WHEN IS A TODD USED?

When a grantor owns real estate and wants it to transfer automatically upon their death and be kept out of probate, a Transfer on Death Deed can be inexpensive and an ideal tool.

A TODD, upon execution and successful recording, will automatically transfer a property to a beneficiary by filing an Affidavit of Survivorship and certified copy of a death certificate with the county recorder. A grantor can name one or several beneficiaries. However, there can be situations where a TODD can be more problematic than helpful. Here are some things to consider:

First: What is the Reason for the TODD?

If the Grantor is trying to avoid medical assistance claims, the TODD is not the appropriate tool to accomplish this. A TODD does not shelter property from medical assistance claims. There are other options available.

SECOND: IS THERE URGENCY FOR THE TODD?

If the Grantor is in hospice or about to encounter a major surgery, a TODD can be a great option, but time is of the essence. Unlike a Deed that is effective as soon as it is signed, a TODD is not effective until it is successfully recorded. Therefore, signing and recording the TODD as soon as possible is necessary. If the Grantor passes before the recording, it will not take effect. I had a client pass away 18 minutes after I walked the TODD through the county recorder’s office. In this situation we were successful with the recording, but it was a close call that added a great deal of stress on the family at an already challenging time. If at all possible, get this documentation completed as soon as possible. If you do miss the opportunity to get a signed and recorded TODD due to a hospice situation or other medical emergency, don’t fret—there are other options available.

FINALLY: HOW MANY AND WHAT TYPE OF BENEFICIARIES ARE YOU NAMING?

TODDs can ease the transfer of the Grantor passing mom and dad’s property to the kids, avoiding probate. But a TODD might not be the best choice. What if one of the kids has special needs, is going through a divorce, or has a judgment or bankruptcy? This can result in expensive litigation, defeating the reason for the TODD. A trust might be a better option to avoid probate and accomplish the same goal. Keep in mind, that if the kids are married their spouse(s) will also have to sign off on the deed. Sometimes this can be difficult if all parties do not agree.

CAN I DRAFT MY OWN TODD?

I would recommend seeking legal counsel when drafting a TODD. Although it is a simple form to fill out, the thought behind it can be complex. In addition to the considerations listed above, the actual information on the TODD is very important. For example, if the legal description is incorrect or incomplete, the TODD will be rejected or may not convey the entire property.

I had a probate client try to save a few bucks by drafting a TODD on his own for his mother’s condominium. She passed and he thought it would avoid probate and automatically transfer to him. However, he did not include the correct legal description. He only included the condominium unit and not the 1/66th interest in the common areas. This presented a problem because the buyer, of course, didn’t want the unit without any of the common areas to enjoy the amenities. Unfortunately, it ended up in probate to fix the issue. What could have cost a minimal amount ended up costing thousands.

HOW LONG IS THE TODD GOOD FOR?

Once a TODD is recorded, it will remain in effect until it is revoked or the grantor sells the property, and the TODD will expire on its own terms. A TODD is specific to the property. Therefore, if a grantor moves and buys a new property or has multiple properties, a TODD needs to be filed on each one.

As you can see, a Transfer on Death Deed can be a great way to avoid a probate. However, legal counsel should be sought before you make that decision. If you have any questions regarding a Transfer on Death Deed or would like to discuss whether it may be suitable for your situation, please feel free to contact me and I would happy to go over your options with you. Michele Loughrey Tschida

Unfortunately, as a real estate attorney as well as an estate planning attorney, I see way too often when things go south. Couples often tell me that they have a very close family and all their children get along great…that is, until they don’t. Once mom and dad pass, that is when grief, greed, and fall outs occur. My advice to couples is to plan for what they want to happen to the cabin (or hunting land) once they are gone.

A great place to start is to host a dinner and invite all the children and their spouses. In-laws are imperative to the planning meeting so they can understand what mom and dad’s intentions are first hand. Have open discussions about who wants to continue using the cabin, who can afford to fund the cabin for taxes, maintenance, and improvements? What happens if one child moves to Texas and never uses the cabin? What if one child wants to add on to the cabin or put in a new dock? How will everyone agree, and decisions remain civil? These are all important discussions worth having so an agreement can be made and put in writing, so everyone is on the same page. If you want your family cabin to remain a family cabin, please make a plan!

The following are some of the ways my clients have planned for their family cabin:

Cabin Trust

Most clients set up a Cabin Trust. By setting up a Trust, it keeps the cabin out of probate and allows them to “control it from the grave”. By that I mean, you get to establish the rules and conditions for how the cabin continues after you are gone. This can be helpful to allow for voting rights amongst the kids, dictate how the expenses and maintenance are shared, and addresses options for improvements and buyouts. A trust can also protect against creditors if one of your children experience financial difficulties with bankruptcy, judgments, tax liens or in the unfortunate situation of a divorce. It can also keep the property in the family and pass it to your grandchildren if your child predeceases you, instead of their share going to their spouse and new husband/wife should they choose to remarry.

