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”) in Nebraska.
The TOD deed will operate in a similar fashion to a payable on death (“POD”) bank account. The beneficiary will not have any current ownership interest in the property during the life of the owner and will only receive ownership when the owner dies (or in the case of joint tenancy ownership) when all of the owners have died.
This new TOD deed will be a useful tool for attorneys in the estate planning process. One example would be for a parent who wants to put the name of a child on the deed to their real estate to avoid or minimize probate. Unless there are some unique circumstances involved, I usually advise against such practice because it introduces too may unintended consequences.
In a recent bankruptcy case, a son filed bankruptcy not knowing his father had put the son’s name on the deed to the father’s home. The consequence was the son unintentionally included his father’s house in the bankruptcy estate. The new TOD deed will be a good alternative to this practice because with the TOD deed, the child is only a beneficiary and does not become an owner of the property until the owners of the real estate 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 and the statute places very specific requirements on each. 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 estate 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. Which 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. So, the TOD deed is a nice option, but please consult with your estate-planning attorney to determine your best plan.
Upon the death of the owner of the real estate, the real estate will pass outside of probate, as long as the beneficiary survives the owner. 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.
If multiple beneficiaries are named, the property will be controlled equally which may present issues. For example, if you name your three children as beneficiaries, after your death all three must agree how to manage or sell the real property. If you expect disagreement among the beneficiaries, it may be better to use a trust or allow probate, so that one person may be designated to make decisions about the property.
In conclusion, the new TOD deed will be a valuable tool for estate planning attorneys in Nebraska. Please contact my office to arrange a convenient time to meet and determine whether the new TOD deed is something you should consider for your estate planning needs.