4

My parents, in Colorado, would like my sister and I to be able to avoid probate when they pass away. They have a home (mortgage still in the process of being paid off) but not much in the way of other assets. It looks like one approach they could take is to put everything in a living trust. Alternatively, Colorado allows real estate to be left with with a transfer-on-death deed. A transfer-on-death deed would not cover the other assets such as bank and savings accounts, but these are small (i.e., less than $50K in total). Estates totalling less than $50K in Colorado do not have to go through probate. There is also likely to be a substantial amount of credit card debt as well which would need to be paid out of the estate at the time of death, as I understand it.

My question is: A transfer-on-death deed seems easier, but covers only the house. Does the house (worth much more than $50K) still count as part of "the estate" even though it has a transfer-on-death deed attached to it (meaning that the heirs would have to pay the full cost of probate - attorney's fees, etc. - merely to handle the transfer of the small bank accounts)?

5

I strongly recommend that your parents not create a transfer-on-death deed without talking to a lawyer about the matter because there are financial and tax issues other than the size of the estate and the cost of probate to be considered. For example, when real estate passes to beneficiaries through a will, the beneficiaries get to have a basis equal to the fair market value of the property (this could be much larger than your parents' basis in the property, and so, if and when the beneficiaries sell their inheritance, they will be taxed only on the increase (if any) in the property value from the time of death till the time of sale. Does this jump in basis also apply to property transferred via a transfer-on-death(ToD) deed? How should the ToD deed be structured so that the property passes to the surviving spouse first and to the beneficiaries only when the surviving spouse passes away? What happens if the mortgage is not fully paid off before your parents pass away? etc. It is worth keeping in mind that in many states (maybe even in Colorado) there is a very shortened probate process for small estates with minimal attorney's fees involved. So, some of what your parents are thinking of doing may be what the British call "being penny wise and pound foolish." Ymmv.

2

I believe the beneficiary deed transfers the real estate out of the probate process. By doing so, the probate process may be simplified for small estates. I have recorded such a deed for my house.

Deeds.com has a web page:Colorado Beneficiary Deed Form which reinforces the idea that the property is outside the estate. Just like POD designations on bank accounts.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.