On June 12, 2014, Washington joined a growing number of states which now allow residents to transfer title to real estate by means of a “transfer on death” deed. This deed allows the owner of a piece of real estate to execute and record a deed which will transfer title to the named beneficiary upon the owner’s death without having to transfer title after the owner’s death as part of a probate of the owner’s estate, much in the same way an owner of a bank account or brokerage account can execute a document naming a person or persons to be a beneficiary of the account so that title passes to the designated beneficiary upon death, making it unnecessary to probate such an account.
Like any such change in the law, this presents a number of new opportunities, and new potential pitfalls for the unaware and those who are unsophisticated about estate planning. Nevertheless, for those with truly modest estates that do not meet Washington State or Federal Estate Tax thresholds, the new law is a tool that could help such property owners avoid a probate if they so desired, and I suspect that careful and considered use of these deeds might indeed reduce the number of probates that we as practitioners currently conduct essentially only for the purpose of transferring the title to the real estate of the deceased. These deeds could also provide an additional means to make gifts from an estate as part of an integrated estate plan, but I cannot caution an owner of real estate enough about the need to consult with an attorney before making such a transfer, because doing so would reduce the number of assets available to pay estate taxes, which could become especially problematic in large taxable estates where other resources may also be turned into non-probate assets by means of payable on death beneficiary designations.
Using these deeds without proper planning and understanding of consequences may also create unintended consequences for those who are married or who are registered domestic partners due to the operation of community property law. However, this may permit people to make gifts while they are alive, without triggering the need to file an informational federal gift tax return.
Another issue is the fact that there are potential situations that could involve this law in which the outcome is not necessarily clear. One commenter has already observed that there is apparently no limitation on time in which DSHS could place a lien against the deeded property for services rendered to the deceased, and in the absence of a clear limitation on the time in which to do so in the statute, it would appear that DSHS will then have up to twenty-four months from the date of death to place a lien, which would lead the careful lawyer to advise the owner wishing to use this method of transfer that the beneficiary should not consider the gift to be “free and clear” until this two year window had passed.
I am excited that we have another option available in our estate planning tool kit. I also see the potential for people to really screw up their estates if they don’t get help in reviewing the plan beforehand. It will also change how we do probates, as we will have to clearly understand whether or not the real estate is a non-probate asset, or an asset of the estate.