Legal-Ease: Getting the house to kids at death without probate – LimaOhio.com

Avoiding probate’s sometimes lengthy and sometimes expensive process is an important goal for many people. There are multiple ways to ensure that certain assets go to a person’s desired, post-death recipients without probate. Life insurance and most accounts are easily structured for the owner to retain ownership for the owner’s life and transfer to others upon the owner’s death.

When it comes to real estate, a parent may desire to own their home for their lives to retain possession, keep their homestead exemption or to give heirs an adjusted (stepped-up) tax basis.

However, the question arises as to how a parent/current owner of real estate can facilitate the transfer of ownership to children/others when the parent/current owner dies, without probate.

There are two tools commonly used to facilitate that a home (or other real estate) will go to certain other people (like kids) without probate when the current owner (like a parent) dies — with the owner not relinquishing ownership until the owner dies.

The first tool is called a “transfer on death affidavit” or TOD affidavit. A parent homeowner can record a TOD affidavit in the county recorder’s office, which affidavit states that upon the parent’s/current owner’s death, the property automatically goes to kids/others.

TOD affidavits are handy, because TOD affidavits can be changed or canceled by parents/current owners without children/beneficiaries being able to veto the change or cancellation.

However, TOD affidavits must name the child/beneficiary by name, and that child/beneficiary must survive the parent/current owner to receive the home. In other words, if the child/beneficiary dies before the parent/current owner dies, the parent’s home will not automatically go to that child’s kids/the parent’s grandkids.

In contrast, the second tool allows for children/beneficiaries to ensure that their own kids (or other desired heirs) receive the home/property if the child/beneficiary dies before the child’s parent dies. This tool is called a “life estate.” A life estate is a part of a deed that gets recorded at the county recorder’s office, like a TOD affidavit.

The person who owns the home/property until the person dies is identified as the “life estate owner.” The person who is set to receive the property upon the death of the life estate owner is called a “remainder person.”

A life estate differs most significantly with a TOD structure, because once the life estate deed is recorded, the remainder people have a legal ownership interest in the property, which ownership interest includes possession only after the life estate owner dies.

Because each remainder person has a vested/legal ownership in the property as soon as the life estate deed is recorded, the life estate owner cannot change remainder people or cancel the interest without the remainder people’s consent (and if a remainder person is married, that remainder person’s spouse’s consent).

This shows the trade-off between TODs and life estates. Compared to life estates, TODs are more easily amended/canceled, but TODs’ power is more limited than life estates.

TOD affidavits and only certain life estate interests provide the post-death owners with an adjusted (or stepped-up) basis.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.