Stautz Law

Tag: Transfer on Death Deed

  • Transfer on Death Deeds: Partial Interests

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    Good morning, folks. It’s Andy Stautz with Stautz Law. I’m back today with another talk about an Indiana estate planning and probate topic. Today we’re talking about transfer on death deeds of partial interests, by which I mean also joint tenancies.

    Overview of Transfer on Death Deeds

    So I’ve talked before about Indiana transfer on death deeds, You should go look at that video if you haven’t seen it yet. Basically, a transfer on death deed is an instrument, a deed that you record on top of your existing house deed or property deed, and it adds an automatic beneficiary to your deed. That way, on your passing, there’s a non-probate transfer: which means it’s automatic, it happens right away. You don’t need to go to probate court.  

    Automatic non-probate transfer of the property from you to whoever you named.  

    (But it doesn’t create any, you know, present ownership in your beneficiary, right? So they can’t do anything about it. You just put the name on there.)  

    Scenarios with Partial Ownership Interests

    Okay, so that fundamental instrument is great. The most common scenario is definitely people who own their house and are giving it to either their kids or a family member. And usually people own their real estate fee simple outright. They just, they own it, it’s theirs.  

    Sometimes though, you see properties, especially family properties that have been passed down, or business properties that were acquired as part of a group of investors, where you’ve got a partial interest, some sort of joint tenancy. And again, I’ve got a separate, more extensive discussion of how joint tenancies work.  

    Transfer on Death Deeds and Partial Interests

    But you know, if you’ve got a one quarter share in a property, you know, or you’ve got a joint tenancy with someone else, Can you still use a transfer on death deed?  

    The answer is yes, you can use a transfer on death deed for partial interests, just like you can for like a complete fee simple interest, and the rules for that are right in the transfer. on Death Property Act. So that’s Indiana Code 32-17-14-11(e), [edit: I misspoke, it’s subsection “e” not “a”] and then it’s a list of one, two, three, four, five, six of what happens in different situations. So you can go look at the law for yourself.  

    I think the interesting ones are a tenancy in common. That’s where you just own some fraction. If you put a transfer on death deed on your fraction, it’s just it operates as to your interest. I.C. 32-17-14-11(e)(4). So if you own a quarter of your property, you can put a transfer on death deed for your quarter of the property. Doesn’t affect anyone else.  

    With husbands and wives, spouses who have this special “tenants by the entirety,” you can’t do it unless both spouses join. I.C. 32-17-14-11(e)(1). So you can’t just decide one day to add a beneficiary designation for like you, the husband’s beneficiaries or whatever, both spouses have to agree.  

    But the rules is different for a joint tenancy that’s not spouses. It’s for a joint tenancy, which often includes this right of survivorship, pretty cool if you’re the survivor, I suppose, recording a transfer on death deed breaks the joint tenancy and turns it into a tenancy in common. I.C. 32-17-14-11(e)(2). So you lose the right of survivorship. That’s quite a little trick in the law there.  

    It’s never come up for me yet, but I’m young. Maybe it will someday. So be careful and look at it.  

    Conclusion: TOD Still an Option

    But just because you own some fractional interest in a property doesn’t mean transfer on death deeds are off the table. And that’s good because they’re a really flexible planning tool. I’ve talked elsewhere about how and when you might want to use them, but the type of tenancy you have doesn’t necessarily stand in your way.  

    So if you want to talk about this or any other Indiana estate planning and probate topic, give me a call or e-mail. You’re on my website. You’ve got my contact information and I serve, you know, central Indiana and especially points south, so Indianapolis, Marion County. Greenwood, Johnson County, Montgomery County, all of that, Shelbyville. So give me a call and we can talk more, but I hope this general information of Indiana law was useful to you. Bye now.

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  • In the News: WSJ Covers Transfer on Death Deeds

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    Good morning, folks. It’s Andy Stautz at Stautz Law and we are back with another talk about estate planning topics. Today’s kind of a fun one and it has to do with yesterday’s newspaper. So the Wall Street Journal has an article about transfer on death deeds. I’ve got it right here. “When Leaving Homes to Heirs Backfires.”

