This is for Ohio.
TRANSFER ON DEATH DESIGNATION AFFIDAVIT. Beginning December 28, 2009 you must follow the new rules for transfer on death designations. Set forth below are some questions and answers of the impact of the new law.
1. WHAT IS A TRANSFER ON DEATH DEED?
In August of 2000, Ohio became one of only a handful of states that allowed what is commonly called a transfer on death deed or TOD deed. A transfer on death deed allowed an owner of real estate to create a deed with a beneficiary designation naming who would inherit the real estate on death. The new law does not invalidate transfer on death deeds that were filed prior to December 28, 2009. Arguably the new law does not apply to transfer on death deeds that were executed prior to December 28, 2009 but not yet filed. However, some counties are not accepting for filing TOD deeds that were signed prior to December 28, 2009 but filed on or after December 28.
2. WHY DID PEOPLE USE A TRANSFER ON DEATH DEED?
A transfer on death deed was a good way to pass your home or other real estate to beneficiaries without going through probate. Probate is not an estate tax, but the paperwork process needed to be used to pass assets that are inherited through a will. By using a transfer on death deed the time and expense of probate could be avoided.
3. HOW CAN I AVOID PROBATE ON MY HOME OR OTHER REAL ESTATE?
There are several ways that are typically used. The most common are joint and survivor deeds, trusts and now the new TRANSFER ON DEATH DESIGNATION AFFIDAVIT. As part of the new law eliminating transfer on death deeds, the Ohio legislature has adopted a transfer on death designation affidavit. If properly prepared the transfer on death designation affidavit will pass the real estate to the beneficiary outside of probate.
4. WHAT IS THE TRANSFER ON DEATH DESIGNATION AFFIDAVIT?
Effective December 28, 2009, you can avoid probate on real estate if you have an affidavit prepared naming the beneficiary of your real estate. The affidavit must contain the following:
• It must be notarized and filed before death of the property owner.
• It must describe the property and its instrument number.
• It must describe the portion of the property being transferred.
• It must state whether or not you are married. If you are, your spouse must sign the affidavit also.
• It must name the beneficiary
5. WHO CAN BE THE BENEFICIARY OF THE REAL ESTATE?
You can name an individual, trust or other legal entity such as a limited liability company or corporation as the beneficiary of your real estate with the transfer on death designation affidavit.
6. HOW MANY BENEFICIARIES CAN YOU HAVE WITH A TRANSFER ON DEATH DESIGNATION AFFIDAVIT?
• You can have multiple beneficiaries
• Each beneficiary ownership does not have to be equal. For example you can provide that child one inherits 3/4th and child two inherits 1/4th of the real estate
• You can have beneficiaries inherit with a survivorship clause. For example, you can provide that child one and child two are the beneficiaries with a joint and survivor interest. That would mean upon death of the property owner, the children would hold the property with a right of survivorship. So upon the death of child one, child two inherits the property outside of probate. You cannot use this if one of the beneficiaries is a legal entity like a trust.
• The beneficiary named in the affidavit can be a trust, corporation, limited liability company or other legal entity.
• Joint and survivor owners of real estate can name a beneficiary of the joint and survivor deed. For example, a husband and wife can own the property in joint and survivor ownership and have a transfer on death designation affidavit naming the children as beneficiaries.
7. DO I HAVE TO APPLY THE TRANSFER ON DEATH DESIGNATION AFFIDAVIT TO THE ENTIRE PROPERTY?
No. You can have a transfer on death designation affidavit apply to all or a portion of the real estate.
8. SHOULD EVERYONE USE A TRANSFER ON DEATH DESIGNATION AFFIDAVIT?
No. A transfer on death designation affidavit is not the solution to all problems. For some people a trust may be the better solution or a joint and survivor deed. For married couples who may be trying to qualify for Medicaid, it may be necessary to go through probate and not use any of the probate avoidance deeds discussed.
9. WHEN WOULD I USE A TRUST TO AVOID PROBATE OF REAL ESTATE?
A trust may have several advantages over a transfer on death designation affidavit.
• If the property is an investment property such as a rental property, a trust would make it easier to manage the property if there are several owners inheriting the property. If property is held by individuals all decisions have to be unanimous. The trustee of property held in a trust can make the decisions without the approval of the beneficiaries.
• The beneficiaries of a trust do not have liability for any claims related to the real estate
• The trust could protect the assets from potential creditor claims or divorce claims of any of the beneficiaries.
• The trust could avoid any additional death taxes on the real estate.
• The trust can hold a benefit for grandchildren if your child dies before you. For example if you have three children and you provide the assets go to your children equally and one of your children dies prior to you, that child's share can be held for minor grandchildren in trust.
10. WHEN WOULD I USE A JOINT AND SURVIVOR DEED TO HOLD REAL ESTATE?
Typically a joint and survivor deed is used for a husband and wife to pass the real estate to the surviving spouse. This may be the appropriate solution for some people. However it may not be the correct solution to address estate tax issues, liability issues, and Medicaid planning.
Also if a joint and survivor deed is used for a parent and a child there could be adverse income tax results and liability issues.
Example: Widow owns a house that she bought for $50,000 which is worth $250,000. widow puts daughter on the deed as a joint and survivor benefit to avoid probate. Daughter is married. (Either before or after the house is put in joint and survivor deed.) Here are the issues:
• Daughter now owns a portion of the house. If Widow wants to sell house she needs signature of daughter and daughter's spouse.
• If widow had owned the house in her own name and sold the house there would be no income tax. Since she owns the house in joint and survivor ownership, the daughter could owe Federal and Ohio income taxes on the sale of approximately $20,000.
• If daughter has any debt problems, daughter's ½ of house could be subject to creditor claims. The creditor could force the sale of the house.
11. WHERE IS THE LAW ON THE TRANSFER ON DEATH DESIGNATION AFFIDAVIT?
Ohio Revised Code, Title 53, Sections 5302.22; 5302.222; 5302.23; and 5302.24
Copyright © Budish, Solomon, Steiner & Peck, Ltd. This article may be reproduced with proper attribution to the law firm of Budish, Solomon, Steiner & Peck, Ltd.
