By: Robert Moore, Wright and Moore. Previously published by the Ohio Farmer online
There are several different ways to avoid probate when transferring real estate at death. It is generally better to avoid probate to save time and expenses for the heirs. Each method to avoid probate needs to be understood to be sure the right plan is implemented.
A life estate is one common method to avoid probate on real estate. In this method, the owner of the real estate executes a deed that creates a current right and a future right. Owners retain a life estate, which means they keep control and use of the real estate until they die. The deed identifies the future owner who will inherit the real estate when the current owner dies. This is called the remainder interest. Upon the death of the current owner, the remainder interest is inherited by the heir without going through probate.
One disadvantage of this method is that it cannot be undone. That is, once owners give away the remainder interest, they cannot get it back unless the holder of the remainder interest signs a deed transferring it back.
Consider the following example. Farmer owns 200 acres and wants Daughter to inherit the land when he dies. Farmer signs a deed transferring the land to Daughter but keeps a life estate for himself. Farmer is glad he has avoided probate for the farm. However, a few years later, Daughter gets into financial difficulties, and Farmer becomes concerned that she may lose the land if she inherits it. Unless Daughter agrees to sign a deed transferring the remainder interest back, Farmer cannot get the land back.
A way to avoid probate with real estate but keep all options open is with a transfer-on-death affidavit. With this method, the owner of the real estate executes an affidavit that states who he or she wishes to own the land upon his or her death. This affidavit is then recorded. Like the life estate deed, the transfer on death affidavit will allow the land to transfer to the beneficiary without probate. However, unlike the life estate deed, the owner of the real estate can cancel the affidavit and name someone else or even transfer the land while still living. Transfer-on-death affidavits became available as an estate planning tool several years ago, when the Ohio Legislature passed legislation allowing it.
Using the above example, Farmer executes a transfer-on-death affidavit naming Daughter as the beneficiary of the land when he dies. When she gets into financial difficulties a few years later, he simply cancels the affidavit and names someone else as the beneficiary, or perhaps uses a trust to protect the land for Daughter. The transfer-on-death affidavit lets Farmer keep all options open until the time of death. As situations change, so can Farmer’s intentions for the land.
Lastly, a trust can be used to hold the land. This has historically been the most common method of avoiding probate for real estate. In this situation, the landowner executes a deed transferring the real estate to his or her trust. The trust then identifies the beneficiary of the land when the owner (trust grantor) dies.
The disadvantage of using trusts to avoid probate is just a matter of inconvenience. When selling or mortgaging the real estate, extra paperwork is required to identify the trustee and show that the trustee has authority to sell or mortgage the real estate on behalf of the trust. This is more of an inconvenience than a disadvantage. With the advent of the transfer-on-death affidavit, it’s easy to avoid probate without the inconvenience of the trust.
Which method is best to avoid probate depends upon the situation. Generally, the transfer-on-death affidavit is the easiest, but there are times when life estates and trusts are the appropriate strategy.
Before signing a life estate deed or putting your land into a trust, explore whether there may be better options.
Contact Moore, an attorney with Wright & Moore, at firstname.lastname@example.org; 740-990-0751; 92 N. Sandusky St., Suite 300, Delaware, OH 43015; or ohiofarmlaw.com.