Transfer on death deeds, or TODDs, are new instruments at your disposal thanks to Oregon’s adoption of the Uniform Real Property Transfer on Death Act. TODDs fill a niche in your estate planning goals if you like the idea of keeping your real property out of probate but do not want to set up a trust during your lifetime.
What is a transfer on death deed?
TODDs are very similar to pay on death designations for bank accounts. A TODD names a beneficiary to receive title to Oregon real property upon the grantor’s death. TODDS are, as the name implies, a deed that is recorded in the county where the real property is located. They are revocable, and they are not effective until after the grantor’s death, meaning they don’t create any kind of life estate or other vested interest in the property simply by recording them.
A beneficiary to a TODD transfer takes the property with a favorable (from the beneficiary’s standpoint that is) stepped-up basis for tax purposes. This is unlike a lifetime gift to a trust (another way of avoiding probate), in which the beneficiary would take the grantor’s basis.
Some issues with transfer on death deeds
A word of caution, however: the Oregon statute making TODDs a valid estate planning tool doesn’t come into effect until January 1, 2012. This means you can create and record your TODD deeds before then, but a grantor’s death prior to January 1, 2012 will throw a wrench into your well-made plans. The solution, of course, is a carefully crafted estate plan that provides for some redundancy in the unlikely and unfortunate event that the TODD grantor passes prior to the effective date, most likely in the form of a specific bequest in a will (yes, this means the property goes through probate, but the beneficiary still takes a stepped-up basis and the grantor’s wishes can be protected).
Oregon transfer on death deeds are brand new, and it is not yet known how lenders will treat them with respect to “due on sale” clauses that are present in most mortgages and trust deeds.
Also, because creditors and claimants have an 18-month window to make claims against the property, whether because the estate is too small to pay its debts or there is some challenge to the TODD transfer itself due to incapacity, this creates a cloud on title. A TODD beneficiary cannot expect to be able to market and sell the property immediately, which is something to be considered when using a TODD as part of your Oregon estate plan.
TOODs can be a very useful tool for Oregon estate planning purposes, but they are most useful for property meant to be kept in the family (read: not marketed and sold after death) and in specific cases where a trust would be undesirable or inappropriate.