An Efficient Transfer of a Decedent's Real Property Assets: The Transfer on Death Deed

By: Spiros Vasilatos, Jr. (1)

A Publication of Skidmore & Associates, A Legal Professional Association

A recent change in Ohio estate planning law has created a new mechanism for transferring real property upon death while avoiding probate.2 The Transfer on Death Deed ("TOD") allows the owner of real property to designate a beneficiary at the time of executing the TOD, so the title to the real property will automatically vest in the beneficiary upon the owner's death.

Ohio Revised Code ("ORC") Section 5302.22, which created the TOD, was introduced into the Ohio House of Representatives in April, 1999 as House Bill 313. The Ohio House and Senate concurred on the passage of an amended version in April, 2000 which became effective in August, 2000. The TOD is an effective way to avoid probate of real property without the previous necessity of a living trust or joint tenancy with right of survivorship. Other alternatives were costly to prepare, therefore not a realistic option to avoid the probating of real property by individuals with modest means. It can be created by anyone who owns an interest, whether entirely or partially, in real property.3 The real property owner retains full ownership of the real property during his or her lifetime. The beneficiary holds no interest in the real property until the owner's death, thus it cannot be transferred or attached by the beneficiary until the title vests upon the owner's death.

The beneficiary(s) of a TOD (the "Transfer on Death Beneficiary") must be specifically identified by name in the TOD and must survive the real property owner and be in existence at the time of the owner's death.4 Unlike a will or trust, the real property owner cannot designate a class of beneficiaries, such as "Any children". A trust may be designated as the beneficiary. If more than one beneficiary is named, they will take title in equal shares as tenants in common. The owner may also designate a contingent beneficiary if none of the named beneficiaries survive.5 A "Contingent Transfer on Death Beneficiary" shall take an interest in real property that would otherwise pass to the Transfer on Death Beneficiary "but for" the Transfer on Death Beneficiary's failure to survive the owner. If neither the named beneficiary(s) or contingent beneficiary survives, the real property is distributed as part of the owner's probate estate.

The creation of a TOD is simple. In substance, it should take the statutory form provided in ORC 5302.22(A) and 5302.23.6 The execution must conform with the usual formalities of regular deed and be recorded with the county recorder's office.7 It does not have to be supported by consideration or delivered to the beneficiary(s) to be effective.8 The owner may designate the beneficiary upon first receiving the deed, or may transfer presently owned real property to himself and designate the beneficiary. The real property owner may change or amend the beneficiary designation by simply executing and recording a new TOD.9

The title vests in the named beneficiary(s) upon the death of the real property owner.10 The transfer of title is recorded by presenting to the county auditor and filing with the recorder's office an affidavit and certified copy of a death certificate for the deceased owner.11 The affidavit should include the name of the deceased owner and date of death, the names and addresses of the surviving beneficiary(s), a description of the real property and the interest held therein, and the names and copies of death certificates of any named beneficiary(s) not surviving.12 The beneficiary(s) take title subject to any reservations, encumbrances, or exceptions.13

The TOD has many benefits to other mechanisms of transferring real property at death. It circumvents the time and expense associated with the probate testamentary transfers. It avoids the expense and complexity of creating a living trust. It does not require joint ownership of real property, as does a tenancy with survivorship rights. It can be easily amended and is inexpensive to establish.

Although the TOD is an efficient and affordable alternative to the protracted probate process, litigation could erupt in the construction, interpretation and application of ORC Sections 5302.22 and 5302.23. There are a number of overlapping principles concerning real estate, probate and partnership law which may conflict with the objectives of a TOD. What if a substantial time has passed after the recording of a TOD and the Transfer on Death Beneficiary cannot be located or is unaware of the TOD? What if the Transfer on Death Beneficiary cannot ascertain the existence or non-existence of other beneficiaries? What is the legal effect of a defectively executed TOD or affidavit and how will it affect title? How is the business relationship reconciled between partners of Decedent and a Transfer on Death Beneficiary? What are the duties and responsibilities of the Transfer on Death Beneficiary concerning loan instruments encumbering real property owned by a partnership? Which instrument will take precedent if the terms of a Will and TOD conflict? A dispute between the interested parties could foster litigation, thereby defeating an important objective of the TOD.

