Avoid the costly and time-consuming probate process by using the Transfer-on-Death Designation
Most people want to avoid probate court, and for good reason! Anyone responsible for being an Executor during the probate process knows how time-consuming, grueling, and expensive it can be. The good news is probate can be avoided with proper planning and using available estate planning tools like a Transfer-on-Death (TOD) or Payable-on-Death (POD) designation. If you want your loved ones to avoid probate, and your estate is simple and straightforward, then a TOD or POD might be a more viable solution.
What is a Transfer-on-Death Designation?
A transfer-on-death designation allows a principal to transfer the ownership of the property to a named beneficiary without going through the probate process. This designation is legally recognized in Virginia when a Virginia Transfer on Death Deed is filed. For a transfer-on-death designation to be valid, it must be filed before the principal’s death. A TOD is a helpful estate planning tool when the principal’s primary assets are real estate or bank accounts, and the principal only has a few other assets or debts. There are a few specific TOD designations:
- Transfer-on-Death Deeds for Real Estate
- Transfer-on-Death Registration for Vehicles
- Payable-on-Death Designations for Bank Accounts
- Transfer-on-Death Registration for Securities
In Virginia, a transfer-on-death (TOD) designation allows for the transfer of ownership of certain assets, such as bank accounts, brokerage accounts, and real estate, to a designated beneficiary outside of probate court. However, the current owner retains the right to manage the assets as they see fit during their lifetime. This includes the ability to mortgage, sell, or revoke the beneficiary designation without notifying or obtaining approval from the beneficiary. While the beneficiary may be aware of the TOD designation, they do not have any legal rights to the property until the death of the current owner. They cannot make any changes to the property or sell it on their own. The principal does not have to notify the beneficiary that they were named as the beneficiary. The principal can keep the TOD private until they revoke it or pass away.
It’s important to note that if there are any outstanding loans on the property, a TOD designation does not affect the creditors’ rights concerning those loans. Additionally, a TOD designation does not give the beneficiary’s creditors any rights to the property while the current owner is still alive.
Pros: Using a Transfer-on-Death Designation
One of the benefits of using a TOD is that it is not limited to property like land or real estate. It can also apply to personal property like jewelry, cars, and recreational vehicles. If the principal has a straightforward estate, they can avoid probate by using a TOD instead of a last will and testament. Another benefit of a Transfer on Death Deed is that putting a beneficiaries name on our deed ahead of time will mean they will own the property immediately after your death.
The primary benefit of having a valid Virginia TOD deed is that the beneficiary can avoid the hassle and legal expense of probate after death. The cost associated with getting a TOD in place is much more affordable than the costs associated with setting up a revocable living trust.
However, since the current owner retains the right to revoke the TOD designation at any time, it is considered an “incomplete gift” under federal gift tax laws. This means the owner is not required to pay gift taxes on the property transfer.
Cons: Using a Transfer-on-Death Designation
One drawback to a Transfer on Death designation is that it does not allow for continued beneficiaries like a trust would. The property will be given to the beneficiaries immediately upon the passing of the principal, and they can do with it what they want. If the property is in a trust, there are rules and stipulations around how the property is used, if it can be sold, or if it should continue to be passed down.
A TOD designation does not give the beneficiary’s creditors any rights to the property while the current owner is still alive. However, once the property is transferred to the beneficiary, it can be subject to property tax and liens, and the beneficiaries creditors can come after the property if they are owed money. It does not have the protection that a revocable living trust can provide.
How Does a Transfer-on-Death Help the Probate Process?
For many people, a Transfer-on-Death Designation is an affordable estate planning tool. A transfer-on-death designation can streamline the probate process by allowing assets to pass directly to the listed beneficiary without needing to go through probate. In addition, there is no requirement to notify your beneficiary that there is a TOD in place and ownership of the property will be transferred to them upon death, and in many cases, it is simple as providing proof of identification and a valid death certificate to complete the transfer.
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Disclaimer: This material is intended for general information purposes only and does not constitute legal advice. Responses to inquiries, whether by email, telephone, or other means, do not constitute legal advice, nor do they create or imply the existence of an attorney-client relationship.