Estate Planning 101

Transfer on Death in Connecticut: How it Works and What You Need to Know | Snug

January 11, 2024

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Estate planning involves numerous strategies to ensure the efficient transfer of assets after one's death. Among these, the "Transfer on Death" (TOD) provision stands out for its simplicity and efficacy. This article provides an in-depth look at TOD provisions under Connecticut law.

Understanding Transfer on Death

A Transfer on Death (TOD) provision allows an individual to designate a beneficiary who will inherit certain assets upon the individual's death, bypassing the probate process. Assets can include financial accounts like bank accounts or stock portfolios, and physical assets such as vehicles or real estate.

The beneficiary has no legal rights to the asset during the owner's lifetime. The asset is only transferred upon the death of the owner. This process is typically quicker and more cost-effective than probate, as it does not involve court proceedings.

Transfer on Death vs. Joint Ownership

Both TOD provisions and joint ownership are common methods of transferring assets in Connecticut, but they function differently. Joint ownership implies that two or more individuals share an equal interest in an asset, such as a home or bank account.

In Connecticut, assets owned jointly typically pass directly to the surviving joint owner upon the other's death, bypassing probate.

Conversely, a TOD provision enables an asset owner to designate a beneficiary who will receive the asset upon their death, also avoiding the probate process. Unlike joint ownership, the beneficiary does not hold any ownership interest in the asset until the owner's death.

Creditor Protections from Transfer on Death

Connecticut law provides some protection from creditors through TOD provisions. When an individual dies with outstanding debts, creditors generally have a specific period to stake their claim against the estate.

However, assets transferred via TOD provisions bypass probate and are typically not accessible to creditors unless they can prove a fraudulent transfer.

Conflicts Between Your Will and TOD Provisions

TOD provisions can sometimes conflict with the directives of a will. In Connecticut, a TOD provision generally supersedes a will. So if a will directs that an asset should go to one person, but the TOD provision on the asset names someone else, the asset will transfer to the person named in the TOD provision.

Tax and Debt Implications of TOD

Tax implications are an essential aspect of implementing TOD provisions. In Connecticut, assets transferred via TOD are subject to the same estate tax rules as assets transferred through other means. Connecticut has both state and federal estate taxes.

As for debts, assets transferred via TOD provisions are usually protected from the deceased's debts, unless a proven case of fraudulent transfer exists.

Real Estate and TOD in Connecticut

In Connecticut, real estate can be transferred via a TOD deed, also known as a beneficiary deed. This deed permits a property owner to designate a beneficiary who will automatically inherit the property upon the owner's death, avoiding probate.

Connecticut homeowners can greatly benefit from this provision, as it ensures a seamless transition of their property without the time and costs associated with the probate process.

The Validity of Lady Bird Deeds in Connecticut

A Lady Bird deed, also known as an enhanced life estate deed, is a legal document that allows an individual to pass property to beneficiaries while retaining a life estate in the property. The individual also maintains the right to sell, lease, or mortgage the property without the beneficiaries' consent.

However, Lady Bird deeds are not recognized in Connecticut. Similar outcomes can often be achieved using a revocable living trust or a TOD deed.

How to Establish a TOD Provision in Connecticut

Establishing a TOD provision in Connecticut typically involves filling out a form provided by the financial institution that holds your assets. For real estate, a TOD deed must be filled out and recorded with the town clerk's office. It's essential to adhere to all rules and requirements to avoid potential complications or disputes.

The Limitations of TOD Provisions

While TOD provisions offer many benefits, they do have limitations. They do not allow for complex asset dispositions or provide detailed instructions, as a will or trust might.

Also, if the beneficiary predeceases the owner, the asset will usually go through probate unless a contingent beneficiary is named.

Revoking a TOD Provision

TOD provisions can be revoked or changed at any time during the owner's life, provided the owner is mentally competent.

In Connecticut, this typically involves completing a form provided by the financial institution, or for real estate, recording a revocation form with the town clerk's office.

In conclusion, understanding the laws governing TOD provisions in Connecticut is critical when planning your estate. Consulting with an experienced estate planning attorney is advisable to ensure your assets will be distributed according to your wishes.