More on Indiana Transfer on Death Deeds: Beneficiary Designations

Introduction

We’re back with a deep dive into one narrow issue concerning Indiana’s transfer on death deeds.

Basically, a transfer on death deed is a deed that lets you name a person (“designate” a “beneficiary”) who will then automatically receive the property when you die. For a quick overview, you can watch the video (or read along with the transcript) in my previous post talking about transfer on death deeds.

Today we’re dealing with a specific sub-question: What happens when a designated beneficiary dies before the grantor (in other words, before the TOD deed is triggered)?

What Happens When the TOD Beneficiary Dies First?

Indiana’s transfer on death property act is at IC 32-17-14.

Subsection -20 gives the default rule: the transfer won’t happen if the designated beneficiary is not alive to receive it. So Alice records a deed to her house “TOD to Bob,” her friend, and Bob dies before Alice, then, on Alice’s death, the TOD doesn’t work: the person the house was supposed to go to isn’t there to receive it. The TOD is then ignored and the house becomes part of Alice’s probate estate, just as though it had never existed.

But wait! That’s not a good result for everybody. What if Alice wanted the house to go to Bob’s kids even after Bob died? Or what if Alice has a daughter Carol and two grandkids, Carol’s daughters, and she wants the house to stay with them?

The law gives us special rules to get around the default. The special rules are in subsection -22. And they make sense: Subsection -22 says that if your TOD deed gives your property to your “lineal descendant” (like a son, daughter, or grandchild), then the property will stay in that line of descent even if the original beneficiary dies before you. So if Alice deeds her house TOD to Carol, her daughter, and Alice outlives Carol, then at Alice’s death the house will go to Carol’s daughters (Alice’s grandkids). Lawyers call that “lineal descent per stirpes.” It’s probably the right result for most people: if you’re trying to give your property to a child or to your children, you probably want the property to go to your grandchildren if your child isn’t there to receive it. The TOD statute does you a favor, really: it assumes what you intended to do so that your TOD deed still works even if you forget to update it to account for changes in your beneficiaries. (You can override that assumption by specifying in the deed itself “no lineal descendants per stirpes.”)

The TOD statute does you a favor, really: it assumes what you intended to do so that your TOD deed still works even if you forget to update it to account for changes in your beneficiaries.

If you’re trying to pass property to people other than your own children or grandchildren, the TOD statute assumes differently. You don’t get the “or his descendants” assumption when your deed is TOD to someone else. So, returning to Alice and Bob: Bob is just a friend; he’s not a lineal descendant of Alice. If Bob dies before Alice, Alice’s TOD deed won’t pass the house to Bob’s kids. The house will revert to Alice’s probate estate (which probably means it goes to Carol, Alice’s daughter). Alice can overcome that assumption (or lack of assumption) if she wants, but she has to write it into the deed itself. She can make a TOD deed to “Bob and lineal descendants per stirpes” to make sure the house goes to Bob’s kids if Bob dies first.

Conclusion

In summary, a TOD deed can still work if a beneficiary dies before the TOD takes effect. A deed with no provisions for descent will assume “lineal descent per stirpes” for children or grandchildren, but no lineal descent for other beneficiaries. Those default assumptions can be overridden by specifying “no lineal descent” or “lineal descent” as the case may be.

Of course, relying on default rules can be risky. The best approach, to be sure your wishes are carried out, is to review your estate plan, including TOD deeds, from time to time (especially after major life events like births, deaths, marriages, and divorces) and to update your documents when necessary.