By Jackson Lewis and Kimberlee Stafford
Effective January 1, 2012, Oregon law provides for a new form of deed known as a transfer on death (TOD) deed. These deeds allow an owner of real property to designate a beneficiary who will obtain title to that real property when the owner dies, without having to go through probate (subject to some exceptions).
Under the new law, an owner may record a TOD deed at any time during his or her lifetime designating a primary and alternate beneficiary. All beneficiaries must be specifically named. During the owner’s lifetime, the named beneficiaries have no legal or equitable interest in the property. This is useful because (i) the owner retains control of the property, (ii) there is no completed gift for gift tax purposes, and (iii) the beneficiary’s creditors cannot reach the property until the owner dies. A TOD deed does not affect the rights of the owner’s creditors. They can get a lien against the property or use it to satisfy judgments. A beneficiary who takes title under a TOD deed takes the property subject to all existing encumbrances, liens and restrictions.
A TOD deed is revocable at any time during the owner’s lifetime by recording a revocation or recording a different deed. The required forms of TOD deed and revocation are included in the statute.
The major benefit of a TOD deed is that it may eliminate the need for probate following the death of the owner. However, the statute provides that creditors and claimants have an 18-month period following the owner’s death in which to set aside the TOD deed. For example, if the probate estate has insufficient property to pay allowed claims, creditors may be able to recover the real property that is subject to a TOD deed. Additionally, the law allows claimants to set aside a TOD deed due to incapacity of the owner, fraud or undue influence. TOD deeds in favor of former spouses or neglectful parents of the deceased can also be set aside. Because of the potential cloud on title during this 18-month period, it is unclear how title insurance companies will treat a transfer under a TOD deed. This may affect the ability of beneficiaries to sell or transfer the property until after the 18-month period.
The TOD deed is a deceptively simple way to transfer real property for estate planning purposes. If the TOD deed beneficiaries intend to hold the property for at least 18 months after the death of the owner, a TOD deed could be useful. But, if the beneficiaries desire to sell the property fairly quickly (which is often the case), or if there are creditor issues or family strife, a TOD deed may create more problems than it solves. Before executing a TOD deed, it is best to consult with a competent estate planning attorney to verify a TOD deed will not create unintended problems.
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