What is a Transfer on Death Instrument?

Your home may be the most valuable asset you own, and that home is often a large part of the legacy, or inheritance, that you want to leave to your spouse, children, or other loved ones. Unfortunately, if you die without proper planning, your home may have to go through the expensive and time-consuming process of Probate Court. Sometimes clients do not want to create a revocable trust – so how can we ensure that the client’s home gets to the proper beneficiary upon death while still avoiding probate? Often, the answer is a Transfer on Death Instruments (a “TODI”).

What is a TODI? 

A TODI is a legal instrument that allows for the transfer of real estate on the death of the current owner. If an individual passes away and they are the sole owner of their home, their family will likely need to go to probate court in order to transfer ownership of the home. Probate Court is the legal process during which the court oversees the division of your estate, and often lasts fourteen months or more. Probate Court is also an expensive, public process, during which your assets and debts become public record. For real estate, a TODI is often a wonderful solution to avoid probate court. 

A TODI is not a one-size-fits-all solution, but can be beneficial in certain scenarios. For example, if Parent A owns their home and all of Parent A’s other assets have valid beneficiary designations, Parent A can execute a TODI stating that on Parent A’s death, the home should be transferred to Child A. In this example, Parent A will continue to own the home until their death, but will record the TODI with the county so that the TODI appears in the chain of title. To be clear, the home will continue to be owned by Parent A until Parent A dies, and only upon their death will Child A be able to come forward to claim their ownership of the home. In order for Child A to legally take ownership of the home following Parent A’s death, Child A will need to file a Notice of Death Affidavit and Acceptance of Transfer on Death Instrument within 2 years of Parent A’s death.

A TODI can also be highly beneficial when one spouse is on the mortgage, and not the other. In this circumstance, Spouse A bought the home and has a mortgage on the home, but not Spouse B. If Spouse A transfers ownership of the home to Spouse B (to be owned jointly) then this transfer may trigger the “Due on Sale Clause” of the mortgage, meaning that the entire balance of the mortgage would be due at that time of the transfer. For many, this is a detrimental result. With a TODI, Spouse A could sign a TODI transferring ownership of the home to either Spouse B, or to a revocable trust for the benefit of Spouse B. Again, since the TODI does not transfer ownership at the time of the signing of the TODI, the Due on Sale Clause is not triggered, and the TODI helps to ensure that Spouse B can continue to remain in the home if Spouse A dies.

Is a TODI right for me?

For many, a TODI provides a wonderful mechanism ensuring that their home passes to the next generation quickly and easily. A TODI can be helpful in avoiding probate court, but often a TODI needs to be paired with other legal documents to ensure that you are covered during all of life’s twists and turns. Estate planning is highly personable, and we at Lavelle Law tailor each and every one of our estate plans to each individual client’s needs. If you would like to schedule a free consultation to learn more about TODIs, or to discuss how an estate plan can benefit you and your family, please call attorney Heather A. McCollum at (847) 705-7555 or email her at hmccollum@lavellelaw.com.