    When Passing Along Your House After Death Gets Complicated – WSJ

    And it’s all about transfer on death deeds, which not every state has. Indiana does. Obviously. I’ve talked about them before.  

    And the article goes through, you know, the basic idea which I’ve explained: automatic out of probate transfer of a house or, you know, any property, actually–real property. And you know that, like I’ve said, the mechanism is simple. As part of an overall plan, it’s great.  

    But there are lots of things that can go wrong. They’re slippery.  

    Examples: Restrictions, Insurance

    So a couple of the examples in the article are things I’ve warned about, so one of them is a transfer restriction in a contract. If you’ve got a property and for some reason your title to it is encumbered by a contract or whatever. And there’s an anti transfer provision and you try to use the transfer on death deed that might violate that.  

    Another example is continued insurance coverage. They use a case in Minnesota where an heir lost the house because the insurer, you know, didn’t give him continuing coverage. Indiana’s got a law in place to prevent that. You’re allowed, you know, a grace period basically to figure out how to insure new property that comes to you that way.  

    Lesson: Tread Carefully with TOD Deeds

    But it’s interesting to see, you know, and it’s the Wall Street Journal. It’s a national paper, really, talking about estate planning. It was fun to see an outside perspective and see how it’s presented to a wider audience. And it lines up with with my advice, which is: great tool, you’ve got to know what you’re doing.  

    So if you want a transfer on death deed as part of your plan, come talk to me. I like to do complete plans, but sometimes I’ll prepare a deed sort of as a one-off.  

    Anyway, hope you’ve enjoyed that. I’ll try to link to the article and see if there’s an online version linked to that in the text description. But hope that was a fun one. See you next time. Bye. 

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  • What Happens to a Mortgage in Probate?

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    Hi folks, it’s Andy Stautz at Stautz Law. We are back for another talk about probate and estate planning topics. Today is a very practical one. And that is: what happens to a mortgage?  

    Common Situation: Decedent Still Owes on Home Mortgage

    So in a situation where someone has a house with a mortgage on it. They’re paying off their mortgage, but they die before the mortgage is paid off. What happens?  

    There could be a will. There might not be a will. Either way the house is expected to go to the heirs, or the beneficiaries: you know, family members, usually. 

    But the person who was on the loan, right, the homeowner, the mortgage payer, is now deceased, so does the mortgage just go away? You know, what? What happens?  

    Handling Mortgages after Death

    Basic Rule: Mortgage Not Extinguished

    Well, the basic answer is no, the mortgage doesn’t go away. It’s still a debt that has to be repaid. And so it is potentially a creditor claim against the estate, just like any other debt that the decedent had still owing.  

    Before you can distribute the property to the heirs and the beneficiaries, you have to pay the debts and expenses of the person who passed.  

    Keeping the House: Avoiding the Due on Sale Clause

    Now in the mortgage case, sometimes you don’t want to… You know, you might not be able to pay off the mortgage all at once, right? And let’s say you don’t want to sell the house. It’s like, OK well, Do you have to?  

    And the answer is no, you don’t have to.  

    There’s a federal law from way back in 1982, I think (although I should probably look that up) called Garn Saint Germain. [EDIT: Yes, I was correct: 1982. You can read the wiki here and the text of the statute here.] And what that law says is that the mortgage lender can’t force you to sell the house basically to pay off the mortgage. So Garn St. Germain lets heirs, family members, so a surviving spouse or children, move into the house and keep paying on the mortgage.  

    You know it’s an inherited mortgage at that point, so it doesn’t become immediately due and payable. So that’s really nice if you’re trying to just keep everything like it was. 

    Selling the House

    Alternately, if you’re willing to sell the house, obviously you can sell the house, pay off the mortgage, just like you do any time you sell a house normally, and then distribute the net proceeds in the estate. So that’s the other option.  

    But the key point is the debt doesn’t go away. The bank can’t accelerate it as long as it’s a family member, you know, staying current on the payments and moving in, and if you do sell and make a distribution, obviously any estate proceeds are net of the mortgage balance.  

    Conclusion

    So if you need specific advice on how to handle an inherited mortgage, or you know a decedent who has a mortgage that you need to deal with… it depends on what you and the other heirs and beneficiaries want to do, so you can call me because I handle probate cases like this all the time, and I’d be happy to help you with it.  

