Avoiding Probate with Real Estate

Whether or not real estate will pass through probate depends on the words on the deed.

If the deed is in your name alone, or if the property is in your name and the name of another, without any “magic words,” the real property is probate property.

There are several ways to keep real estate out of probate.

Survivorship Deed

If you want to share full ownership with someone else, such as your spouse, this is presently done through a Survivorship Deed.  A Survivorship Deed contains the magic words “to John Doe and Jane Doe for their joint lives, remainder to the survivor of them."   Upon the death of the first to die, the surviving tenant needs only to record an affidavit with respect to the first to die, and title is vested solely in the name of the survivor.

Be careful when using a Survivorship Deed, especially if the co-owner is not your spouse.  Remember, the other person has full ownership rights: 

• As a co-owner, both of you must agree if you want to sell the real property.  If you want to sell and the other party does not, you may have to go to court to get the right to sell.  Or the co-owner may be in agreement with you, but the co-owner might be having marital problems, and the soon to be ex-spouse also would have to agree to the sale, giving him or her some leverage.
• If the other person has creditor problems, you might find that the creditor is going after your home to pay your co-owner’s bills.

Transfer on Death Designation

If you do not want to give equal ownership rights to someone during your life, but want them to receive the property after your death, you can file a Transfer on Death designation.  This is a document that says that you own the property, and that on your death, the property will go to the person(s) named.  You can revoke or change the beneficiary at any time.  Upon your death, the beneficiary needs only to record an affidavit and title will be vested in the beneficiary’s name.

A Transfer of Death Designation is not without its own set of issues:

• You can name more than one beneficiary, but it could make things cumbersome.  You do not have someone in charge if the property is to be sold after your death.  Therefore, all parties have to be in agreement as to the sales price and other terms.  If any of the beneficiaries are married, their spouses also need to be on board with the terms of sale.  This can be avoided by allowing the property to go through probate, or using a trust.
• If you have more than one child, and you want all of them to share in the real estate but do not name all of the children as beneficiaries, then legally, the child named on the account has no obligation to share the real estate or the proceeds from the sale with his or her siblings.  There may be a moral obligation, and most times the named beneficiary does share, but there is no legal obligation to do so.
• Also be aware that using a Transfer on Death designation does not put the house beyond Medicaid recovery, and might not put the real estate beyond the reach of your creditors.  Along with the affidavit, the beneficiary must notify the Medicaid authorities with respect to your death and the subsequent transfer of the property.

Trust

If you do not own the property at the time of your death, but instead the property is owned by a Trust, it is not subject to probate.  Difficulties in selling the property may also be resolved because the trustee alone has the power to sell the real estate, can determine the terms of sale, and can sign the deed.

There is much to think about when considering real estate as part of your estate planning.  We are happy to help you through the process if you contact us.