One of the challenges facing an individual that owns property outside of his or her state of residence is the fact that a person’s estate generally must go through probate in the state of residence and any state where the deceased person owned real property. A relatively new law is making it simpler and less costly to avoid a secondary (aka “ancillary”) probate through the use of a Transfer on Death Deed.
Each state is governed by its own laws. This can make planning for assets outside of a single state cumbersome. Sometimes the states decide to adopt uniform laws in efforts to bring some amount of consistency to their laws. Indeed, this is the mission of the Uniform Law Commission. In 2009, the Uniform Law Commission introduced the Uniform Real Property Transfer on Death Act (the “Act”). Uniform Laws Commission: uniformlaws.org. Since that time, approximately 16 states have adopted the Act. Id. As of the date of this writing, more states continue to introduce or adopt the Act (in 2019, two states have enacted the law and another four states have introduced the legislation for consideration). Id.
Washington adopted its version of the Act in 2014 under RCW 64.80. The law allows the owner of real property (land, house, condo, mineral rights, oil rights, building, etc.) to record a deed in the state where the real property sits that only takes effect upon death. For Washington real property, the deed would be recorded at the County Auditor’s office in the county where the real property is located. In simple terms, I might for example record a deed that says, “Upon my death, I convey and quitclaim to [my children] my interest in the following described real property….” The effect of such a deed is that it makes the probate process unnecessary with respect to that single asset. The recipients (in this case, my children) receive the land upon my death, subject to any encumbrances like liens or mortgages. And, it works in any of the 16 states (mostly in the western United States) that have adopted the Act. So, a person could, for example, record a Transfer on Death deed on his personal residence in Washington, on his oil rights in South Dakota, and on his ranch land in Texas. The effect could be the avoidance of probate in all three of those listed states. Of course, this presupposes proper deeding and recording in each of the three states.
The Transfer on Death Deed is revocable. So, a person could record the deed and later change his or her mind about the ultimate disposition. The same person would simply record a revocation of the deed. Similarly, if the subject property is sold during life then the asset is not owned at death and the previously recorded Transfer on Death Deed has no effect. Accordingly, a person is not necessarily locked into the decision to transfer the property.
Prior to the Act, it was common to consider placing out-of-state real property into a living trust or perhaps a Limited Liability Company (LLC) to avoid the administrative cost and hassle of probate in that other state. The Transfer on Death Deed is often a superior and less expensive alternative to either a living trust or an LLC. And, though a key benefit of the Transfer on Death Deed is the ease of transferring out-of-state property to heirs without the use of probate, it can also be used to transfer in-state property (e.g. a personal residence) to heirs at death without the necessity of probate.
Though the author is not necessarily suggesting the need to avoid all probate (as probate can have some advantages), it is worthwhile to consider limiting the number of probates one might have his assets subjected to. Each probate adds cost and complexity that should be factored into the decision-making process.
To determine if a Transfer on Death Deed is right for you, talk to your attorney or financial advisor to help structure your estate plan to fulfill your vision with the least complexity possible.
* Licensed, not practicing.
The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual or entity. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Cornerstone Wealth Strategies, Inc., a registered investment advisor and separate entity from LPL Financial.