What is a Transfer on Death Intstrument?
Welcome to our estate planning blog! I'm Jayme Durkee, an estate planning attorney based in Northern Illinois and Southern Wisconsin. Today, I want to discuss the benefits and potential risks of using a transfer on death instrument to transfer property. This simple legal tool can help you avoid probate and efficiently pass on your assets to your loved ones. Let's dive into the details of how transfer on death instruments work and what you should consider before implementing them in your estate plan.
What is a Transfer on Death Instrument?
A transfer on death instrument is a legal document that facilitates the transfer of ownership of a property from one person to another upon the death of the property owner. Essentially, it allows you to specify a beneficiary who will receive the property without going through the probate process, making it a popular option for avoiding legal complexities.
Benefits of Using a Transfer on Death Instrument
1. Avoiding Probate
Probate can be a time-consuming and expensive legal process, especially when dealing with real estate. By using a transfer on death instrument, your family can bypass probate and save time and money in the long run.
2. Protection from Potential Issues
Many individuals consider adding someone else to the property's deed to transfer ownership. However, this method can lead to unintended problems, such as exposing the property to creditors and creating gift tax liabilities. Using a transfer on death instrument can help you avoid these issues.
3. Preserving Step-Up in Basis
If you pass on the property through a transfer on death instrument, the recipient will benefit from a "step-up" in the property's basis upon your death. This means they won't have to pay capital gains tax on the property's appreciation during your ownership, unlike when the property is gifted before your passing.
Possible Risks of Using a Transfer on Death Instrument
1. Family Disagreements
While a transfer on death instrument can help you avoid probate, it may not prevent family disputes. If you name multiple beneficiaries, conflicts could arise over how to manage the property, leading to potential disagreements and legal complexities.
2. Uncertainty of the Future
No one can predict the future, and unforeseen events may impact the effectiveness of a transfer on death instrument. For instance, if one of the beneficiaries named in the document passes away, it could complicate the distribution of the property.
Considering Family Dynamics
It's essential to assess your family dynamics and the potential for disagreements among beneficiaries. Even though families may get along well during the parent's lifetime, emotions and unresolved issues might surface after their passing. Be thoughtful about how beneficiaries might interact in the future to avoid potential conflicts.
Sum It Up
Using a transfer on death instrument can be an effective way to streamline the transfer of property to your loved ones and avoid probate. However, it's crucial to weigh the benefits against the possible risks, especially regarding family dynamics and unforeseen circumstances.
The best advice is to find an estate planning attorney you trust to help you make informed decisions about your estate plan.
If you have any questions or need guidance, feel free to reach out!
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We hope you found this estate planning information helpful. As a reminder, the information presented here is for general informational purposes only. You are unique, and legal advice should be tailored to your unique situation. Do not rely upon any information here as legal advice. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. If you would like to learn more about how we can protect your family or small business, please contact us!
Cherish Legal is an estate planning law firm based out of Rockford, Illinois. We are licensed to practice estate planning in Wisconsin and Illinois. We provide virtual estate planning services to families and legal counsel to small businesses located. Our services include: wills, trusts, power of attorney, estate plans, guardianship, trust administration, probate, and asset protection.
