Estate planning can be a slog, but some shortcuts cut down on stress and expenses for beneficiaries. One way to streamline the transfer of property is to establish a Transfer on Death (TOD) Deed for Hoosier homes.
Similar to a Lady Bird Deed, which is available in Michigan, Vermont, Texas, West Virginia, and Florida, a TOD Deed allows an Indiana property owner to designate a beneficiary to inherit the property after the owner’s death. Having a TOD Deed in place means that the property skips the probate process, which can delay the transfer of ownership. Meanwhile, the owner holds the rights to the property exclusively until death.
Allen County Recorder Nicole Keesling talked about TOD Deeds in a recent interview, starting with the process of registering a TOD Deed with Allen County. She emphasized that two documents must be filed with the County Recorder to transfer the property.
The first document, which the property owner must file, is a TOD Deed, but Allen County does not provide a form that they can complete for this purpose. Keesling explained, “This is something that has to be drawn up by the individual. Usually it’s done by an attorney or title company. I’m sure people can find forms online. We’ve seen people draw up documents on Microsoft Word. As long as it’s legible and meets our requirements, we’ll take it.” Property owners can name both primary and secondary beneficiaries on the TOD Deed document. Naming a secondary beneficiary ensures that if the primary beneficiary passes away before the owner, the property can still be transferred to a beneficiary directly without going into probate. Secondary beneficiaries are also known as contingent beneficiaries.
The property owner presents a TOD Deed to the Recorder’s Office to have it recorded. “We can notarize it for free, and we can add the Prepared By and Affirmation Statement that it needs if it’s notarized in Indiana. That’s a requirement that’s stipulated by Indiana code,” Keesling said.
Both the property owner and the beneficiary need to understand the next step to transfer the property. “There’s a lot of false information going around that if people just bring us a death certificate (after the owner’s death), we can transfer property, and we can’t do that.” Instead, the beneficiary must submit another document to the Recorder’s Office: a Survivorship Affidavit or a Transfer on Death Affidavit.
Keesling suggested that property owners create or obtain the TOD Deed as well as the Survivorship or TOD Affidavit at the same time, then file the TOD Deed with the Recorder’s Office and place the affidavit in a secure place that the beneficiary can access. The beneficiary waits until the owner passes away to sign the affidavit in the presence of a notary.
Like most legal documents, the TOD Deed can be changed. Owners have the option of revoking it or changing the beneficiary. To do this, the owner must present a signed and notarized document to the County Recorder that explains a change in beneficiary or revocation of the TOD Deed.
“All these documents go on public record, and they’re permanent,” Keesling said. Her office tracks when Allen County property owners establish, update, or revoke TOD Deeds. Since these records cover what’s usually a person’s largest asset, caution is advised. “If you have questions, always seek legal advice,” Keesling suggested.
Lindsey Tipton is an attorney at Law at Haller Colvin in Fort Wayne. She uses TOD Deeds often when helping clients sort out their estate planning. “Most of my estate planning clients, when they leave my office when they’re all done, leave my office with Transfer on Death Deeds as well as the rest of their estate planning package. They are extremely useful, extremely beneficial.”
Tipton said that an ideal TOD Deed would name one primary and one secondary beneficiary. “If my clients have one heir, or one child, or just one person that they wish to use the TOD to transfer property to, I’m doing it a hundred percent of the time. But once the number gets bigger than one, and the bigger the number gets, the less likely I am to recommend that they move forward with it. Even if they decide to move forward with it, they do so knowing my reservations or knowing what the risk they’re taking is.”
The trouble with naming more than one beneficiary is that the beneficiaries have to work together to sell the property. If two beneficiaries become joint owners, for example, conflicts can arise if one wants to live in the property and the other wants to sell it. “There’s not really an effective tool under Indiana law to address that situation,” Tipton explained. “When you have a 50-50 deadlock in property ownership, the process for resolving that is a lot more expensive and painful than just going through the probate process in the first place. If one of the heirs wants to live in the house, then under the probate process, they can buy the house or they can take the house and then receive a reduction in whatever else they may have been entitled to obtain under the probate process.”
In her work as an attorney, she’s also seen situations in which a couple left their home to multiple adult children. After a decade or two, if any of those beneficiaries have passed away, that deceased beneficiary’s share is divided among his or her children. In these situations, the number of owners on a property can balloon to twelve or more. Since all owners must act together to sell the property, this creates conflict within families.
Additionally, for blended families, a living trust may be a better option than a TOD Deed because after one spouse passes away, the other spouse assumes full control over the assets and may bequeath them to his or her children only, excluding the children of the deceased spouse from any inheritance. However, trusts can incur additional expenses, such as needing to meet with a lawyer for guidance on how to manage them and hiring a CPA to handle tax issues. In addition, the work of transferring property into the trust, which is called “funding the trust,” is necessary for those wishing to avoid probate in transferring property to trust beneficiaries.
Depending on their circumstances, many property owners may not need to set up a trust. “If the ultimate goal is to find a frugal or cost-efficient way to do this process, most law firms will charge less for a traditional will and estate planning,” Tipton said.
Because they involve a property transfer, TOD Deeds can have a mortgage attached to them. Beneficiaries can either sell the property or assume the mortgage payments after inheriting it. The best way to approach this situation is to immediately notify the mortgage lender that the original owner has passed away and explain that it has been transferred via TOD Deed to a new owner. Lenders are likely to work with the beneficiary to find a mutually beneficial solution, sometimes allowing a pause in payment for multiple months while the new owner prepares the property to be sold. Tipton hasn’t seen a situation in which someone inherited a home through a TOD Deed and then it quickly went into foreclosure. “I have noticed that mortgage companies tend to be kind and patient when somebody dies. Foreclosures are expensive for banks and they would rather avoid them.”
When Allen County property owners set up a TOD Deed and estate plan to handle their assets, this helps everyone involved honor their wishes and ensures that the assets are distributed accordingly. “The effort up front is worth so much and saves so much hassle and heartache in the end,” Tipton said. “I think that people think estate planning especially is this big morbid, scary, complicated thing, and for maybe 5% of the population, it actually is, but for 95% of people, it’s not. People leave estate planning meetings thinking, ‘Oh that wasn’t as bad as I thought,’ or ‘It’s not that complicated.’”
With the recent increase in home values, more Allen County homeowners are creating TOD Deeds to ensure that this important asset can be held within their families. “It’s a frequently-used tool that more and more homeowners are using,” said Allen County Recorder Nicole Keesling.
“We’re happy to get the word out about how people can better utilize our office and how we can help people.”
