The transfer on death designation is a relatively new concept in Ohio real estate law.  It provides a powerful estate planning tool, but the Ohio law is rather specific and limiting.  In a May 2007 blog, Avoid The Use of the Transfer on Death Deed, I pointed out what can happen when the transfer on death interest is not properly created.  The current Ohio law is a trap for the unwary.  Proposed Senate Bill 124 will broaden the transfer on death statutes and remove some of the pitfalls associated with creating transfer on death beneficiary interests. 

Bender's Ohio Real Estate Transactions says:

Strategic Point: Avoid use of the transfer on death deed. Of all the matters that have raised unresolved legal questions in the past years among real estate attorneys, the transfer on death deed continues to lead the pack.

The current law states:

Any person who, under the Revised Code or the common law of this state, owns real property or any interest in real property as a sole owner or as a tenant in common may create an interest in the real property transferable on death by executing and recording a deed as provided in this section conveying the person’s entire, separate interest in the real property to one or more individuals, including the grantor, and designating one or more other persons, identified in the deed by name, as transfer on death beneficiaries. 

There are two very important limitations on the creation of transfer on death interests contained in the current statute.  First, only a person who is the sole owner or an owner who holds title as a tenant in common with others may create such an interest.  And, second, the interest must include the person's entire separate interest.

This may be less than intuitive for some.  Certainly, survivorship vesting is very common today.  A husband and wife may hold title as joint tenants with rights of survivorship so that upon the death of one spouse, the real property will pass outside of probate to the survivor.  But, what happens if they pass simultaneously? 

In Ohio, if persons die within 120 hours of each other, they are each deemed to have predeceased the other.  In such case, the property would become property of the parties' respective probate estates.  Because current Ohio law does not permit a person who holds title with rights of survivorship to create a transfer on death interest, this result cannot be avoided with a transfer on death deed.

S.B. 124, however, will specifically permit survivorship tenants to designate a transfer on death beneficiary.

If an individual who owns real property or an interest in real property as a survivorship tenant executes a transfer on death designation affidavit, upon the death of that individual or of one but not all of the surviving survivorship tenants, title to the real property or interest in the real property specified in the affidavit vests in the surviving survivorship tenant or tenants. Upon the death of the last surviving survivorship tenant, title to the real property or interest in the real property vests in the transfer on death beneficiary or beneficiaries designated in the affidavit, subject to division (B)(7) of section 5302.23 of the Revised Code.

This will permit survivorship tenants to designate a transfer on death beneficiary who will take title, outside of probate, upon the passing of the last survivorship tenant.  Problem solved!

Of course, this seems to create another strange result.  If A and B hold title as survivorship tenants and only A designates a transfer on death beneficiary and A predeceases B, this section would seem to only pass a life estate interest to B in A's interest in the property, with the transfer on death beneficiary holding a vested remainder. This follows from the language in the statute that says "upon the death of the last surviving survivorship tenant, title to the real property or interest in the real property vests in the transfer on death beneficiary or beneficiaries designated."  But, this would seem contrary to the section that states "a person designated as a transfer on death beneficiary has no interest in the real property until the death of the owner of the interest."

This problem is handled in ORC 5302.23(B)(7), which "automatically terminates and nullifies any transfer on death beneficiary designations made solely by the deceased survivorship tenant or tenants without joinder by the last surviving survivorship tenant."

Thus, it would appear that in such a scenario, where only A designates a transfer on death beneficiary, such designation would be valid if B predeceases A, but if B is the survivor, the transfer on death designation is terminated. This is a logical result.

Interestingly, S.B. 124 also contains a provision that allows a person to designate less than his entire interest as transferable on death. It also changes the procedure for creating a transfer on death interest.  Rather than by deed, as the current statute provides, S.B. 124 provides that the interest shall be created by affidavit.  The affidavit requires a description of the property, the specific interest to be transferred if it is to be less than the entire interest, a statement by the individual executing the affidavit that he is the record owner of the property, and if the owner is married the affidavit must include a statement by the owner's spouse subordinating the spouse's dower interest.

These changes, should the bill pass, will allow greater flexibility in estate planning and allow more people to take advantage of the transfer on death statutes without some of the inherent pitfalls of the current legislation.

Robert A. Franco
SOURCE OF TITLE