DTCI: Inter vivos transfers and ad mortem transfers

One common goal — if not the most common goal — of estate planning is to avoid the expenses incurred in court to probate an estate. Estates must be administered in probate courts where the net value (the gross value of real and personal property reduced by all liens and encumbrances) of the estate (the real and personal property transferred at the death of a decedent under the decedent’s will or under Indiana Code § 29-1-2, in the case of a decedent dying intestate) exceeds $50,000. I.C. 29-1-8-1(b)(1), 29-1-8-3, 29-1-8-4(b). The value of both real property and personal property is included in determining whether the threshold amount is exceeded. I.C. 29-1-1-3(33). Houses and other improved real properties are commonly valued above $50,000. Transferring realty out of an estate assists the common goal of avoiding probate by eliminating the real estate from the threshold value calculation. Inter vivos and ad mortem transfers are the two means of avoiding such inclusion.

Inter vivos transfers may be made by a quitclaim deed. I.C. 32-17-2-2 (“A deed of release or quitclaim passes all the estate that the grantor (as defined in IC § 32-17-1-1) may convey by a deed of bargain and sale.”); Enderle v. Sharman, 422 N.E.2d 686, 695 (Ind. Ct. App. 1981) (citing Sabinske v. Patterson, 100 Ind. App. 657, 196 N.E. 539, 543 (1935) (en banc) (explaining that the effect of a quitclaim deed is the conveyance of the interest held at the time of execution)). Generally, quitclaim deeds require merely substantive words that the named grantor quitclaims to the named grantee the described premises, for the sum of consideration, and for that deed to be signed, sealed and acknowledged by the grantor. I.C. 32-21-1-15.

Transfer on death deeds (TOD), as the name makes explicit, are ad mortem transfers of property. Similar to quitclaim deeds, TOD deeds minimally require substantive words that the named owner (I.C. 32-17-14-4(d)(1), 32-17-14-11(f)) transfers or pays on death, or an acronym thereof (I.C. 32-17-14-4(d)(2), 32-17-14-11(f)), to a named beneficiary (I.C. 32-17-14-4(d)(3), 32-17-14-11(f)) the legally described interest in real property that passes on the death of the owner, identified by the property tax identification number (I.C. 36-2-9-18(a)), and be signed by the owner (I.C. 32-17-14-11(a)(1)), notarized (I.C. 32-21-2-3(a)(1), 33-42-0.5-2, 33-42-9-7(a)) or proofed before a notary (I.C. 32-21-2-1.7, 32-21-2-3(a)(2)) and properly recorded (I.C. 32-17-14-3(14), 32-17-14-11(a)(2)). In comparison, transfers made by deeds in quitclaim and on-death require less than transfers made through probate courts.

Due to the low bar to transfer real estate by quitclaim or TOD deed, decedents’ estates may unwittingly face significant costs in contested probate litigation. Although not common, the abuse of quitclaim deeds and TOD deeds is sufficiently prevalent to necessitate a proviso to landowners lacking estate plans.

The adage “everyone has an estate plan” is true. Characteristically, inter vivos and ad mortem realty transfers are abused where the intestate is widowed. When there is no surviving spouse, intestacy laws distribute estate property to descendants per stirpes (I.C. 29-1-2-1(d)(1) (kinship of unequal degree take by representation)). Amoral issue sometimes exploit their predecessors by recording illegitimate deeds quitclaiming or transferring on death real property, thus removing the underlying real property from the estate.

Without estate planning documents contradicting such transfers, unscrupulous heirs may be well-positioned to prevail in contested probate proceedings due to evidentiary standards and burdens of proof. Contested litigation expenses may further drain the value of an estate.

The expenses to administer an estate in probate court far exceed the attorney fees to draft most estate plans. Administering an estate in probate court (including attorney fees and costs) usually costs less than $3,500. In large, estate plans avoid those administrative expenses and cost less than $2,500. Where issues arise regarding quitclaim deeds and TOD deeds, estates routinely incur litigation bills in excess of $10,000. (Typical retainers range from $7,000 to $10,000, but total expenses commonly exceed the latter dollar amount.)

Formalized estate plans best avoid such iniquitous acts by involving a fiduciary. Second to creating an estate plan, landowners may deter illegitimate transfers of realty by maintaining current samples of their signatures and handwriting in a secure location, such as a safety deposit box. Such documents only strengthen the litigation position of an estate. There is no proper substitute to planning and protecting your real estate.•

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Kyle A. Van Slyke is an associate in the office of O’Neill McFadden & Willett LLP. Opinions expressed are those of the author.