What about a will?
But, if Jeff merely states in his will that Nathan will get the home, Nathan will be forced to incur the expense, and suffer the delay, of going through the probate process.
What is the solution?
You guessed it. By properly executing and filing a Minnesota Transfer on Death Deed, Jeff can state that, upon his death, the home is to go outright to Nathan. Because the transfer does not happen until after Jeff's death, there is no gift during his life so no worries about gift tax issues. And, Nathan inherits the home so receives the full benefit of the step up in basis for the value of the home - allowing him to avoid increase captial gains taxes. Last, Nathan will not need to open the probate to get the deed to their home in his own name. Again, the Transfer on Death Deed will save Jeff and Nathan hassle and money both during life and after death.
Susan and Emily have been together for together for 15 years and own their home jointly. Susan has a 22-year-old daughter, Stephanie, from a prior relationship and whom Emily has not adopted. They are first concerned with caring for each other if someone happens to one of them. Because the home is jointly owned, if one dies, the other will become the full owner. But, what happens at the death of both of them? Who will get the home?
Because they've been together so long, Emily feels that Stephanie is like a daughter to her as well. She never adopted her because there is still another parent in the picture. But, it is important to her that their home eventually go to Stephanie. Of course, Susan agrees with that so how do we get the home to Stephanie at the death of both clients?
Use a Will?
This solution creates the same issues as in hypothetical #1. But, it also has another one. Susan can't use the will to state what will happen to the home at her death as she owns it jointly with Emily. And her will can't really control what happens to her property after it's been inherited by another, in this case Emily.
Does a Transfer on Death Deed Help?
Somewhat. It will avoid an issue if, upon Susan's death, Emily neglects to draft a will and her estate is transferred through the laws of intestacy (no will). Because Stephanie is not legally related to Emily, she will not inherit through intestacy. It will also help if Emily's will leaves everything to her sister as a Transfer on Death Deed takes priority over the will so Emily will still get the house.
But, it does not help if Susan dies and Emily decides to revoke the Transfer on Death Deed. The TODD's are fully revokable by the suriving grantor even for property owned jointly where both owners executed and filed a valid deed prior to the death of the first owner.
So, the Transfer on Death Deed doesn not provide a guarantee that the home will go to Stephanie should Susan die first.
If that is a concern, perhaps the clients should discuss getting a trust.
These are just a couple of examples where a Transfer on Death Deed may provide a fast and inexpensive solution to two different issues related to a personal residence. The next post will provide the short list of requirements to comply with the law on getting a Minnesota Transfer on Death Deed.