Estate planning involves various legal instruments designed to ensure the seamless transfer of assets upon an individual’s death. One such instrument is the beneficiary deed, also known as a transfer-on-death (TOD) deed. This guide delves into the concept of beneficiary deeds, their functionality, and their applicability within the state of Maryland.

Potential Changes to Maryland Law: House Bill 625 and TOD Deeds

A significant development in Maryland estate planning is the introduction of House Bill 625, which, if passed, would allow transfer-on-death (TOD) deeds for real estate. This proposed legislation aims to give property owners an additional tool to transfer real estate to beneficiaries while avoiding probate.

Currently, Maryland does not recognize TOD deeds, but if HB 625 becomes law, it will amend multiple sections of the Maryland Code to establish a legal framework for creating, revoking, and recording these deeds. The bill would also provide standardized forms for TOD deeds and revocations, making the process more accessible for property owners.

What House Bill 625 Means for Maryland Homeowners

If enacted, HB 625 would expand estate planning options by allowing property owners to designate a beneficiary for their real estate upon death, similar to payable-on-death (POD) accounts for financial assets. The benefits of TOD deeds include:

• Avoiding probate – Property passes directly to the named beneficiary without court involvement.
• Maintaining control – The owner retains full ownership rights, including the ability to sell, mortgage, or revoke the deed at any time.
• Simplicity and cost-effectiveness – Compared to setting up and maintaining a trust, TOD deeds are generally easier and less expensive to implement.

However, TOD deeds also come with drawbacks. For example, they do not protect assets from Medicaid eligibility look-back periods or shield property from creditors after the owner’s death. Additionally, because TOD deeds are public records, anyone can view them once recorded.

What Is a Beneficiary Deed?

A beneficiary deed is a legal document that allows property owners to designate one or more beneficiaries to automatically inherit real estate upon the owner’s death, bypassing the probate process. This mechanism ensures a smoother and more direct transfer of property, aligning with the owner’s wishes without the delays often associated with probate proceedings.

Key Features of Beneficiary Deeds

• Revocability: Property owners retain the right to revoke or modify the beneficiary deed at any time during their lifetime, providing flexibility to adapt to changing circumstances.
• No Immediate Ownership Rights: Beneficiaries have no legal rights to the property while the owner is alive, ensuring the owner maintains full control over the asset until death.
• Avoidance of Probate: Upon the owner’s death, the property transfers directly to the named beneficiaries, effectively bypassing the probate process and facilitating a quicker distribution.

Beneficiary Deeds vs. Deeds of Trust

It’s essential to distinguish between beneficiary deeds and deeds of trust, as they serve different purposes within real estate and estate planning:

• Beneficiary Deed: Facilitates the transfer of property ownership upon the owner’s death to designated beneficiaries without probate involvement.
• Deed of Trust: Involves three parties—the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee). It functions similarly to a mortgage, where the property is held in trust as collateral for a loan.

Alternative Estate Planning Tools in Maryland

Given the unavailability of beneficiary deeds for real estate in Maryland, property owners can consider alternative strategies to ensure their assets are distributed according to their wishes:

1. Revocable Living Trusts

A revocable living trust allows individuals to place their assets, including real estate, into a trust while retaining control over them during their lifetime. Upon death, the assets are transferred to designated beneficiaries without undergoing probate.

Advantages:

• Probate Avoidance: Assets within the trust bypass the probate process, allowing for a more efficient distribution.
• Flexibility: The grantor can modify or revoke the trust during their lifetime, accommodating changes in circumstances or intentions.

Considerations:

• Complexity and Cost: Establishing a trust can be more complex and costly compared to other estate planning tools.

2. Joint Ownership with Right of Survivorship

By holding property jointly with another individual with the right of survivorship, the property automatically passes to the surviving owner upon one’s death, circumventing probate.

Advantages:

• Simplicity: Establishing joint ownership is straightforward and commonly used for marital property.
• Immediate Transfer: The surviving owner gains immediate ownership without court intervention.

Considerations:

• Control: Joint ownership grants equal control to all owners, which may not align with everyone’s intentions.
• Unintended Consequences: Joint ownership can expose the property to the co-owner’s creditors or affect eligibility for certain benefits.

3. Life Estate Deeds

A life estate deed allows property owners to retain use of the property during their lifetime, with the property automatically transferring to designated beneficiaries upon death.

Advantages:

• Probate Avoidance: The property passes directly to beneficiaries without probate.
• Retained Control: The owner maintains the right to use and benefit from the property during their lifetime.

Considerations:

• Irrevocability: Once established, life estate deeds are challenging to alter without the beneficiaries’ consent.
• Potential Tax Implications: There may be tax consequences for both the owner and beneficiaries.

4. Payable-on-Death (POD) and Transfer-on-Death (TOD) Designations

While not applicable to real estate, POD and TOD designations can be utilized for bank accounts, securities, and certain other assets to transfer directly to beneficiaries upon death.

Advantages:

• Simplicity: Setting up POD or TOD designations is straightforward and often involves completing a form with the financial institution.
• Probate Avoidance: Assets transfer directly to beneficiaries, bypassing probate.

Considerations:

• Limited Scope: These designations do not apply to real estate in Maryland.

Proposed Legislation and Future Outlook

There have been legislative efforts in Maryland to authorize the use of beneficiary deeds for real estate. Some policymakers advocate for enabling TOD deeds to simplify the transfer of real property upon death and reduce the reliance on probate. However, as of now, no laws have been enacted to permit beneficiary deeds in Maryland.

How to Get a Beneficiary Deed in States That Allow Them

Although Maryland does not currently allow beneficiary deeds for real estate, those residing in states where they are permitted can follow these steps to obtain one:

1. Consult an Estate Planning Attorney – A legal professional can provide guidance on state laws and help draft the appropriate documents.
2. Draft the Beneficiary Deed – The document must include the legal description of the property, the owner’s name, and the designated beneficiaries.
3. Execute the Deed Properly – Some states require the deed to be signed and notarized.
4. Record the Deed – The beneficiary deed must be filed with the appropriate county recorder’s office to be legally enforceable.
5. Retain a Copy for Records – Keeping a copy of the recorded deed ensures that the owner and beneficiaries have a reference for future use.

Is a Beneficiary Deed Right for You?

For those living in states where beneficiary deeds are recognized, they can serve as an effective estate planning tool. However, for Maryland residents, alternative strategies such as revocable living trusts, joint ownership, and life estate deeds can achieve similar probate-avoidance benefits.

Work with Frame & Frame Attorneys at Law for Your Estate Planning Needs

If you want to ensure a smooth transfer of your assets and protect your loved ones from unnecessary legal hurdles, working with an experienced estate planning attorney is essential. At Frame & Frame Attorneys at Law, we help Maryland residents create customized estate plans that align with their goals and state laws.

Our team will guide you through the most effective strategies to safeguard your assets and minimize probate complexities. Contact us today to schedule a consultation and explore the best estate planning solutions for your needs.