Transfer on Death Deed Disadvantages

When it comes time to get your affairs in order, it’s important to remember that the easiest option may not always be the best option. People sometimes get intimidated by the idea of making a trust or setting up a power of attorney, so they jump at any solution that seems easier than the rest. This is where a transfer on death deed starts to look more attractive. 

What is a Transfer of Death Deed? 

A transfer of death deed is a way for the owner of real property to appoint someone (beneficiary) to receive the property upon the owner’s death. It is a way to transfer the ownership of property without having to go through the probate process. 

Why are People Drawn to This Option? 

Generally, this option can be very quick and simple. Since it is a very inexpensive option, it is often referred to as the “poor man’s trust” and it can be the only option for some who are already struggling financially. Another positive is that this kind of deed is fully revocable during the owner’s lifetime. 

What are the Disadvantages of a Transfer on Death Deed? 

While there are reasons that make this deed an understandable option for some, there are more reasons that make this deed problematic. If you are considering getting a transfer on death deed, you should consider the following points first: 

  • Conservatorship: Your family will still have to get conservatorship to sell your property, which can be a big hassle with court fees. 
  • Threat of Probate: If the person you designated as your beneficiary passes away before you do, and you had them on a transfer of death deed for a piece of property, that same property will now have to go through the probate process. Remember, this is exactly what you are trying to avoid by planning for your affairs in the first place. 
  • Joint-Tenant Issues: If you die before your beneficiary, but you have a co-tenant on the property, the co-tenant actually becomes the owner of that property despite what you designated in the deed. The only way around this is for the joint-tenant to file a separate, but similar, transfer of death deed that names the same beneficiary. 
  • Medi-Cal Clawback: This type of deed is not protected against programs like Medi-Cal coming back to get money they believe they are owed. When someone dies, and he or she has unpaid medical bills, the medical programs often try to eventually get that money by estate recovery. The worst part about this is Medi-Cal clawback is even a concern for those without unpaid medical bills. They are known to even go after continuous monthly payments for care plans of those who have passed away. 
  • No Protection for Contingent Beneficiaries: With this deed, there is no regard for contingent beneficiaries, which are people you designate to come in line behind your primary beneficiaries. However, you can protect both types of beneficiaries with a living trust. 

Your next step is to join our facebook group called “Parents Protecting Assets in California”. We provide valuable information on protecting assets from future in-laws and creditors!