When it comes to estate planning, few documents provide as much value for such a simple process as a Transfer on Death (TOD) deed. For many property owners, a TOD deed can save time, reduce costs, simplify the transfer of real estate, and even provide significant tax benefits for loved ones. Perhaps most importantly, it provides peace of mind, now and in the future. A Billings, MT estate planning lawyer can help determine whether a Transfer on Death deed fits your overall estate plan and how it can work alongside other planning tools to simplify the transfer of real estate while protecting your long-term goals.
What Is a Transfer on Death Deed?
A Transfer on Death deed is a legal document that allows you to name who will inherit your real estate when you pass away. You remain the sole owner of the property during your lifetime and keep complete control over it. You can sell the property, refinance it, or revoke or change the TOD deed at any time.
When you pass away, ownership transfers directly to your named beneficiary without going through probate. In most cases, the beneficiary simply records a death certificate and the required affidavit with the local Clerk and Recorder’s Office to complete the transfer.
Why Is a TOD Deed So Valuable?
For many homeowners, there are two major advantages.
1. Potential Tax Benefits for Your Beneficiaries
One of the biggest advantages of a TOD deed involves the property’s tax basis.
Your tax basis is generally what you paid for the property, plus certain improvements. Over time, if the property increases in value, selling it can result in capital gains tax.
For example, suppose you purchased a home ten years ago for $200,000, and today it is worth $500,000. If you simply add your children to the deed as co-owners during your lifetime, they may inherit your original tax basis. If they later sell the property, they could owe capital gains tax on much of the $300,000 increase in value.
However, if the property passes to them through a TOD deed at your death, they will generally receive a “stepped-up basis” equal to the property’s fair market value at the date of death. If they sell the property shortly afterward, they may owe little or no capital gains tax because the property’s basis has been adjusted to its current value.
While every tax situation is unique, this step-up in basis can result in substantial tax savings for your beneficiaries.
2. Avoiding Probate
A TOD deed can also help your family avoid probate for your real estate.
Probate is the court-supervised process of administering a person’s estate after death. It includes validating a will (if there is one), identifying assets, paying debts and taxes, and distributing property to heirs or beneficiaries. Probate often involves additional time, paperwork, and expense.
In Montana, real estate titled solely in a person’s name generally must pass through probate unless another estate planning tool, such as a Trust or a properly recorded Transfer on Death deed, allows it to transfer outside of probate. Montana does offer simplified procedures for certain smaller estates, but avoiding probate altogether is often preferable when possible.
Is a Transfer on Death Deed Right for You?
A TOD deed is not the right solution for every situation, but for many Montana property owners, it is an effective, affordable way to simplify the transfer of real estate while preserving flexibility during life.
Because every family’s circumstances are different, it’s important to make sure a TOD deed fits within your overall estate plan. An experienced estate planning attorney at Silverman Law Office, PLLC can help you determine whether a Transfer on Death deed is the best option for your goals and ensure it is prepared and recorded correctly.
If you own real estate and have questions about protecting your property and making things easier for your loved ones, we’d be happy to discuss your options.
Ivy Newman Fredrickson is an attorney with Silverman Law Office, PLLC.
