When most people sit down with me to discuss estate planning, their top priority is avoiding probate – especially with real estate. Probate is the court-supervised process of settling a deceased person’s estate which includes paying debts and distributing assets according to their will or, if there is no will, Ohio law. It can be time-consuming, expensive, and public. Real estate titled in someone’s name with no beneficiary or co-owner is a probate asset and subject to this process.
The good news is not all assets go through probate. In fact, most people can avoid probate entirely by using intentional estate planning strategies. For many clients, real estate is their most valuable asset and understandably, they want to ensure that it transfers smoothly to loved ones without the expense, delay, and public nature of probate. Ohio law provides several practical options for transferring real estate outside of probate. Each method has unique advantages, and choosing the right one depends on the client’s goals, relationships, and overall estate plan.
Survivorship Deed
Ohio Revised Code 5302.20 outlines the rights under a survivorship deed, commonly used between spouses or close family members. In this form of ownership, when one owner dies, the other owner(s) receives full ownership of the property, automatically outside of probate. One thing to keep in mind is Ohio law requires “magic language” to create a joint tenancy. Without this magic language, the deed simply creates a tenancy in common which does not avoid probate. Your deed must explicitly state the property is owned “jointly with rights of survivorship” or similar language.
One drawback of survivorship ownership is all owners must agree and sign off to sell, refinance, or make changes to the property, which can be a challenge in some families. Additionally, the property may be exposed to the creditors of any co-owner during their lifetime. Finally, while the deed avoids probate for the first owner to die, it does not avoid probate upon the death of the last surviving owner unless further planning is in place (i.e., a TOD affidavit to an individual or trust).
Transfer on Death Affidavit
Ohio Revised Code 5302.23 outlines one manner of transferring real estate outside of probate through a Transfer on Death Affidavit (“TOD Affidavit”). A TOD Affidavit allows an owner to designate one or more beneficiaries who will automatically receive the property upon the owner’s death, outside of probate. Additionally, the beneficiary will receive a step-up in basis in the real estate equal to the fair market value on the date of death of the owner.
The TOD Affidavit must be recorded with the county recorder while the owner is still alive. Importantly, it doesn’t affect ownership during the owner’s lifetime. They retain full control and can sell, mortgage, or revoke the affidavit at any time.
While a TOD Affidavit can be a cheap and efficient way to avoid probate, it is not always the best option. If the named beneficiary dies before the owner and the affidavit is not updated, the property will revert to being a probate asset upon the owner’s death which defeats the purpose of the TOD Affidavit. Additionally, once the property transfers to the beneficiary, they become the sole legal owner. However, due to Ohio’s dower rights, if the beneficiary is married and later sells the property, their spouse must sign off on the sale. This applies even if the spouse was not a beneficiary or involved in the original transfer. This can cause complications if the spouse is unavailable or uncooperative. It is also important to note that the property passes to the beneficiary free of any protection from their personal creditors; if they have outstanding debts, liens, or judgments, the property may be at risk.
When executing a TOD affidavit, you should discuss these potential issues with your attorney.
Deed to a Trust or TOD Affidavit to Trust
Transferring real estate to a revocable trust is another way to avoid probate and control how assets are managed both during life and after death.\\ In most scenarios, a trust is created by the property owner(s), and the owner(s) are the trustees of the trust while they are living and still have capacity (i.e., manage the trust assets). The property is deeded into the trust during the owner’s lifetime. Upon death, the successor trustee manages or distributes the property according to the terms, outside of probate. The trust can hold more than just real estate assets, making it a complex and comprehensive strategy to accomplish a client’s goals.
While a revocable trust does not protect the property from the property owner’s personal creditors during their lifetime, it can provide a level of protection for beneficiaries after the owner’s death. If structured properly, the beneficiary may receive their share in a creditor protected beneficiary trust, which may help shield the asset (or sale proceeds from the asset) from the beneficiary’s creditors, divorcing spouses, or poor financial decisions.
It is also worth noting that a property owner can execute a TOD Affidavit naming their trust as the beneficiary. This approach allows the property to remain in the owner’s name during their lifetime (instead of transferring it into the trust immediately) while still ensuring that the property passes into the trust and is governed by its terms upon death, without going through probate.
Which Option Is Best?
There is no one-size-fits-all answer. We encourage clients to consult with an estate planning attorney when buying or selling property, especially if making decisions that affect the property transfer upon death. An informed choice today can save loved one’s time, money, and stress.
Mary Baker-Shoup is a Millersburg, Ohio-based estate planning and corporate attorney who works with families and individuals to protect their assets and plan for the future. For questions about estate planning, probate, real estate, and corporate legal issues, email her at bshoup@ccj.com.