Transfer on Death

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Transfer on Death

Transfer on Death Designation Affidavits are very popular estate planning tools. The basic idea is simple. When a person dies owning real estate, the deceased owner can name a person to inherit the real estate after the current owner’s death. No probate required for this asset in most situations. Sounds like a great idea. Why wouldn’t everybody who owns real estate want to sign a Transfer on Death Designation Affidavit?

While Transfer on Death Designation Affidavits seem simple on their face, they are not the ideal estate planning device in every situation. Let me debunk a few of the situations where these Affidavits don’t work all that well.

Imagine a scenario where a single person, A, is going to leave some real estate to his three children. We’ll name these children B, C, and D.  All three children are married. At the time that A dies, one of his children, B, is going through a divorce. The divorce is not yet final. A dies. The property transfers, outside probate, under the Transfer on Death Designation Affidavit. B, C, and D are now the owners of the A’s real estate.

None of the children want to keep the house. The house sells. Quickly. It’s a red hot real estate market. The winning buyer is willing to pay $40,000 over the asking price.  Who has to sign to that deed? B, C, and D along with all three of their spouses. Remember B, the one going through the messy divorce? B’s spouse has to sign that deed to transfer title to the new owner. The problem is B’s spouse won’t sign that deed.

So yes, there was no probate to transfer A’s real estate to his kids. Great. Can the kids sell the house? No. They are stuck until B’s spouse decides to sign that deed.

What was the other option? Don’t execute a Transfer on Death Designation Affidavit and have the house pass to A, B, and C under the Will. In the Will, we would include language for the executor to have the power to sell the house. Yes, that executor could also have been the child who is getting divorced. We would not have the same issue with the child’s spouse refusing to sign the deed because the executor is acting in his or her role as fiduciary for the estate. Only the executor needs to sign a deed when he or she has the power to sell real estate.

This is one scenario where the Transfer on Death Designation Affidavit creates more hassles not less.

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