Pros and Cons of Revocable Transfer-on-Death Deeds in Virginia

Pros and Cons of Revocable Transfer-on-Death Deeds in Virginia

If you are contemplating what will happen to your home, or other real property (i.e. land) in Virginia, after you pass on, there is a unique type of deed that you may want to consider for estate planning purposes. It’s called a transfer-on-death deed (a.k.a. beneficiary deed). A transfer-on-death deed allows you to execute a deed that names a beneficiary – could be a relative, spouse or close friend – who will obtain title to the property when you pass away without having to go through probate.

Virginia recognizes these types of deeds. In fact, transfer-on-death deeds are codified under under Virginia Code § 64.2-624. The statute states that “an individual may transfer property to one or more beneficiaries effective at the transferor’s death by a transfer on death deed.” The statute goes on to state that this type of deed is revocable, even if the deed or another instrument contains a contrary provision. This means that if you name a beneficiary but later change your mind, you can name a new beneficiary or cancel the deed.

Pros of a Transfer-of-Death Deed

This type of deed can help address some of the flaws associated with the other mechanisms available for transferring real property when you pass on (e.g., joint tenancy, legal remainder interest, etc.).

A transfer-on-death deed does not create a present interest in the named beneficiary. This means, if you name a beneficiary in this type of deed, you have not completed a gift for gift tax purposes.
Since the beneficiary has no interest in the property until you pass on, a creditor of the beneficiary cannot reach the property to recover for a debt.

This type of deed is valid without having to go through the probate process. This helps reduce the costs associated with distributing your estate.

Cons of a Transfer-on-Death Deed

The biggest drawback of a transfer-of-death deed is that a person may try to establish one without consulting an estate planning lawyer and a mistake is made in formation. Although a beneficiary may be suitable for your situation, there are other planning techniques that afford greater protection for you and your family when titling your property. For example, if you place your property into a properly drafted revocable trust, then you could add protections in that would deal with your disability, or divorce, creditor, and catastrophic illness protection for your beneficiaries. Before leaping into a situation where you are transferring your real property, make sure you consider all of your options and pick the right strategy for your family.

Also, proper maintenance and following the formalities are key. For example, a person might mistakenly name a beneficiary and totally neglect the possibility that the beneficiary could die before the property owner. Furthermore, a person may not realize that the Virginia statute requires a transfer-on-death deed contain all of the essential elements and formalities of a properly recordable inter vivos deed (see § 64.2-628). The deed also has to be recorded, before the your death, in the land records of the clerk’s office of the circuit court in the jurisdiction where the property is located.

As you can tell by the requirements described above, if you want to create a valid transfer-on-death deed, definitely take the time to meet with an experienced estate planning attorney.