Estate plans often use complex trusts to avoid probate, but avoiding probate doesn’t always have to be complicated. For example, one way to have real estate avoid probate is sometimes to simply name a beneficiary to a transfer-on-death deed.
A transfer-on-death deed designates a beneficiary. Upon the death of the owner of the property, ownership passes to the beneficiary named in the deed. Therefore, the property is not legally part of the deceased person’s estate when it goes through the probate process.
To be found valid, the transfer-on-death deed must meet certain formal requirements. First, the person who creates it must be named as the owner of the property; the property must be described; the beneficiary or beneficiaries must be named (it’s wise to name contingent beneficiaries as well, in case anything happens to the original beneficiaries); and the deed must state that the transfer is not effective until the owner dies.
The owner must sign, execute and record the deed according to all the requirements under Texas law. If the owner fails to take any of these steps, the deed will be declared invalid.
While the ability to bypass probate can be a big advantage to the beneficiaries, there are disadvantages to transfer-on-death deeds. The owner retains all rights to the property until their death, and can decide to change the beneficiary. Some people who thought they were going to be beneficiaries get a rude surprise when they find out the owner had changed the transfer-on-death deed.
It’s also important for beneficiaries to note that the title to the property does not necessarily pass directly to the beneficiary upon the owner’s death. There may be a waiting period, and there may be others who challenge the validity of the deed.
While a transfer-on-death deed can be a relatively straightforward way for a property to avoid probate, it’s not necessarily the best way. A lawyer with experience in estate planning and probate litigation can help owners and beneficiaries to understand their rights and their legal options.