One of the most important assets to transfer after a person passes away is their real property.  Whether it is a beloved family cottage or a family home, property often has sentimental value and can often make up a large portion of wealth transferred from generation to generation.  There are several different ways to transfer real property at an individual’s death.

If you have a trust, there are two primary ways to transfer the property into the trust so the trustee can administer the property after death.  First is through a deed transferring the property into your trust while you are living.  This immediately transfers the property from the individual to the trust.  All future tax bills will show the trust as the owner of the property.  If this method of transfer is elected, it is very important that you contact your title insurance company and homeowner’s insurance company regarding any policies of insurance you have.  Your insurance company will likely require an additional endorsement on the policies to continue coverage for you as trustee of your trust (instead of as an individual).  You will want to secure proper coverage of your asset.

The second way to transfer property into trust is through a ladybird deed which transfers the property into your trust on your death. A lady bird deed is essentially a deed that names your trust as beneficiary after you die. Lawyers call it an “enhanced life estate.” With a lady bird deed you are reserving a life estate for yourself, together with the right to sell the property, give it away, mortgage it, or otherwise do whatever you want with the property. If you still own the property at the time of death, title will automatically pass to your trust, without going through probate.

The deciding factor as to whether to transfer property into your trust immediately or via ladybird deed is whether the property is owned jointly by a married couple.  If you own property as spouses, this is called “tenancy by the entireties” and provides certain protection from creditors.  The creditor of one spouse cannot attach a judgment lien on real property owned by both spouses.  Ladybird deeds are also great for individuals who have mortgages or other encumbrances on the real property because it does not result in a transfer and therefore will not trigger an acceleration clause or due on transfer clause.

If you have a trust, your real property can be distributed directly to the beneficiaries (or the proceeds from the sale of the property), or it can be kept in trust for the benefit of the beneficiaries.  Keeping a property in trust is common for a family cottage where the owner wants to keep a set of rules in place for the use of the property in future generations.  It is also common when you want to leave the use of the property to a loved one (a significant other or another family member) but want to leave the ultimate value of the property to someone else.  This is called a “life estate” – you may leave the property for the use of a person during their lifetime under certain conditions, but if they move out or die, the property is transferred to other beneficiaries.

If you do not have a trust, you can still use a ladybird deed to transfer real property on death.  Instead of transferring it to a trustee on your death, you instead name the beneficiaries directly on the deed.  This method works particularly well if there are only a few beneficiaries who get along well.  Ladybird deeds to beneficiaries get complicated when there are several beneficiaries or if the beneficiaries do not get along or cannot agree on what do to with the property.  It can sow seeds of family conflict if not all beneficiaries are on the same page regarding what to do with the property after the initial owner passes away.

Another way to transfer property on death without a trust is to add an owner to the real property as joint tenants with rights of survivorship (JTWROS).  JTWROS adds an additional owner to the property immediately and functions to allow the last surviving owner of the property to own it outright.  For instance, if you were to add two children to a deed as JTWROS and you passed away, the children would own the property jointly until one of them passed away.  The surviving child would own the property outright.  This method of transfer has quite a few downsides.  First, the transfer is considered a lifetime gift and a gift tax return will need to be filed.  No gift tax will be due at the time of filing if the value of the transfer is less than the estate tax exemption amount (currently $12.06 Million).  Second, adding an owner to the property will make it more difficult in the future if you ever need to take out a mortgage, lease the property, or sell the property.  If you sell the property, the joint owner is entitled to a portion of the proceeds.  If you have a mortgage, the contract might preclude the addition of an owner on the property without a full payoff of the mortgage.  This type of transfer has the same drawbacks as a ladybird deed if you name multiple beneficiaries and they disagree on how to handle the property.

Finally, if you do not prepare any deed during your lifetime and choose to keep your property in your name, it can transfer to your heirs through the probate process.  After you pass away, the personal representative of your estate would open a probate estate with the court, list the real property on the inventory, and the personal representative would have the power to either sell the property and distribute the proceeds, or distribute the property directly to your heirs.