New Court Ruling Creates Another Hidden Danger for TODDs
Transfer on Death Deeds Could Come With Unpleasant Surprises
Have you heard of a Transfer on Death Deed, or TODD? People often use TODDs to avoid probate, but they’re not always known to work. A recent court ruling makes them even more risky.
Safe Harbor Estate Law understands that you want to protect what is important to you, and we offer a number of ways to help you do just that. Get in touch with us today to learn more about what we can do for you, and why a living trust is preferable to a will or TODD.
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What You’ll Learn From This Video
- Why a Transfer on Death Deed could be a problem for your family.
- How to better protect your loved ones and assets.
- What Safe Harbor Estate Law can do for you and your estate plan!
HERE IS THE TRANSCRIPT FROM THIS VIDEO
Margaret Barrett: Many people hope to avoid probate by putting a transfer on death deed on their house to pass it to their children or other beneficiaries after they’re gone. You may have a Transfer on Death Deed, or TODD, on your home. It works kind of like beneficiary designations on an account, so that with a little paperwork, ideally the house will transfer to who you want it to go after you’re gone.
TODDs can sometimes work well to avoid probate and get the money where you want it to go, but sometimes it doesn’t. We have seen TODDs cause major problems for some of our clients. And now, thanks to a new opinion out of the United States Eighth Circuit Court of Appeals, there is a new hidden danger relating to TODDs. If you have a TODD or you’re thinking about using one, we want you to know about this new hidden danger.
Here is the story in the Strope case out of the Eighth Circuit. A man died and he left his house to his niece using a Transfer on Death Deed. Unfortunately, his ex-girlfriend burned the house down shortly after he died. I don’t know, maybe she was angry she didn’t get the house. In any event, when the house was destroyed it was still in the name of the deceased man. That’s because it takes a little time to transfer it into the name of the person who’s ultimately supposed to get it.
The real problem occurred when the niece filed an insurance claim on the house. The insurance company denied the claim. They said the uncle was the insured, not her, so they wouldn’t pay a dime. This seems like a really harsh result to me because anytime someone dies with a TODD, it’s going to take a period of time, perhaps months, to get the house transferred into the name of the new owner.
This case says that if there’s any insurance claims during that time, the insurance company does not have to pay. There are a couple things you could try to do to reduce the risk of what happened in the Strope case. First, you could ask your home insurer if they would be willing to continue covering your house after you’re gone, until it’s transferred into the name of the TODD beneficiary.
I don’t know if they would agree to do that, and I don’t know what the terms or cost would be, but I think it’s worth a try. You could for sure tell your personal representative handling your estate that they should hire a good estate attorney right away. One of the things the estate attorney can do is make sure that TODDs get transferred as soon as possible, and to continue paying the home insurance.
So, that would minimize some effect of the Strope case, but you still could get really burned by it. If you want to avoid the risk of an unpaid insurance claim like in the Strope case completely, then we recommend that you create a living trust to hold your real estate. You won’t have to worry about this insurance gap issue because the trust doesn’t die. You won’t have to worry about probate because the trust doesn’t die.
There are many other advantages to trusts, and there are some other disadvantages to wills and TODDs. If you would like to learn more about the pros and cons of TODDs, and wills, and trusts in your situation, give us a call. We would be happy to educate you and empower you to make the best decision for you and your loved ones.
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