One goal of estate planning is to ensure assets, including your home, pass to chosen beneficiaries quickly and inexpensively. In real estate, a common strategy to avoid probate is adding others to the title of the property, such as a spouse, children, or other beneficiaries. Many who use this strategy are banking on using the “rights of survivorship” language to transfer their ownership automatically at death, thereby skipping probate. Those who attempt the DIY approach often download deed forms from online and record the signed document.
What began as an attempt to save money can become a costly nightmare, both while you are alive and for your beneficiaries after you have passed. Deeds are complex legal documents that must comply with state law to be valid. In most states, property will not pass without probate unless specific legal terms appear in the deed. Moreover, the laws for each state are different from one another, so a document that may be valid in one state is likely to fail elsewhere. Lastly, adding owners to the deed can have tax implications and expose your home to someone else’s creditors!
The Risks of an Invalid Do-It-Yourself Deed
If the deed you create is defective or invalid, the property will not automatically pass to your intended heirs. The worst part is that these issues often remain undiscovered until it is too late. Consider the potential risks of an invalid do-it-yourself (DIY) deed.
- The problem is found too late. If the deed you create is defective or invalid, the property might not to pass to your intended beneficiaries, but under the state’s intestacy laws. The worst part is that these issues often remain undiscovered until it is too late, namely after you’ve passed away or have lost the capacity needed to correct these mistakes. If the problems with the deed cannot be fixed, then the property must go through probate to clear the title and determine the rightful owners.
- Probate can be costly and time-consuming. Forcing the property into probate defeats the purpose of the DIY deed and causes the outcome you tried to avoid. Probate involves legal fees and court costs, sometimes totaling thousands of dollars, exceeding the cost of hiring an attorney. Until probate is resolved, heirs may be unable to access, maintain, or sell the property. This delay can last months or sometimes years, causing financial hardship or missed opportunities, especially if the housing market changes.
- The property can go to the wrong person. In the worst-case scenario, the property may be inherited under the state’s default intestacy laws (the rules for who inherits when there is no valid will or a title transfer mechanism). As a result, the property may be inherited by someone you intended to disinherit when you prepared and recorded your own deed.
Understanding the Legal Terminology of Deeds
A key reason DIY deeds fail is a misunderstanding of how various legal terms dictate property ownership. Simply adding a name to a deed is insufficient; the vesting (the legal status of the title) determines whether probate is avoided.
There are different forms of joint ownership in different states. Common types of joint ownership include the following:
- Tenants in Common: If you simply add another person’s name to the deed, many states (including Texas) default to tenants in common. Under this ownership method, each other generally holds a distinct share of the property. When the holder of this distinct share dies, their share does not automatically pass to the other named owners. Instead, the deceased owner’s share must go through probate, which defeats the goal of a DIY deed.
- Joint Tenants With Rights of Survivorship: Joint Tenants with Rights of of Survivorship (JTWROS) is a common method of property (both real and personal) and means that when one owner dies, the other owner(s) automatically inherit the deceased owner’s share without the need for probate. In Texas, deeds must contain very specific language to qualify as a JTWROS compliant deed. Lacking that language, Texas deeds default to Tenants in Common, thus defeating the purpose of the DIY deed.
What Should You Do?
Although adding a co-owner to a property deed can avoid probate, it is often not the best strategy. It can expose the property to the co-owner’s creditors, including divorcing spouses or tax claims. Adding a co-owner can also create unexpected tax and other consequences. Instead of a DIY deed, consider attorney-prepared solutions, such as properly drafted deeds or a revocable living trust. If you want your home or other real estate to pass to children or beneficiaries without costly probate delays, do not rely on a generic fill-in-the-blank form. Deeds are state-specific legal documents with very particular requirements. A real estate deed valid in one state may be completely invalid in another.
Investing a small amount in professional preparation now is the only way to ensure the deed is legally valid, the property passes to your intended heirs, and you avoid costly DIY mistakes. Nielsen Law PLLC Provides family-focused estate and business planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information, and to learn about our firm, please contact us to learn how.
