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Owning a home is a point of pride for many people. Even the smallest of starter homes is something to be proud of. However, there comes a time when you realize that you will be gone one day and you want that home to go to someone you love. You even know the specific person you want to give it to. There are many ways to pass on real estate to a beneficiary, but one of the simplest and most inexpensive ways is with beneficiary deeds. These deeds also allow you to retain complete control over your property until your death, including the decision to revoke the deed if you change your mind about the beneficiary in the future.
A beneficiary deed, also called a transfer on death deed, is a legal document that allows the property owner to name a beneficiary who will receive the property after the owner dies. The owner retains complete control over the property until their death. This means the owner can still rent, sell, improve, tear down, refinance, and otherwise do as they wish with the property. The owner does not need the beneficiary’s approval or consent to take any of these actions with the property. The owner can also name multiple beneficiaries and pass the title to them in any legal form of ownership.
Beneficiary deeds can help to avoid probate, although this is not guaranteed. In most cases, a beneficiary deed will avoid probate, as the deed automatically transfers to the beneficiary when the owner dies. However, there are instances in which the deed must go through probate, such as if there are multiple owners of the property and one owner used a beneficiary deed but the last surviving owner did not use a beneficiary deed, per Ohio Rev. Code Ann. §5302.23.
Like any other deed, the owner can choose any individual or organization they want as their beneficiary. However, if the owner is naming multiple beneficiaries, they must indicate how those beneficiaries will take title of the property, such as with rights of survivorship or as equal tenants in common.
Additionally, some beneficiaries may not be able to be named on beneficiary deeds. Minors and incapacitated beneficiaries may not be able to be named on a beneficiary deed, but may instead need another form of deed or need their guardian or a trustee named on the beneficiary deed. If a property owner is considering leaving their property to a minor or incapacitated individual, they may wish to consult with an attorney before using a beneficiary deed to ensure this is the most beneficial method for both the property owner and the beneficiary.
Beneficiary deeds require a few steps to be legally valid. Property owners must complete the deed, sign it, record it, and file a Medicaid Estate Recovery form with the state. Completing the deed includes using specific language to make it clear that the deed does not take effect until the owner’s death, as well as a description of the property, the name of the beneficiary, and a statement of the owner’s intent to transfer the property. If the property owner is married, their spouse must also include a statement that their dower rights are subordinate to the transfer on death beneficiary. If you have questions regarding how to complete a beneficiary deed, an Ohio estate planning attorney at Rhodium Law, LLC may be able to assist you.
Once the form is completed, it must be signed in front of a notary. Then it must be recorded in the county in which the property is located. Cuyahoga County charges a filing fee of $39 for the first two pages and $8 for each additional page. Once the beneficiary deed has been recorded with the county, the final step is taken when the property owner dies. The beneficiary or their representative is required to file a Medicaid Estate Recovery form, indicating whether the deceased owner did or did not receive Medicaid or that they do not know if the deceased owner received Medicaid. The county recorder will provide the beneficiary with this form.
There can be a number of benefits to beneficiary deeds. For both property owners and their beneficiaries, a beneficiary deed can simplify the process of transferring property after the owner has died.
In most instances, beneficiary deeds bypass probate. Like other things with beneficiary designations, such as life insurance and retirement accounts, because a beneficiary deed names a specific individual, they are transferred directly to that individual. There are certain rare circumstances in which a beneficiary deed may still need to go through probate, but often this can be avoided by proper planning. An estate planning attorney may be able to assist property owners with ensuring that their beneficiary deed will be able to avoid probate.
Often, parents want to pass their property to their children. Many mistakenly think the only way to do this is by listing their adult child on the deed so that upon the parents’ passing, the child simply becomes sole owner of the property. While this is certainly one option, it is an option that leaves the property open to liens from the child’s creditors. This means that if the parents decide they want to sell the property, they may get no money from that sale because it would be used to pay the child’s debts as a result of those liens.
Beneficiary deeds avoid this problem. Because the beneficiary does not own the property until after the property owner dies, the beneficiary’s creditors cannot place liens against the property. The property owner can do as they wish with the property, including selling it, without worrying about how the beneficiary’s debts may impact their decision. However, when the property owner dies and the beneficiary becomes the property owner, creditors may then be able to file liens against the property that could prevent the beneficiary from selling the home.