    But this was just a quick talk to let you know basically how it works. I hope you’ve enjoyed it and hope to talk to you soon. Bye now. 

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  • Does a House Need to Go Through Probate?

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    Good morning, folks. We’re back. It’s Andy Stautz at Stautz Law and we are talking about basic estate planning. And probate. Today we’re talking about a very common scenario which is inheriting a house.  

    Does a House Need to Go Through Probate?

    So I was asked the other day, “Ohh, well, my parents’ house is coming to me in the will. But I’m not ready to open a probate estate yet. Can I sell the house right now?”  

    And the answer is no, you can’t. Not if there wasn’t planning done in advance.  

    Probate Avoidance Planning for a House

    So if you plan in advance, you can put a house in a trust so that it passes automatically outside of probate, or you can record a transfer on death deed. Which is another way to transfer house outside of probate: transfer on death deed, which I’ve talked about elsewhere. It’s like a beneficiary designation on a retirement account. It just works.  

    So that and the trust are kind of two main planning techniques.  

    Indiana Probate Procedure for Houses

    But of course once the the homeowner has has passed, well, it’s too late to do any advance planning. So now you’re dealing with… You’re dealing with a house that needs to pass the title in an orderly way, and that’s what probate is, and that’s what probate’s for. 

    Now, Indiana has a small estate procedure that is much simplified. But the limit for that is $100,000 at the moment. It was lower before. So if there’s any significant equity in the house, you can’t use the affidavit procedure to transfer a house title.

    [EDIT: For completeness’ sake, I should have mentioned that Indiana does allow a “devolution affidavit,” which can provide evidence of a transferred house title, even above the small-estate limit and even without probate. The use of devolution affidavits is controversial, and is beyond the scope of this introductory talk.]

    You probably don’t want to anyway, because you might have problems down the road selling the house, clearing a title check at sale, getting a mortgage against it if you want one.  

    So really what you need to do is open a probate estate: that can be unsupervised, maybe, you know depending on how many beneficiaries there are, or the status of the rest of the estate, whether there is a will that provides for unsupervised administration….  

    But the minimum cost you’re looking at there is probably, uh, $3000 and up for a probate administration, and that’s what you have to do before you can… Before you can sell the house. Right? you have to get title to the house before you can sell it.  

    So you can’t just… You can’t just take the house. Say, oh, well, it’s going to be mine and then sell it right away. So that’s a real speed bump for a lot of people. And something you should plan ahead for.  

    You know, if you want your heirs and beneficiaries to be able to get rid of the house right away. Or sell the house. If you want to make it easy on them, you need to do some advance planning.  

    If you want to make it easy on them, you need to do some advance planning

    And on the flip side, if you are probably inheriting a house. You know you need to, you need to be prepared to go through probate, which is going to be an expense. And it’s going to be a delay. So it’s probably going to be a few months before you’re ready to actually sell that house. So that’s just kind of how it works.  

    It can get more complicated once you’re in probate, if you know that if there’s a contest, if for some reason it’s a supervised administration. And if it’s a supervised administration, you need to go to the court and ask permission to sell it and and, you know, get permission to say, OK, we think this is a fair market value sale, whatever. UM. So it can be really tedious a 

    Benefits of Estate Planning for Probate Avoidance

    And that’s why a lot of my estate plans when people come to me ahead of time, we were able to plan around that and make sure we’re not dealing with probate. That’s why probate avoidance is is worth the upfront cost: because it saves you, after death, you know, time cost, legal fee cost, risk of conflict or contest amongst beneficiaries and heirs.  

    Planning looks expensive up front, but it avoids problems later.  

    If you didn’t do the planning and you’ve got if you’ve got a house that you need to do something with? Yep, a probate administration is going to be the way. You know. I’m happy to handle that for people, too, it’s just kind of two different roads and you got to decide which one you want to be on. 

    So. I hope that clarifies the probate transfer of houses. If you want to talk about that topic or any other estate planning probate topic with me. You can book online here at the website or give me a call.  

    Thanks for watching! Bye.

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