Law Office of John S. Palmer Attorney at Law

Thoughts on TOD Deeds

Posted Thursday, July 17, 2014 by John S. Palmer

Since the law permitting transfer-on-death deeds in Washington took effect June 12, there has been a lot of chatter among estate planning attorneys here as to their appropriate use.

Washington joins 23 other states and the District of Columbia that permit such deeds. Several previous attempts to permit them in Washington failed; one major concern was–and is–that they permit the post-death transfer of a major asset without the formalities of a will, most notably witnesses who provide some assurance that the testator was of sound mind and understood what he or she was signing.

Because a TOD deed would trump the provisions of a will purporting to control disposition of the same property, it would be wise to consult with an attorney before using one, to make sure that it won’t inadvertently undo any tax planning or trust provisions contained in an existing estate plan.

On the other hand, TOD deeds could be handy for folks with revocable living trusts. On several occasions I have discovered that clients had transferred their home out of their living trust when refinancing the property, at the request of the lender. Had I not spotted the problem and helped the clients transfer the home back to the trust, it would have defeated one of the main purposes of establishing the trust—the avoidance of probate.

In light of the fact that lenders commonly require property to be conveyed out of a trust as a condition of closing a home loan, and homeowners often neglect to transfer the property back into the trust after obtaining the loan (which they can freely do without repercussion), I think a TOD deed may offer a solution. Upon establishing a revocable living trust, the trustor could then execute a TOD deed naming the trust as the beneficiary. This would avoid the need to transfer the property in and out of trust every time the homeowner borrows against the equity, while ensuring the trust ultimately controls disposition of the property after the homeowner’s death, without the need for any probate proceedings.

Finally, there was initially some confusion about whether excise tax is due when recording a TOD deed; although the statute clearly says the answer is no, some counties were apparently informing people that tax would be due because there was no specific provision granting an exemption in section 458-61A-202 of the Washington Administrative Code. Fortunately, an emergency rule was filed on June 10, effective immediately, creating such an exemption.

If you have any questions or would like to schedule an appointment, please call us at (425) 455-5513, toll free at (877) 455-5513, or info@palmerlegal.com.