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June 1, 2022
By Chris Daunhauer
One of my all-time favorite clients died early last month (my mother-in-law) at age 95. After a few weeks to recover from that loss, I’ve been working with my father-in-law (also 95) to make changes to their investment and bank accounts to reflect his new estate plan.
Over the 25+ years that I knew my mother-in-law, I had many conversations with her about the estate plans she and her husband had made and about what documents she kept in her home filing cabinet. She was always organized, and she saved and filed most every account statement and tax document they ever received. Her diligence eventually became a bit of a problem, unfortunately, in that the truly important papers in her files were somtimes overwhelmed by the less important ones that probably should have been tossed after review.
“Surely Dad (her husband) will die first” she would remind me when the subject of estate planning came up from time to time. “But Maw” I cautioned her, “you are both into your 90s now; and that means all bets are off. It may not work out that way.”
Sadly, I was right. My mother-in-law did die first, and in early March after a brief illness. She enjoyed a long full life and passed over the great divide in peace and confidence. After it became clear to her that she would not be leaving the hospital alive, she told her daughters that she was “looking forward to what God had for her to do next.” Up until just a couple of weeks before her death, she was still driving her car, balancing their checkbook, and keeping in touch with family using her smart phone.
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When she died, the “if my spouse survives me” section of her will sprang into effect and that same section in my father-in-law’s will became moot. As is common for married couples, their respective wills granted all their possessions to each other upon their deaths with adult children and grandchildren receiving anything left only upon the death of the surviving spouse. All those instructions still apply, and the possibility of my mother-in-law dying first that was reflected in their wills means no required updates to my father-in-law’s will.
Over the last couple weeks, I’ve been working with my father-in-law to make changes to reflect the new reality. We now know that his wife will not survive him. And even though he’s not changing his will, he’d like as few of his assets as possible to be subject to the cost and delay of probate. So he’s taking sole ownership of an old variable annuity contract they owned jointly and then adding his children and grands as named beneficiaries on it. He’s adding transfer on death titling to his Schwab brokerage account to match what his will says. And he’s adding payable on death instructions to his checking and savings accounts. Those changes should keep most everything he owns out of probate and make things simpler for his family following his death. He’s doing good planning, thinking ahead, and increasing the efficiency by which most of what he owns will pass to his heirs.
The only loose end that concerns him still is the real estate that he owns. Absent some changes, his house and farm will have to go through probate before being passed to his heirs, and it will probably be the only asset that requires probate procedings.
Probate is not the end of the world, of course, but he (and his family) would like to avoid it if possible. A revocable (or living) trust would solve the problem, and he very well may establish one to handle the real estate part of his estate plan. It’s just a shame that he has to form a trust just for one piece of his estate – and a shame there isn’t a cheaper and simpler option for avoiding probate.
Wouldn’t it be great if he could add transfer on death instructions onto his deed to the real estate so it could pass to his heirs (outside of probate) just like his investment accounts and his bank accounts!
Good news and bad news
The good news is that TOD instructions on real estate deeds are an option for most of the country; and putting TOD instructions on deeds absolutely helps avoid probate for those assets without the expense and hassle of forming a trust.
The bad news is that the TOD option is not available in all states. TOD deeds aren’t an option in Georgia where my father-in-law lives, nor in Florida where most of TrustWell’s clients live.
Twenty nine states plus the District of Columbia currently allow TOD deeds on real estate. Laws vary from state to state, but the option is often known as a “TOD deed” or “beneficiary deed” or a “ladybird deed.” TOD instructions on a deed have no effect on the property until the owner (or the last to die owner of a jointly held property) dies. A property with a TOD deed can be bought, sold, or mortgaged just as any other properties with no harm to the current owner.
A TOD deed, just like a regular deed, names the current owner (or owners) and it gives the legal description of the property, etc. A TOD deed, however, includes an additional paragraph naming one or more people (called the “beneficiary” or sometimes “grantee”) who should receive ownership of the property immediately upon the current owner’s death. TOD deed transfers don’t cancel out any remaining loans against the property, but they do name the next owner.
The beneficiaries named in a TOD deed have no rights to the property until the owner’s death, and the current owner maintains full control and the right to change or delete beneficiaries at any time before he or she dies by just filing a replacement deed for the property.
Deeds are public records, but there is no requirement that the current owner tell the named beneficiaries anything about the TOD deed. Some states even allow naming alternate (or backup) beneficiaries who would receive the property on the death of the current owner if the first named beneficiary was not alive at the time of the current owner’s death.
TOD deeds are great tools for avoiding probate, and that fact has been recognized in law by the following states: Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Hawaii, Illinois, Indiana, Kansas, Maine, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming
You may notice as I did that this list includes more than half of all states, but no southern states except Virginia. I don’t know why that’s the case, but it’s disappointing to me personally and I suspect to most of TrustWell’s clients.
I’m already planning some letters to my state’s governor and to my state representatives asking for a change. Having the option of a TOD deed would be a great addition to any state’s laws — just like the rights we already enjoy to add TOD names to our bank and investment accounts and beneficiaries to our IRAs and other retirement plans.
