Avoiding probate, or the process of estate administration through the county probate court, is a pillar of every estate plan. Traditionally, funding a revocable living trust with one’s property during a lifetime was the most common method of doing so. Other methods of avoiding probate include pay on death (POD) designations for bank accounts and titling ownership in a property joint with rights of survivorship (JTWROS). Interestingly, Ohio offers another option that is not available in every state. In Ohio, one may register direct ownership interests in securities like corporations and limited liability companies, as well as brokerage and securities accounts, and transfer on death (TOD), which avoids probate upon the death of the property owner. In addition, Ohio permits transfer on death designations for real property ownership interests.
When planning for the disposition of one’s estate, it is common to employ a combination of methods described above to avoid probate. It is also especially important to review beneficiary designations for life insurance and retirement plan benefits to ensure that there is no inadvertent estate administration at death due to an ineffective or failed designation.
A transfer on death designation for real property may be made to a revocable living trust established by the property owner upon his or her death, versus titling the real property directly to the trust during a lifetime. Although either approach will avoid probate, sometimes there are practical reasons not to transfer property to the trust during a lifetime. One example is the risk of triggering a due on sale clause, resulting in an acceleration of the loan obligation, pursuant to the loan documents if the property is subject to a mortgage. Another is a preference to retain ownership personally as opposed to through the trust, which may simplify future transactions involving the real property, such as an application for an equity line of credit or other borrowing secured by an interest in the real property. If the property is titled to the trust during a lifetime, the loan application process is more complicated, the lender will require a legal review of the document to understand who has the authority to apply for the loan, and whether such a transaction is permitted by the terms of the trust document. The transfer on death designation to the trust ensures probate avoidance, while at the same time maintaining personal ownership to simplify future transactions relating to the real property.
Transfer on death is not always ideal for real property dispositions upon death. The designated beneficiaries must be named in the designation at the time of execution. Accordingly, it is not legally permissible, in a Transfer on Death Designation Affidavit for real property to provide if an individual designated beneficiary does not survive the property owner, the property will pass to the designated beneficiary’s descendants living at the time of the owner’s death. Such a “per stirpes” designation does not work because the beneficiaries must be identified by name in the designation, designating a class is not sufficient.
If you have any questions about transfer on death, or using it, or any of the other methods of avoiding probate, please contact Mo Bidar or a Cavitch attorney for assistance.