Transfer on Death Deed

Minnesota did not allow TODDs until 2008. A TODD is only for real property. It transfers real property automatically to the person(s) or entities names in the TODD upon the owner’s death. Therefore, it operates like a beneficiary designation on a life insurance or retirement account.

TODD’s are often used when the owner wants the real property to pass outside of probate court. When real property transfers via a TODD, it generally is not subject to probate court proceedings. A TODD is an efficient, but effective way to complete estate planning for an individual who wants to avoid probate, if possible, without having to incur the expense of a revocable trust (sometimes referred to as a living trust). However, it is not always in the beneficiary of the TODD’s best interest for the real property to pass outside of probate.

Hypothetical: Kermit is a single dad of one child, Elliott. He owns the home, which is currently worth $400,000. However, there are two mortgages on the home in the amount of $390,000. The mortgages are secured by the home. Kermit records a TODD that automatically transfers the property to Elliott upon Kermit’s death. Kermit passes away.

Analysis: Elliott cannot afford the home. Therefore, he puts it on the market for sale since he is the owner of the home (to clear title, he simply records an Affidavit of Survivorship with the county). However, after paying the mortgages and the realtor fees, Elliott has out-of-pocket expenses of $18,000. If there was not a TODD, Elliott would not have been responsible for the out-of-pocket expenses of $18,000.

On the flip side, it is prudent for an owner of real property to record a TODD on the owner’s homestead if the owner wishes for the real property to transfer to someone other than a spouse or biological children upon the owner’s death. The reason is based on the homestead exemption laws. In Minnesota, a homestead is exempt from creditors if it is transferred to a spouse or biological children upon the owner’s death via a will or the intestate statute.

Hypothetical: Dora is single and owns her home mortgage-free. She has never married and she does not have any biological children. However, she has been in a long-term relationship with Ken for the past thirty years. She completes a will. Her will states that Ken gets the house upon her death. Dora passes away. She has credit card debt of $200,000 upon her death. A credit card company opens up a probate case.

Analysis: Since Ken is neither Dora’s spouse or her biological child, Dora’s home is subject to creditors. Instead of Ken getting the home per her wish, the home will be sold in probate to pay Dora’s creditors. If Dora had recorded a TODD prior to her death that transferred the property to Ken, Ken would be the owner of the property and the credit card companies would not have been reimbursed through the sale of the home proceeds.

Spangler and de Stefano, PLLP assists business owners and individuals with their estate planning.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.