1. Take Original Ownership of Property as “Joint Tenants”.
The most recognized way to transfer real estate upon death is by holding ownership of real estate as “joint tenants”. This is very common in marriage relationships. When one spouse dies, the other spouse inherits the property, virtually right away. No probate. No delays. But while this application works well in marriage relationships it doesn’t work so well outside of it. If you are business partners, for example, you may wish to take title as “tenants in common” rather than “joint tenants”. Designating ownership of real estate this way allows for the interest in the real estate to pass to one’s heirs or next of kin but not to the surviving business partner. On the other hand, if you owned real estate with a business partner as “joint tenants”, the surviving business partner would become sole owner of the property upon the death of the first owner. Perhaps this is the desired outcome but in many cases it is not. Thus, taking ownership of real estate as “tenants in common” keeps the real estate ‘in the family’ so to speak but it will not avoid probate – unless you have a Trust. This brings us to our second way of avoiding probate when transferring real estate.
2. Have a Trust Set Up to Own the Real Estate.
It is widely recognized that properly established and funded trusts can help you avoid probate when transferring real estate. There are a number of trusts you can obtain for this purpose such as so-called “cabin trusts” and LLC Trusts, to name a couple. But perhaps the most commonly used trust for this purpose is the Revocable or “Living” Trust. This Trust is called a “living” trust because it is established during your lifetime and you solely control it (or with your spouse if you desire) during that time. After death, your “trustee” named in your Revocable or Living Trust will control your estate. Since Trusts are founded on contract law principles, you have in essence contracted with your trustee and instructed him or her pursuant to that contract to distribute your estate in a certain way upon death, including any of your previously owned real estate. You can tell that trustee to sell the real estate and divide up the proceeds or you can tell that trustee to sign over title to the real estate to whomever you designate in your trust. Again no delays. No probate. Both time and money are saved. There is virtually no downside to arranging your estate this way except perhaps the considerable cost of creating a trust and ensuring that you make sure you “fund” the trust at the beginning. These trusts often cost three to four times what you would pay for husband and wife simple Wills but the subsequent convenience, and time and money savings, are viewed by many as worth the cost.
3. Use a Transfer on Death Deed (“T.O.D.D.”)
A cost effective way to transfer real estate without having to go through probate was legislatively created in 2009. It is called a “Transfer on Death Deed” (“TODD”). This simple document allows one to completely own and control real estate during their lifetime but then permits one to dictate who receives the property upon their death (or, if married, upon the death of the second spouse). Again no delays. No probate. The cost to create such a document is usually no greater than what it would cost to obtain a simple Will, depending on the rates of the attorney you select. The person or persons you choose to own this real estate upon your death has no control over it or right to it until your death so you are not forfeiting any rights to your real estate during your lifetime. In fact, TODDs are completely revocable at any time prior to your death. So you are allowed to change your mind about who is to receive your property. And, should you sell your real estate during your lifetime, the TODDs are revoked by the sale. If you buy a new property you can always choose to obtain a new TODD for that property.
So why not simply use a TODD rather than have a more expensive Trust own and control the property? Well, there are many reasons but here are just a couple (please see a competent estate planning lawyer for details on this).
One, what if a person named in a TODD to receive the property after your death dies before you? Does his or her heirs still receive the property? The answer is: that depends. If you have provided for this in your TODD this could happen. But if you did not provide for this, the gift could be deemed to have “lapsed” which means the real estate has to go through probate now to determine next of kin. Or, even if the person named does have his or her heirs provided for in the TODD, if the heirs are still minor children then a conservatorship might have to be established for the minor child in order for that child to acquire and market their share, i.e., if the real estate is to be sold and the proceeds split among the heirs (actually called “beneficiaries”). This then would mean having to go through probate to establish such a conservatorship for the minor child.
Also, a Trust can provide for “conditional” transfers of assets (receive share of real estate if you stay married, single or free from criminal convictions, creditor claims, etc.). A TODD has no provision for contingencies like this.
One further major caveat about TODDs—they must be recorded during the lifetime of the person creating the TODD (called a “grantor”) in order to be valid. Recording it after the death of the Grantor is too late. The TODD will be declared to be invalid.
The above is a general summary of how these three instruments would work. When it comes to real estate and estate planning you are always advised to seek competent legal counsel which addresses your particular situation before you take a course of action. You potentially have a lot to lose if you proceed incorrectly. Do not solely rely on the above simple summaries in making your real estate/estate planning decisions.