LLC or FLLP

Some clients will set up a Limited Liability Company (LLC) or Family Limited Liability Partnership (FLLP). This option also keeps the cabin out of probate. In addition, it can have an added benefit of protection if the cabin will be rental property and there is an unfortunate event of accidents or injuries that occur on the property. However, this option can be more expensive to set up and involves yearly accountings.

TODD

Setting up a Transfer on Death Deed (TODD) will also avoid probate. The TODD transfers the cabin to a named beneficiary in the event of the owners’ death. This option also keeps the cabin out of probate. In addition, it can have tax benefits, allowing for a stepped up in basis. However, a TODD is not the best option if there are multiple beneficiaries. Instead of transferring to 3 children, if they are married, you now need all 6 of them to agree and sign off in the event of a sale. The cabin is also exposed to potential creditors and divorce situations.

QCD

A Quit Claim Deed is another way to avoid probate. This is not a common plan. A QCD is turning over the title to the property to your children. You will relinquish all rights. Be sure you are ready for that. By doing this, it does not allow you to sell the cabin it or mortgage it. It will also count as an asset on your children’s financial portfolio. This might not a good option if they have kids trying to qualify for college financial aid. A QCD also does not qualify for a step up in basis for tax purposes.

If you decide to do nothing, the cabin will be a probate asset and be disposed of through your Will (if you have one) or will be distributed according to the Intestate Succession Laws. Probate is not the end of the world but can be expensive and can be a very drawn-out process, causing families to become estranged.

As you can see, there are many options and every family situation is different. I would love the opportunity to discuss the best option for you and your family. Bring on the cabin fever and keep it in the family for generations to come! Michele Loughrey Tschida 

If your clients are not married and considering buying a home together (boyfriend/girlfriend, brother/sister or life partner) it’s important for them to protect themselves. As an agent, you can do your clients a huge service by suggesting a couple of very important issues your clients should consider. First, your clients should carefully consider how they should take title. Second, your clients should consult with an attorney to draft a Cohabitation Agreement which lays out the structure of their purchase and expectations of their arrangement.

How should your clients take title?

There are three ways your clients can take title to the property:

1. Sole Ownership. Sole ownership is when only one of the parties goes into title. If your client decides to put only one of them on the deed, tell your clients to beware; the party not listed on the deed has no legal right to the property whatsoever. Therefore, the other party can evict him/her at any time. This can sometimes be intentional due to one of the parties’ financial situation, such as a bankruptcy, judgments or tax liens. If that’s the case, a Cohabitation Agreement is essential!

2. Joint Tenancy. Joint tenancy is when both parties go into title and have equal ownership with rights of survivorship. If one dies, their interest in the property automatically passes to the surviving party, upon the filing of an Affidavit of Survivorship and certified copy of the death certificate.

3. Tenants in Common. Tenants in common is when both parties go into title and have equal ownership. However, if one party dies, that party’s share will NOT automatically pass to the surviving party but will go to the deceased party’s estate.

In Minnesota, if the deed does not specify state joint tenants on the face of the deed, title is presumed to be tenants in common. It makes sense for most married couples to go into title as joint tenants vs. tenants in common. In the unfortunate event that one spouse dies, the surviving spouse can avoid going through an expensive probate and remain as 100% owner of the property. However, if your clients are not married, tenants in common is often the preferable choice. With an appropriate Cohabitation Agreement, both parties can feel protected without the expense of costly litigation in the event their relationship turns toxic. If your clients end up getting married, they can always sign a Quit Claim Deed and change their ownership status to joint tenants.

WHAT IS A COHABITATION AGREEMENT?

A Cohabitation Agreement is a legal document that is designed for unmarried couples who wish to live together. The agreement allows to evidence the percentage or amount of each party’s contribution to the purchase as well as outline each parties’ responsibility of expenses and improvements. A Cohabitation Agreement can be extremely important if the couple ever part ways or wants to sell the property. It makes it crystal clear as to how sale proceeds will be divided, without a costly legal battle.

Unlike marriages, where each party has legal rights to the division of property, cohabiting parties do not have any legal rights as to the division of property unless an agreement has been entered into. This can be a devastating realization if one of the parties is not on the title and he/she contributed a substantial amount for the purchase.

Trust me when I have say, I have seen it all. Whether it is a boyfriend/ girlfriend breaking up, a brother and sister having a fallout or life partners ending their relationship, owning property together can end badly and be costly for everyone involved. Therefore, the appropriate choice of how to take title and a carefully crafted agreement executed ahead of time can protect everyone’s interest.

As a real estate agent, you can add value to your client’s home buying experience beyond the closing by suggesting a Cohabitation Agreement. In the event their relationship doesn’t go as planned, they will thank you. I won’t be able to fix your client’s relationship, but as an experienced real estate/estate planning attorney, I can advise them of their options and protect them from a costly fallout…. because life happens. Michele Loughrey Tschida