Transfer on death deeds (“TODs”) are used to convey property rights to one or more beneficiaries after the owner dies. Unlike most other assets in an estate, property conveyed in a transfer upon death is not subject to probate distribution. In addition, as nontestamentary instruments, these conveyances are not affected by provisions of the deceased owner’s will. Ohio’s transfer on death instruments are governed by R.C. 5302.22, and were originally introduced as transfer on death deeds in 2002. Revised to the current format of transfer on death designation affidavits in 2009, these documents, when lawfully executed and recorded, provide a flexible and convenient estate planning tool for owners of Ohio real property.
After the owner’s death, a transfer on death instrument conveys the owner’s remaining interest in a specific parcel of real property to one or more designated beneficiaries. Unlike life estates or other types of nontestamentary transfers, TODs are revocable, require no consideration, and pass NO PRESENT INTEREST in the real estate, only a potential future interest. The owner retains absolute control over and use of the property while alive, and is not obligated to provide notice to the beneficiary about either the initial affidavit or any lawfully executed and recorded changes or revocations that take place after the initial recording. Note that the initial TOD, as well as any modifications, only take effect if they are recorded while the owner is still alive. Transfer on death instruments are intended to help real estate owners direct what happens to their property after death, but there are numerous ways for those plans to go awry. Dower and joint/survivorship tenancy are two issues with the potential to complicate transfers on death.
Consider the possible impact of dower on a TOD. Black’s Law Dictionary (8th Ed.2004) defines dower as “a wife’s right, upon her husband’s death, to a life estate in one-third of the land that he owned.” This concept is slowly fading from common usage, but it still survives in several states, including Ohio, which codifies its rules relating to dower in R.C. 2103.
Co-ownership adds another wrinkle. Joint tenancy describes a situation in which two or more people share an undivided interest in title rights to property. In almost all states, joint tenancy automatically includes the right of survivorship. This feature is useful for people who wish their shares to become available to the co-owners immediately, rather than waiting for the estate to pass through probate. Ohio identifies this form of ownership as survivorship tenancy. If one of the joint tenants dies, “the title of the decedent vests proportionately in the surviving tenants . . .This is the case until only one survivorship tenant remains alive, at which time the survivor is fully vested with title to the real property as the sole title holder” (R.C. 5302.20(B)).
Ohio provides statutory guidance for the dower issue in R.C. 5302.22, explaining that if the transfer on death designation affidavit is “executed by an individual together with the individual’s spouse . . . the dower rights of the spouse are subordinate” to those of the transfer on death beneficiary. In fact, individuals who execute a TOD must include their marital status. If they are married, the affidavit must contain a statement in which the spouse acknowledges the subordination of dower rights (5302.22(D)(3)). This resolves the initial question of residual spousal claims because many TODs are executed by spouses for the benefit of their children. Still, other issues may arise between the surviving spouse and the beneficiary – contact an attorney for ways to anticipate and prevent such conflicts.
Joint or survivorship tenancy, on the other hand, is more complex because it deals with multiple owners who are not necessarily married, or even related to one another. In Ohio, for two or more survivorship tenants, each one holds an “equal share of the title during their joint lives unless otherwise provided in the instrument creating the survivorship tenancy. Upon the death of any of them, the title of the decedent vests proportionately in the surviving tenants” (R.C. 5302.20(B)). Further, if one survivorship tenant executes a TOD, his/her title rights pass to the remaining survivorship tenants before the beneficiary gains access to the title, “subject to division (B)(7) of section 5302.23 of the Revised Code” (5302.22(C)(2)).
The above-referenced part of R.C. 5302.23 is what some might call a “trap for the unwary.” It states that if the person who executed the TOD is not the last surviving tenant, it “automatically terminates and nullifies any transfer on death beneficiary designations made solely by the deceased survivorship tenant or tenants” unless they agreed to include their rights to title in the transfer on death. Otherwise, the entire interest of that sole remaining survivorship tenant becomes part of his/her probate estate instead of transferring to the beneficiary. There is no legal obligation for a surviving joint owner to join in or assign his/her portion of the property rights to the beneficiary of another joint owner’s TOD.
For example, Sam, Abigail, George, and Tom own land as survivorship tenants. Sam and Abigail execute and record a transfer on death designation affidavit, leaving the real estate to their son John and daughter Susanna. George and Tom do not join in the transfer on death. George dies first, and his share of the title rights are distributed evenly between Sam, Abigail, and Tom. Sam dies next. Even though Abigail signed away her dower rights in the TOD, she joined Sam on the affidavit and is named as a joint owner of the property. Therefore, she and Tom split Sam’s share. At this point, the potential transfer is still valid. Then Abigail dies. Because Tom was not included in the transfer on death, he becomes sole owner of the property; John and Susanna get nothing. When Tom dies, the land becomes part of his estate.
Overall, transfer on death instruments are convenient, flexible estate planning tools. Take the time to understand the benefits and drawbacks of such documents – unexpected complications are possible if property owners complete them without adequate research and preparation. This article contains general information only, so please contact an attorney for complex situations or with specific questions.