New Mexico Law – Avoiding Probate With The Use Of A Transfer On Death Deed (TOD Deed)

Avoiding Probate With the use of a Transfer on Death Deed  (TOD Deed)

By Melissa Morris and Charles McElwee

We are often asked how a LegalShield member can prevent the need for probate of his or her estate.  First, keep in mind that not all estates have to be probated. Some small estates can be handled merely with an affidavit signed by the heir.    Call us if you want to discuss the situations in which this might be possible.  Other estates, in which the potential heirs disagree, or that have complex issues, often require a court proceeding to resolve.

If you own real estate at the time of your death, a probate will often be required to change the title of that property from your name to the name of your heir or heirs.  But in many cases this can be avoided with the use of a Transfer on Death Deed.

What is a Transfer on Death Deed?

A Transfer on Death Deed (TOD deed) is a deed signed and recorded by the property owner that states that a certain person (or persons) shall take title to a described piece of real estate at the time of the death of the owner.  The deed has no effect during the owner’s lifetime and can be revoked at any point before the owner’s death.  Once the owner of the property dies, however, and a copy of the death certificate is recorded, the title to the property automatically shifts to the designated heir without probate.

Transfer on Death Deed versus Joint Tenancy  as an estate planning tool for couples.

Many couples who purchase property together decide to hold it as joint tenants.   This is a good method for making sure that when one dies, the other automatically becomes the owner of the whole title to the property.  In situations like this, there would be no reason to make use of a TOD deed.

Some advantages of the use of a Transfer on Death Deed over Deed in Joint Tenancy.

For many situations other than when couples purchase property together, however, a TOD deed is preferable.  Here are some of the reasons:

1. A deed to another person in Joint Tenancy is not revocable, whereas a Transfer on Death deed is.  Example, Miriam wants to avoid probate, so she deeds her house to herself and her son, Albert, as joint tenants.   She has other children, but trusts Albert to sell the property and divide the proceeds among all her children.  Later, a rift develops between Albert and Jasmine, another one of Miriam’s children, and Miriam fears that Albert will not give Jasmine a share of the proceeds of the sale of the house when Miriam dies.   There is nothing Miriam can do at this point to take back the half interest she has given Albert.  During her lifetime she could change the ownership interest from Joint Tenancy to Tenancy in Common and leave her half to someone other than Albert, but his half will always belong to him.  If she doesn’t change the title however, and if she dies before him, Albert will have 100% of the title to the house and can legally do what he likes with it.  If Miriam had executed a TOD deed to Albert, she could have revoked it as soon as she found out about the bad feelings that had arisen between Albert and Jasmine and come up with some other plan for giving the property to her children upon her death.
2. There are some tax advantages to using a TOD deed rather than a Joint Tenancy deed to avoid probate.  Transferring title to property into Joint Tenancy is considered to be a gift to the other person.   But, leaving it to the same person by a TOD deed is treated as an inheritance by the IRS.  If the property is later sold by the person who inherited it, this can make a difference in the amount of any capital gains tax charged by the IRS to the heir when he or she sells the property.

Revoking a Transfer on Death Deed

A TOD deed may be revoked at any time during the life of the owner.  This is done by filing a revocation in the County Clerk’s office, by executing and filing a new TOD deed to a different person which includes language revoking the previous deed, or by transferring the property to another person by a deed that includes language revoking the previous TOD deed.

You cannot revoke a TOD deed, however, by making a different disposition of the property in your will.

When might a Trust be better?

1. It is not possible to control what happens to the property or what use is made of it after the time of the owner’s death using a Transfer on Death deed.  For this reason, if you want your property to be used in a certain way by the persons inheriting it, you should have a trust created and transfer the property to the trust
2. It is not possible to leave real estate to a disabled person receiving Social Security disability payments by a TOD deed without disqualifying him or her from benefits.   This can, however, be done using a special needs trust.
3. If an estate is complex, or contains several types of property, setting up a trust may well be a more effective and efficient way of making sure it is handled correctly after the owner’s death.

If you are interested in having a TOD deed prepared, or have questions about wills, trusts or different kinds of deeds, please call Davis Miles McGuire Gardner, PLLC, your LegalShield provider, at 505-246-0231 or 800-435-3290 and we will be happy to answer your questions.