At Skidmore & Associates, we understand ORC Sections 5302.22 and 5302.23 creating the Transfer on Death Deed and how those statutes relate to or conflict with other probate, estate, real property or partnership laws. Feel free to contact the author to learn more about the TOD or other alternatives to probating estate assets.

This article has been prepared for the purpose of disseminating information only and should not be interpreted or construed in any way as legal advice.

1. The author acknowledges and extends his deepest appreciation to Janelle Dease for her substantial contribution in the preparation of these materials. Ms. Dease has been a law clerk for Skidmore & Associates for approximately two years and will be entering her third year at The University of Akron College of Law in the Fall of 2002.

2. ORC 5302.22 (Other methods of avoiding the probating of an estate consist of payable-on-death bank accounts, joint ownership of personal and real property with survivorship rights, transfer on death designation for securities and beneficiary designation for life insurance proceeds and qualified retirement plans. Carlin, Baldwin's Ohio Practice, Merrick-Rippner Probate Law, Section 14.20 (2002)).

3. ORC 5302.22(B) (typical examples of creating a "transfer on death interests" are as follows: Example 1 - In 1962, Husband ("H") and Wife ("W") purchase Green Acre in fee simple and receive a Warranty Deed. In 1978, H files for divorce and receives a Quit-Claim Deed from W, transferring W's interest in Green Acre as a part of a divorce settlement. In 2001, H decides to leave Green Acre to his three adult Children, A, B, and C in equal portions and H desires to avoid probating Green Acre through his estate upon his death. H executes a TOD as Grantor to H as Grantee designating A, B and C as transfer on death beneficiaries. Example 2 - In 1986, H and W are married. In 1989, H, X and Y purchase an interest in White Acre (vacant land) as tenants in common. H, X and Y obtain financing and build a hotel on White Acre. In 1996, W dies. In 2001, H executes a TOD and designates himself as Grantee and Z as transfer on death beneficiary. Upon H's death in 2002, Z files an affidavit accompanied by a certified copy of H's death certificate with the county recorder's office. Z takes a 1/3 interest in White Acre as a tenant in common with X and Y subject to any financing liens on White Acre.

4. ORC 5302.23(B)(1): Example: X is single and purchased a fee simple interest in Red Acre in 1970. In 2001, X executes and records a TOD and designates H and W as transfer on death beneficiaries of Red Acre. H and W are killed in an automobile accident in February, 2002. In December, 2002 X dies. The TOD is not effective to pass title because H and W predecease X. Red Acre becomes a probate asset subject to administration by the probate court.

5. ORC 5302.23(B)(2). "A contingent transfer on death beneficiary" will take an interest of the deceased owner that would otherwise have passed to the designated transfer on death beneficiary if the named designated transfer on death beneficiary does not survive the deceased owner. Example: In 1955, H and W get married. H and W purchase Gold Acre in 1965. In 1966, 1969, and 1972, H and W have Children A, B and C, respectively. In 1986, A gives birth to twin girls G and F. In 1990, C fathers a child named K. B has no children. In 1995, H dies. In 2000, W executes and records a TOD designating A, B and C as transfer on death beneficiaries of Gold Acre. W designates G and F as contingent death beneficiaries in the event A does not survive W. W designates K as a contingent death beneficiary in the event C does not survive W. A dies in 2001. W dies in 2002. Upon filing an affidavit and certified copy of W's death certificate, G and F shall have a 1/3 interest in Gold Acre as tenants in common with B and C.

6. ORC' 5302.22(A); 5302.23.

7. ORC 5302.22(A); 5301.

8. ORC' 5302.22(B).

9. ORC 5302.23(B)(4).

10. ORC 5302.22(C); 5302.23(B)(3).

11. ORC 5302.22(C).

12. Id.

13. ORC 5302.23(B)(6).

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