NEW LAW: TRANSFER ON DEATH DEED
Hawaii has a new law which allows real estate to go to a beneficiary when the owner dies, without having to go to court for probate. This new procedure requires a new kind of deed, called a “Transfer on Death Deed.” Governor Abercrombie signed Act 173, which creates this new law, on June 27, 2011. The law became effective on July 1, 2011. The law is called the Uniform Real Property Transfers on Death Act.
Let me explain how the law in Hawaii works for anyone who doesn’t have a Transfer on Death Deed. If a person dies owning any real estate in her name only, when she dies, there would have to be a probate proceeding in court before the persons named in the will could inherit. Probate usually takes about one year. Sometimes it takes much longer. In the experience of our law firm, the attorney’s fees for handling a typical probate without complications can run between $3,000 and $6,500. If the person dies with $100,000 or less, then the court can handle the probate as a “small estate” proceeding without an attorney. Still, the court charges 3% of the value of the property as a fee, and adds court costs and newspaper publication fees, and often takes as long as an attorney handling a probate case. Even if a person dies owning a tiny portion of land worth only a few hundred dollars, a probate or small estate proceeding is required before ownership can pass to the heirs.
Because of the time and expense caused by probate, many people use revocable living trusts to avoid probate. Others add a joint owner to the property to allow the joint owner to inherit without probate. Adding a person as a joint owner creates special problems, because then you are actually giving away half of the property at the time the joint owner is added.
Now, with the new Transfer on Death Deed, it is possible to avoid probate without a revocable trust and without adding a joint owner to the property. A Transfer on Death Deed names a beneficiary who will inherit the property upon death of the current owner. It is similar to a “pay on death” bank account or credit union account, where upon your death, the money goes to the beneficiary you named. With a Transfer on Death Deed, you still own the property, you can still sell it or mortgage it, and you can change your beneficiary at any time. Yet, if you die, the property goes to your beneficiary without having to go to court for probate. To cancel or change a beneficiary, the legal document showing the change must be recorded in the Bureau of Conveyances in Honolulu before you die.
The Transfer on Death Deed could be a good idea for some people. However, it does have some problems of which you need to be aware. If you have or need an A-B Trust to protect assets from estate taxes, you should probably have your real estate in your trust. Having real estate go directly to a beneficiary could mess up the way the A-B Trust is supposed to work to protect assets from estate taxes. If you are old enough to start being concerned about nursing home costs, then I would not recommend a Transfer on Death Deed, because that kind of deed will not protect real estate from nursing home costs. Instead, I would recommend transferring the property to an irrevocable trust, keeping a life estate in the property. Also, if you would like the property to be protected after your death in case your child gets a divorce or has enough assets to be taxed by the estate tax, I would recommend putting your property into a generation skipping trust, for asset protection.
The Transfer on Death Deed might be appropriate for someone with a small estate who is not concerned about nursing home costs.
Where does one get the Transfer on Death Deed or form to fill out and file..And also which office os it filed at? Land Court or Bureau of Conveyances?
Thank you
Linda Santos
@Linda – Your best bet is to retain a competent attorney who prepares deeds frequently. As with other legal matters, if you knew how to prepare the legal document, you could possibly do it yourself, but it is easy to make a mistake because of lack of knowledge of some aspect of the law. Whenever you need help in any area of life, the best course is usually to find an experienced, competent expert specializing in the area of your need, whether you have a health problem, a legal need, or any other need. Where you file the deed depends on whether the property described in the deed is Land Court property or regular system property. Good luck to you.
How much do you charge to change a single named title property (in Maui) to a T.O.D. with my daughter (age 30) as the beneficiary and her daughter (age 3) as the contingent beneficiary? The property is worth $800,000 and I own 25% interest. The other 75% interest is owned by another party and is registered to her trust name.
Thanks,
Mr. Chut
My Mother passed recently which means that the Living Trust becomes activated. The property her and my Father owned now goes to the Trustee (who happens to be one of the children) which we all want her to have the property because she selfishly took care of our parents until they passed. Can we avoid inheritance and estate tax by signing over / or transfer our share to her? If we live in another state (most siblings do) can we take care of it in our State or do we even need to do that since everything is “Transferred to the Trustee?” What about Capital Gains? Can we avoid that as well?
Thank you
You did a great job explaining TOD – thank you. I am a widower – not married. Have Revocable Living Trust with a son and a daughter as joint/equal beneficiaries. Only item in trust is the home. Thinking seriously of moving home out of trust and doing a TOD with only the daughter the beneficiary of the house. The trust was originally drawn up in 1994 and definitely would need updating. So thinking of closing the trust. Is the TOD something you could do for us? And could you give us a rough estimate what it would cost? Any response to these questions would be appreciated.
Mr. Chut, just to prepare the Transfer On Death Deed would cost $350 plus 4.166% general excise tax plus recording fee. However, before you do this, there must be careful consideration as to whether this is the best way to deal with this property. A Transfer on Death Deed protects from probate but does not protect from nursing home costs. Factors to take into consideration include your age and health, what you use the property for, what your future plans are for the property, your relationship with your daughter, etc.