6 Common Problems with Deeds on Death, Transfer on Death Deeds, and Beneficiary Deeds
If you wish to transfer your real estate to beneficiaries at your time of death without the costly probate process or using a living trust, you should consider a deed on death, transfer on death deeds, or beneficiary deeds.
This method is quite effective and easy. However, before applying this estate planning technique it’s important to first know how it works, its advantages, and the common problems associated with it.
How Does the Transfer of Death Deeds Work?
If you own commercial or residential real estate property without a co-owner, there are a few ways you can pass on a property to family, friends, or charitable organizations without having to go through probate. While some may elect to utilize a living trust to avoid probate, a deed on death, transfer on death deeds, or beneficiary deeds is oftentimes simpler and less expensive when looking to transfer real estate property to a beneficiary.
A transfer on death deed allows you to sign the document immediately and move your property from your name to the name of the beneficiary quickly and easily. Keep in mind though that the deed will not be valid or take effect until you pass away.
The advantage of this process allows you to maintain control of the property throughout your lifetime, so in the event you want to refinance or sell the property, you can. Furthermore, since you do not transfer the property until your death, the deed does not incur a gift tax.
6 Common Problems with Deeds on Death
Though cheap and simple to use, deeds on death, transfer on death deeds, and beneficiary deeds have common problems. These include the following.
Difficult to Acquire Title Insurance
Most title insurance companies will wait 18 months before issuing a title insurance policy for the new property owner. This prevents the beneficiary from selling the property quickly which can cause headaches for them if that is ultimately their goal.
Real Property Transfer Taxes
When the beneficiary wants to inherit property after the grantor dies, they’ll have to pay the real property transfer tax. Most beneficiaries may find it hard to meet such tax obligations (especially if the property has a higher value). One way to avoid such a lax tax is to use a living revocable trust. This way the beneficiary to the trust will not need to pay real property transfer taxes.
Transfer of Deed Upon Death Forms
Since most individuals obtain these forms online, the chances of form errors are high. This may include the use of incorrect language or misrepresentation of information. As such, the transfer on death deed becomes ineffective.
Prone to Claims by Grantor’s Creditors
Since the law gives creditors up to 18 months to make any claim against the real estate, it may greatly limit the chances of the beneficiary inheriting the property the soonest. They’ll have to wait longer before benefitting from the real estate.
Possible Claims by Beneficiary’s Creditors
Apart from the grantor’s creditors, the beneficiary’s creditors could also make claims for the inherited property. On the beneficiary’s part, this could lead to a great inconvenience since it may force them to sell the property as soon as they inherit it.
The State of Maryland Does Not Recognize A Transfer on Death Deeds
The state of Maryland does not recognize the transfer on death deeds.
Conclusion
Due to common problems with deeds on death, it’s recommended that a person consult an estate planning lawyer before drafting or signing a deed upon death. If the lawyer finds it appropriate, they may advise you to go ahead with the transfer on death deeds.
If that doesn’t happen, many other options still exist—you can try out probate or use a living trust to pass your real estate to a given beneficiary.
About The Law Offices of Clifford M Cohen
The Law Offices of Clifford M. Cohen is a D.C. estate planning firm dedicated to our clients. Our team of passionate legal professionals is here to help those of Washington D.C and Montgomery County, Maryland settle sensitive legal matters regarding estate planning, elder law, business planning, and special needs planning.
At The Law Offices of Clifford M. Cohen, we believe that your attorney should be more than just your legal representation but instead, someone who’s genuinely invested in your well-being. We achieve this by serving as our clients’ “Counselor for Life,” remaining available to answer any questions and pressing inquiries long after the last legal document is filed.
Our goal is to help individuals, families, and business owners put the necessary infrastructure in place for a stress-free future. Allow us to help make this arduous process less burdensome. Come in to meet with a knowledgeable estate planning attorney today or call us at 202-895-2799 for a free case evaluation.