Caution: Writing Your Own Deed to Avoid Probate Can Lead to Costly Unintended Consequences
One goal of estate planning is to ensure that your assets, including your home, pass to your chosen beneficiaries quickly and with minimal expense. In real estate, a common strategy to avoid probate (the court process of validating a will and distributing assets) is to add others to the title.
This strategy involves adding the names of your children or other beneficiaries to your property’s deed. Often, the goal of this approach is to take advantage of rights of survivorship: when you pass away, ownership of the property transfers to the surviving co-owner(s) by operation of law via such survivorship rights, thereby bypassing probate.
Many people attempt to execute this strategy themselves by writing their own deed, believing that they can simply download a deed form from the internet or get a template from a book, fill it out, and record it with the appropriate authority.
This simple mistake of writing your own deed can turn into a costly nightmare. Deeds are complex legal instruments that must comply with state law to be valid. In most states, property will not pass to the other owners listed in a deed without probate unless certain specific legal terms are used in the deed. In addition, many states have different rules and different forms of joint ownership with survivorship rights, so what works in one state may not work in another. Furthermore, adding others to your house title can have unintended consequences, such as tax implications and potentially exposing your home to someone else’s creditors.
The Risks of Writing Your Own Deed
If the deed you create is defective or invalid, the property will not automatically pass to your intended heirs upon your death. 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 a mistake in the deed is found while you, the original owner, are still alive, the problem can usually be fixed by having an attorney prepare and record a corrective deed. Unfortunately, a defective or invalid deed is most often discovered after the owner dies, when they can no longer sign the necessary paperwork to correct it. If the problem cannot be fixed, the property will likely be forced into probate to clear the title and determine the legal owners.
- Probate can be costly and time-consuming. Forcing the property into probate defeats the entire purpose of the DIY deed and results in the very outcome you tried to avoid. Probate incurs legal fees and court expenses, sometimes totaling thousands of dollars—far more than the cost of having an attorney prepare a valid deed in the first place. Until things get sorted out in probate court, heirs may be unable to access, maintain, or sell the property. This delay can span many months and, in some cases, years, causing significant financial hardship or missed opportunities for your beneficiaries, especially if the housing market changes substantially in the meantime.
- 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 why writing your own deed can turn out to be a huge mistake 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, and some are available only to married couples. Common types of joint ownership include the following:
- Tenants in common. If you simply add another person’s name to a property deed, the law often defaults to tenants in common. Under tenants in common, each owner generally holds a distinct, divisible share of the property. When one owner dies, their share does not automatically pass to the co-owner. Instead, the deceased owner’s share must go through probate to be distributed according to their will (or intestacy laws if there is no will), defeating the goal of avoiding probate.
- Joint tenancy with rights of survivorship. Joint tenancy with rights of survivorship is a common form of property ownership intended to avoid probate between nonspouses. When one owner dies, their share automatically passes to the surviving owner(s) without the need for probate. Often, however, depending on the rules in the particular state, the deed must contain specific language to create a joint tenancy with rights of survivorship. A DIY mistake can render this intention void.
- Tenancy by the entirety and community property with rights of survivorship. Tenancy by the entirety and community property with rights of survivorship are forms of joint ownership that are available only to married couples and only in certain states. Similar to joint tenancy with rights of survivorship, each of these provides automatic survivorship to the spouse upon the death of the other, avoiding probate. Where available, tenancy by the entirety can offer strong protection against creditors, while community property can offer other benefits.
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, who can come from many sources—for example, claims by a divorcing spouse or tax liabilities. In addition, adding a co-owner can have tax and other consequences you may not anticipate. Instead of writing your own deed, consider more robust, attorney-prepared solutions, which may include various properly prepared and implemented deed options or even a revocable living trust.
If you want your home or other real estate to pass to your children or other beneficiaries without the costly delay of probate, the last thing you should do is rely on a generic, fill-in-the-blank form. Deeds are state-specific legal documents with very particular requirements. A real estate deed that is perfectly valid in one state may be completely invalid in another.
Investing a small amount in professional preparation now is the only way to ensure that the deed will be legally valid, your property will pass to your intended heirs, and you will successfully avoid the costly mistakes of a DIY job. Contact McDonald Law Firm, an experienced Howard County, Montgomery County and District of Columbia estate planning, special-needs planning and Medicaid planning firm at (443) 741-1088; (301) 941-7809, (410) 337-8900 or (202) 640-2133; or use the following link: https://www.mcdonaldesq.com/#contactWrapper to schedule a consultation with one of our knowledgeable attorneys to determine whether this estate planning tool is an option for you.
DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONVEY LEGAL, INSURANCE OR TAX ADVICE.
