Avoiding Probate If You Own Real Estate
Authored By: Legal Aid Service of Northeastern Minnesota-Duluth
AVOIDING PROBATE IF YOU OWN REAL ESTATE
Q.) Can I transfer my home to my children and avoid probate?
A.) Yes, Minnesota has a new law that lets you transfer the title to real estate when you die to avoid probate. The new estate planning tool is called a Transfer on Death Deed (TODD.) It is similar to a payable on death (POD) designation on a bank account. The beneficiary (new owner) takes ownership of the property upon the death of the present owner, but has no interest in the property until the owner dies. The new law was effective on August 1, 2008.
Q.) How does a TODD work?
A.) A TODD can be used instead of a Will to transfer your interest in real estate at your death. It can allow you to avoid probate. The TODD does not transfer any interest in the property to others while you are living. The TODD is signed while you are alive but the transfer of ownership is triggered by your death. The TODD can be revoked at any time prior to your death. You do not need the permission of the future owner to revoke the TODD if you later change your mind.
Q.) How is a TODD different than a joint tenancy or life estate?
A.) The TODD does not give any ownership in the property to anyone else while you are living. A joint tenancy designation transfers a current interest in the property to the joint tenant (joint owner.) A life estate designation transfers a future interest in the property to the remainderman (the person who owns the property after your death.) You cannot revoke a joint tenancy or life estate interest unless all parties, and their spouses, agree and sign off. A joint tenant or remainderman could demand payment for their interest as a trade off for agreeing to transfer the property back to you. They could also refuse to transfer the property back to you, even if you offered to pay them for their interest. A TODD, on the other hand, can be revoked or changed at any time before your death. You do not need permission from anyone to change your mind.
Q.) Does a TODD need to be recorded?
Yes, a TODD must be recorded (filed) with the county before your death to be effective. A TODD that was signed before August 1, 2008 will be effective as long as it is recorded on or after August 1, 2008. However, you do not have to give the TODD to the beneficiary during your lifetime and do not need their permission to revoke it.
Q.) How do I revoke a TODD?
A.) You can revoke a TODD in several ways. You can file a revocation in the county where the property is located. You can file a new TODD, giving the same or a greater interest in the property to someone else. The TODD with the latest date controls. You can revoke a TODD by giving all or part of your interest in the property to someone else through a standard deed. If you sell or give your house to someone while you are living, you no longer have an interest to pass to your children through the TODD at your death. Unless the TODD says something else, a divorce or annulment will automatically revoke a TODD interest given to your former spouse. However, it is important to know that the TODD cannot be revoked by your Will. In addition, you cannot use a TODD to prevent your spouse from receiving their interest in real estate at your death.
Q.) Will a TODD avoid a mortgage, lien or estate claim against my property?
A.) No, the new owner steps into your shoes at the time of your death. They take the property subject to all mortgages, liens, judgments or other encumbrances against the property. The TODD will not avoid a claim or lien the state has against your property if you received Medical Assistance (MA) or General Assistance (GA) in your lifetime. On the other hand, a TODD will not keep you from getting MA for nursing home care as it is not an improper transfer. You are not giving any interest away during your lifetime and the new owner takes the property subject to any MA liens.
Q.) What are the benefits to the TODD?
A.) This tool can be most helpful for estates that do not need estate tax planning and where the only asset subject to probate is the home. An asset in an estate needs probate if it is in the decedent's (the person who dies) name alone after their death and it has a value of more than $50,000. In the past, the only way to avoid probate if you owned real estate was to add someone's name to the title of the property. Adding someone's name to the title during your lifetime created several problems. It could limit your ability to sell or mortgage your home; prevent you from receiving MA for nursing home care in some instances; cause tax problems for your children if they wanted to sell the home after your death; or make your children's problems your problems if their name is on your title during your lifetime and they go through divorce, file bankruptcy or get sued. With a TODD, you are not transferring any interest in the home during your lifetime so these problems are avoided.
Q.) Should I have any concerns about a TODD?
A.) As with any estate planning decision, you should discuss your options with an attorney. A TODD may not be the best choice for everyone. There may be more problems if you are not the sole owner of the property. A TODD cannot prevent claims against the property by a surviving spouse or joint tenant and cannot avoid an MA lien or estate claim. You also need to plan for what will happen if the beneficiary of the real estate does not survive you. You can designate multiple beneficiaries and determine how they will hold title to the property. You can also designate one or more successors (people who will receive the property if the beneficiaries die before you.) You should get legal advice before deciding if a TODD is the best option for you.
The Senior Law Project provides free legal assistance to low-income elderly living in Washington, Dakota, Ramsey, Carver and Scott counties. Residents of these counties may reach the project at (651) 224-7301 Monday through Friday between the hours of 9:00 A.M. and noon.