Transfer on Death, and Other Uplifting Topics

TRANSFER ON DEATH PROPERTY

            Nothing in this blog post constitutes legal advice. It is posted merely for informational purposes only. For specific questions about a specific transfer of property, the reader is encouraged to seek private legal counsel to whom all of the facts may be divulged. Nothing here gives rise to an attorney-client relationship or privilege.

            Many states, Indiana included, allow for the automatic transfer of property at death. Section 32-17-14-1 of the Indiana Code, known as the Transfer on Death Property Act governs what property may and may not be transferred by and Transfer on Death Deed (TOD or TOD Deed). Generally, property that does not usually have named beneficiaries, but that are deeded, or recorded, or titled can be transferred at death. Things that are not considered eligible for a transfer on death designation are things that by their nature already have named beneficiaries such as life insurance policies, joint tenancies with rights of survivorship, and the like. For our purposes here I will discuss the most common transferred on death properties.

Real Estate. Houses and other real property are usually a person’s largest asset. And although they are regularly held by joint tenants with rights of survivorship or by the entirety (marriage), a couple may elect to transfer the property at the death of both of the parties to a person or persons of their choice. The reason for this can be many fold. For example, the homeowner(s) may wish to bring the value of their probate estate below the statutory cap for court administration of estates. In Indiana that amount as of this writing is $50,000.00. Creating a deed that will change ownership of the property at the death of the owners of the property automatically transfers that ownership, thus it removes the property from the estate and the estate may then proceed to disposition outside of the prevue of the courts, and thereby generally speed up the process. Another reason may be so there is no challenges to a will if one is left by a disinherited heir. The TOD, if done properly, will remove any potential challenges down the road. ***A HUGE caveat needs to be pointed out here.*** If the TOD is made to a person that is not a “relative” as understood by the Garn-St. Germain Depository Institutions Act of 1982, (also known as Alternative Mortgage Transaction Parity Act of 1982)12 U.S.C. 1701 et. seq., a property that is subject to a mortgage could be called under the due-on-sale or acceleration clause in the mortgage. And if the beneficiary who is a “relative” cannot afford the mortgage payments, there is no guarantee within the Act that there will not be an action to foreclose the mortgage.

Money or bank accounts. This is akin to what I have already written about in the Estate Planning suite of blog posts. A bank account may be transferred at death in the same manner as a Totten Trust. By assigning the account to the would-be beneficiary via TOD it automatically changes ownership and thus removes the property from the probate assets of an individual.

Vehicles. As with real property, all deeded vehicles can be transferred at death.

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Each of those are examples of common items or property transferred at death. But, so long as there is a transferring entity, that will take responsibility for transferring ownership of a piece of property after the death of the owner, there is little property that cannot be placed under a TOD designation. For the above stated items or property, the TOD Deed needs to be in the hands of the transferring entity before the death of the owner. So, for a parcel of real property the TOD Deed needs to be recorded in the county where the property sits before the death of the owner. Bank accounts need to be designated as TOD before the death of the owner. If it is not done before the death of the owner it cannot be transferred because the transfer was not made during the life of the owner when the owner had control over the property to be able to make the designation.

This leads me to the overall general rules regarding such a transfer. As just discussed the registration of the transfer must be recorded or otherwise set up during the life of the owner. The owner must be able to transfer ownership in all of what the owner owns (i.e., a person with an undivided one half interest in a parcel of real property cannot transfer ownership of the whole parcel. That owner can only transfer the undivided one half interest). The owner can revoke the transfer at any time prior to death, so the TOD designation does not create a vested property right for the beneficiary. The beneficiary will take the property subject to any encumbrances that the owner was subject to, e.g. liens, easements, restrictive covenants, mortgages, etc. It should also be restated that if the TOD property has a mortgage, that if the person is not a relative, as understood by the Garn-St. Germain Depository Institutions Act of 1982 (also known as the Alternative Mortgage Transaction Parity Act of 1982) 12 U.S.C. 1702 et seq., the due-on-sale or acceleration clause of the mortgage will most likely be triggered.

All in all, designating property as TOD during life can make the disposition of your estate upon your death go a lot smoother for the people who are to inherit the property. TOD Deeds should be considered when doing your estate planning, and should be considered as an estate planning device along with a Will, Power of Attorney, Healthcare Directive, Trust, or any other document you and your attorney conclude would be best for you and your family.

Nothing in this blog post constitutes legal advice. It is posted merely for informational purposes only. For specific questions about a specific transfer of property, the reader is encouraged to seek private legal counsel to whom all of the facts may be divulged. Nothing here gives rise to an attorney-client relationship or privilege.