Because the property owner is not giving the property to the beneficiary while they are still alive, there is no gift tax on the transfer of the property. Designating a beneficiary is not an immediate transfer, and the property does not transfer until after death. This can save the property owner a significant amount of money.
Like gift tax, because beneficiary deeds transfer the property at death, the property owner avoid real estate transfer, conveyance and documentary stamp tax consequences. The beneficiary may need to deal with these or other tax implications at the time the property is transferred to them, based on Ohio and federal law at the time of the transfer.
There are other options for transferring property to a beneficiary while avoiding probate, such as a trust. Compared to a trust, beneficiary deeds are inexpensive and easy to create. They are also less expensive and easier to change than a trust, which can be very helpful if the property owner changes their mind later and wants to leave the property to someone else or if the beneficiary’s circumstances change and the property owner needs to change the deed as a result.
Another significant advantage of beneficiary deeds is that they can be changed or revoked at any time. There are no restrictions on when, where, or how these deeds can be changed or revoked. This allows property owners more freedom and flexibility with this part of their estate planning.
While there are a number of benefits to beneficiary deeds, they also have their drawbacks. These disadvantages can be rather serious, so it is important that property owners carefully consider their choices and perhaps consult with an estate planning attorney to ensure they are making the right decisions for their needs.
Property owners can name multiple beneficiaries for the same property. This can be a benefit if they have multiple children and want to leave the property to all of them, for example. However, the drawback to this is that if one beneficiary has legal issues, those issues could impact all of the beneficiaries, such as if one beneficiary has debts and a creditor attaches a lien to the property. This can also result in other unintended outcomes that may make what was meant to be a gift into a complicated legal nightmare.
Estate plans are made up of a variety of documents, including wills, trusts, deeds, and life insurance policies. If an individual is not careful and organized, they may use beneficiary deeds to name a beneficiary that conflicts with what they have already put in their will or a trust, or vice versa. This would likely result in the beneficiary deed going through probate, as the court would determine which document is valid for this purpose. For this reason, we do recommend that clients keep all of their estate planning documents together, add new documents to the file as needed, and review their estate plan every three to five years to ensure everything is up to date and accurate.
Perhaps one of the biggest disadvantages of beneficiary deeds is that the beneficiary will inherit any debts associated with the property. Mortgages, reverse mortgages, loans for which the property was used as collateral, and creditor liens will all become the responsibility of the beneficiary. This can present a significant problem for unprepared beneficiaries or ones who do not have the money or credit required to pay off or refinance these debts in their own name. If a property owner plans to leave property to someone with a beneficiary deed and knows they have debts associated with the property, they should be honest with the beneficiary and ensure the beneficiary is comfortable with that.
Incorrect execution of beneficiary deeds or existing claims on the property can cause title issues when the property owner dies and the beneficiary tries to get the property re-titled in their name. This can result in serious time delays and potentially expensive legal battles as the beneficiary tries to resolve these issues. This can be even more difficult because the property owner is no longer available to clarify their intentions or provide evidence that can clear up a claim.
Disabled beneficiaries can be named on beneficiary deeds. However, some disabled individuals need public benefits, such as Supplemental Security Income or Medicaid, to survive financially. These individuals are also required to report changes to their wages, other income, living situation and resources. Any inheritance, including real estate, may result in a disabled beneficiary losing the benefits they need. Whether this loss is temporary or permanent, it can cause significant problems for them. When property owners want to leave property to a disabled beneficiary, they may want to explore other options, such as a trust, that may protect the beneficiaries’ benefits while also allowing them to have the inheritance the property owner wants to give them.
When you are planning your estate, you likely spend a lot of time thinking about each thing you leave to someone, whether it is in your will or through a trust. Real estate is a huge investment and a significant gift. Knowing who you want to leave it to can simplify many estate plans. Using a beneficiary deed to name this person can ensure the property does not go through probate, reduce tax burdens on the beneficiary and the property owner, and protect both the property owner and beneficiary from each other’s debts, if there are any.
A beneficiary deed may be appropriate for your estate, or there may be other options better suited to your needs. A consultation with an Ohio estate planning attorney with Rhodium Law, LLC may provide more insights and guidance into the appropriate choice for you. Call (216) 699-8145 to schedule a complimentary consultation in our Cleveland office and learn more about beneficiary deeds.
