Nebraska has adopted a new method of transferring ownership of real estate upon the death of the owner. Effective January 1, 2013 we may now use a revocable transfer on death deed (“TOD Deed”).
This article will define how the TOD Deed is used and go into specific circumstances to help you determine whether or not you should use it. It is less expensive to use a TOD instead of an Estate Plan, but because of its limitations we generally advise our clients to use their Last Will and Testament to transfer property to beneficiaries.
The TOD Deed operates in a similar fashion to a payable on death (“POD”) bank account. The beneficiary will not have any ownership interest in the property during the life of the owner (transferor) and will only receive ownership when the owner dies (or in the case of joint tenancy ownership) when all of the owners have died.
To use the TOD Deed, the real estate must be located in Nebraska, but the owner and beneficiary do not have to be residents of Nebraska. The owner must have the capacity to execute the TOD Deed, just as an individual must have capacity to execute a will. The TOD Deed must be properly signed, witnessed and notarized. The statute places very specific requirements on each of these elements. The TOD Deed must also be filed of record in the county where the real estate is located before the owner’s death and within thirty (30) days after it is executed. The owner of the real estate may also revoke the transfer on death beneficiary designation subject to the same signature, witness, notary, and filing requirements.
During the lifetime of the owner, the TOD Deed does not affect any rights of the owner. The owner can still transfer, sell or pledge the real estate. Obviously, if the owner transfers the real estate, by sale of otherwise, the beneficiary interest of the TOD Deed will terminate. The TOD Deed does not impact any rights of any current or future secured or unsecured creditors. Also, the TOD Deed does not impact the owner’s homestead or real estate tax exemption status.
The TOD Deed is not limited to just real estate held in joint tenancy but can also be used for real estate held as tenants in common. Obviously, the result will differ based on how ownership is held and you should consult with your real estate or estate-planning attorney to understand the difference. The TOD Deed is a nice cost effective planning option and will supplement other options such as placing the real estate in an irrevocable trust or using life estates with a remainder interest in a deed. In fact, one could even name a trustee of a trust as the transfer on death beneficiary.
You will also want to keep potential long term care needs and Medicaid in mind when planning with the TOD Deed. Since the TOD Deed does not create any legal or equitable interest in favor of the beneficiary (it is not a current transfer) you do not start the sixty-month clock running for Medicaid. This may work for or against your situation. However, if you need to qualify for Medicaid long-term care, you may be required to revoke the TOD Deed. Further, the designated beneficiary will be personally liable to the extent of the value of the property transferred, to account for Medicaid reimbursement to the extent necessary to discharge any such claim remaining after application of the assets of the transferor’s estate.
If you want the 60-month (look back) clock to begin, the TOD Deed may not be a good option. However, if you utilize a “Life estate and remainder interest deed” granting your children or other beneficiaries the remainder interest, there is a current transfer of an interest and thus the 60-month clock starts to run.
Upon the death of the owner of the real estate, the real estate will pass outside of probate, so long as the beneficiary survives the owner. So, if the beneficiary does not survive the owner (and a contingent beneficiary was not named), the real estate will become part of the owner’s probate estate. The execution of a TOD Deed has no tax consequences. The designation of a beneficiary is not a completed gift because the designation remains revocable. Thus, the designation is not a taxable event for gift tax purposes. However, just like real property passing through probate, the property transferred with the TOD Deed remains subject to inheritance taxation in Nebraska. Additionally, the beneficiary should get the “Stepped up basis” (date of death value) in the real property.
FAQs About TOD
What does the Nebraska Transfer on Death (TOD) Deed do?
In Nebraska, the TOD deed will transfer the described property to the named beneficiary, subject to any liens or mortgages (or other encumbrances) on the property at your death without going through probate.
Can I change a Transfer of Death Deed by my will?
No. It can only be changed by a revocation that is recorded in the Register of Deeds office within 30 days of it being signed and before your death.
How do I make a TOD Deed?
In addition to using the proper form, the TOD deed has certain requirements that must be met: (1) the TOD deed must be signed by two independent witnesses; (2) the independent witnesses and you (the property owner) must all appear before a notary public and have it acknowledged before the notary public or other individual authorized by law to take acknowledgments; (3) the TOD deed must be recorded in each county where any part of the property is located before your death and within 30 days of being signed.
Is the “legal description” of the property necessary?
How do I find the “legal description” of the property?
The “legal description” for the property should be on the deed you received when you became an owner of the property. This information should also be available at the County Register of Deeds office for the county where the property is located. If you are not absolutely sure, consult a lawyer.
Can I change my mind before I record the TOD Deed?
Yes. If you have not yet recorded the deed and want to change your mind, simply tear up or otherwise destroy the deed.
How do I “record” the TOD Deed?
Take the completed and acknowledged form to [the office of the county register of deeds of the county where the property is located. Follow the instructions given by the county register of deeds to make the form part of the official property records. If the property is in more than one county, you should record the deed in each county or have a separate form for each county.
How do I revoke the TOD Deed after it is recorded?
There are three ways to revoke a recorded TOD deed: (1) Complete and acknowledge a revocation form in a similar fashion to what is done for the original transfer on death deed, and record it in each county where the property is located. (2) Complete and acknowledge a new TOD deed that disposes of the same property, and record it in each county where the property is located. (3) Transfer the property to someone else during your lifetime by a recorded deed that expressly revokes the TOD deed. You may not revoke the TOD deed by will.
What if I want to later put a deed of trust on this property?
You can do this. A beneficiary takes the property subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens, and other interests to which the property is subject at your death. It does not matter whether it is done before or after you record this form.