In a majority of US states and territories, including Virginia and the District of Columbia, individuals who are the sole owners of property have the option of using a transfer-on-death (“TOD“) deed (which, in some jurisdictions, is called a “beneficiary deed”) to cause their property, upon their death, to be transferred immediately to the beneficiary or beneficiaries named in the deed, without going through probate. Maryland is among the minority (21 states currently) of states that does not yet allow or recognize TOD deeds, but that may change soon.

Last week, House Bill 625 was introduced in the Maryland House of Delegates, which, if it is passed in both chambers and enacted, will amend multiple provisions of the Estates and Trusts, Real Property, and Tax-Property Articles of the Maryland Code, to provide for the creation, revocation, recordation, and effects of TOD deeds for real property in Maryland. In addition to the foregoing, the bill, if enacted, will alter the existing law (the Maryland Uniform Disclaimer of Property Interests Act) to provide for the disclaimer of nonprobate transfers at death, will require the Administrative Office of the Courts to develop an informational sheet regarding TOD deeds, and will provide basic template forms for a TOD deed as well as for an instrument to revoke a previously recorded TOD deed.

If HB 625 becomes the law in Maryland, TOD deeds will be added to the array of strategic options currently available to property owners who wish to provide for their property to pass, following their death, to their loved ones or other designated beneficiaries. Other options for achieving these or similar goals, such as a will, a trust, a life estate deed, or holding property in joint tenancy, will still be available, and there will continue to be a need for the property owner, in consultation with their experienced legal and financial advisors, to consider the pros and cons of each option to find the plan that best fits their needs.

The advantages of a TOD deed include that it avoids probate, which can be a lengthy, costly, and complicated process, and it is simpler and less expensive to prepare and record than creating and maintaining a trust, and then retitling the property into that trust, to avoid probate. A TOD deed is also easily amended or revoked, If the owner changes their mind after has been recorded. A TOD deed has some similarities to a life estate deed “with powers“, in that the owner retains full control over the property: following the recording of a TOD deed, and prior to the owners’ death, the beneficiary(ies) named therein will have no vested interest or right in and to the property, including any right of consent regarding, or any other right or power to prevent, any action the owner may thereafter decide to take, including conveying the property to a different party, recording a revocation of the TOD deed, encumbering the property with a mortgage, leasing the property to any party, or taking any other action that the owner of a property in fee simple has the legal right to take. HB 625 states that the recording of a revocation instrument (such as the template instrument that is included in the text of the bill) would not be the only means for revoking an existing recorded TOD deed, but rather, that the owner’s execution and recreation of either a deed conveying the property to a third-party, or a new TOD deed that names a different beneficiary(ies), would also revoke and supersede the prior recorded TOD deed.

TOD deeds also have their disadvantages, which is why they are not, in the states that allow them, invariably considered the right choice for every property owner’s circumstances. For example (and again noting the similarity to a life estate deed “with powers”), a TOD deed will not start the clock ticking on the 5 year look-back period for protecting the property from being counted for the owner’s Medicaid eligibility. A TOD deed will also not shield the beneficiary(ies), upon the grantor’s death, from the creditors of the owner’s estate, who can file claims and obtain judgment liens against the property. And unlike, say, a will or a trust, a TOD deed is a public record and can be viewed by anyone following its recordation, so the owner’s intentions for the future disposition of the property, upon their death, will be preserved for all to see for what may be a period of years before that event occurs – which may, in some family and personal situations, be something that the owner does not wish to have happen.

The attorneys at RKW Law Group will be monitoring the progress of HB 625 during this year’s legislative session and will provide a future update(s) on its progress, including, of course, an update on whether the bill becomes law in Maryland this year, or not.

If you own property in Maryland (assuming that TOD deeds will be allowed/recognized in Maryland in the not too distant future), or if you live in a jurisdiction such as Virginia or the District of Columbia where TOD deeds are already allowed, it is important to know that estate planning decisions are best made in consultation with experienced legal and financial advisors, as well as advisors in other professional specialties such as insurance, who can help you review and select, and then implement, the options and strategies that will help you achieve the goals you most wish to achieve, while avoiding the drawbacks you most wish to avoid. [And keep in mind that TOD deeds, like all estate planning documents, need to be periodically reviewed and updated to ensure that, if there are changes in facts (for example, events within the family such as deaths, illnesses, marriages, divorces, and births) and/or changes in applicable law, the owner’s estate planning wishes can still be honored and achieved, to the greatest extent possible.]

A TOD deed can, in some instances, in a jurisdiction where such deeds are permitted, be a great fit for a property owner’s estate planning needs, whereas in other instances it may not be the best choice at all. Your RKW attorney can help you cut through the confusion and work through the particulars of your situation to help you make the estate planning choices that will be the best for you and your loved ones and heirs.

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