What is a transfer on death deed?
A transfer on death deed is a recorded deed that transfers real estate to one or more named beneficiaries at the owner’s death, with no transfer at all until then. While you are alive, the deed does nothing. You’re still the full owner and can live in, rent, sell, refinance or give away the property without asking the beneficiary.
At your death, ownership passes to the beneficiary who survives you, without probate for that property. The Uniform Law Commission’s Uniform Real Property Transfer on Death Act set out a model version, and many states have adopted it or a similar law of their own.
How a TOD deed works
Washington’s version of the uniform act, chapter 64.80 RCW, is a good example of how the deed works in states that adopted the model law:
- Capacity: you need the same mental capacity to sign or revoke a TOD deed as to make a will.
- Form: the deed must meet the rules for a recordable deed and state that the transfer happens at your death.
- Recording: it must be recorded in the county records before you die. An unrecorded TOD deed doesn’t work.
- No delivery or consideration: the beneficiary doesn’t have to be told, accept the deed or pay anything.
- Revocable: you can revoke it with a later TOD deed, a recorded revocation or a regular deed that expressly revokes it.
- No effect during life: the beneficiary has no interest, and your creditors and your right to sell or borrow are unaffected.
- At death: the beneficiary takes the property subject to existing mortgages, liens and leases. If several beneficiaries survive, they take equal, undivided shares with no right of survivorship.
Which states allow transfer on death deeds?
Transfer on death deeds are available in many states, but not all, and the rules differ from state to state. Some states adopted the uniform act nearly word for word and others wrote their own version. Delaware’s, enacted in 2025, applies to deeds of owners who die on or after December 4, 2025. Texas’s is in chapter 114 of the Estates Code.
Read the limits closely. California’s revocable TOD deed, in Probate Code section 5600 and following, covers only a parcel with one to four residential units or a single condo-type unit, so it can’t be used for a 5+ unit apartment building. The California law is also scheduled to sunset on January 1, 2032 unless the legislature extends it.
Because a deed is governed by the law of the state where the land sits, check that state’s statute even if you live somewhere else. If you own buildings in several states, you may be able to use a TOD deed in one and need a trust or another method in the next. Some states without a TOD deed allow other tools, such as an enhanced life estate deed.
TOD deed vs living trust
A TOD deed is cheaper and simpler than a living trust, but a living trust does more. The deed handles one thing, passing a property at death. A trust can also manage the property if you become incapacitated, hold it for a beneficiary who isn’t ready to own a building and cover property in several states in one document.
| Question | Transfer on death deed | Revocable living trust |
|---|---|---|
| Avoids probate? | Yes, for that property | Yes, for property titled in the trust |
| Cost to set up | Usually low: one deed and a recording fee | Higher: trust document plus deeds to the trust |
| Covers incapacity? | No; you still need a power of attorney | Yes; a successor trustee can manage |
| Control after death | Beneficiaries own it outright | Trustee can hold, manage or sell on the trust’s terms |
| Multiple beneficiaries | Equal undivided shares unless the deed says otherwise | Any split or timing you choose |
| Available everywhere? | Only in states with a TOD deed law | Yes |
Using a TOD deed for a rental or apartment building
A TOD deed only works for real estate titled in your own name, in a state whose law covers that kind of property. Many 5+ unit buildings are owned by an LLC, and in that case the LLC owns the building and you own membership interests, so a deed doesn’t apply. Plan through the operating agreement, a transfer on death designation for the membership interest where your state allows one, or a trust.
If the building is in your name, the beneficiary takes it subject to the mortgage. The federal Garn-St Germain Act stops a lender from calling a loan when a relative takes ownership after the borrower’s death, but only for residential property with fewer than five dwelling units. A loan on a 5+ unit building follows its own transfer clauses, so heirs should contact the lender or servicer quickly.
Leases, security deposits and the property manager’s contract all carry over to the new owners. Naming several children as beneficiaries makes them tenants in common, so think about whether they will be able to agree on management, refinancing and an eventual sale.
Creditors and Medicaid
A TOD deed doesn’t shield the property from your creditors while you’re alive, and it may not protect it after you die. Under the Washington statute, for example, the beneficiary can be liable for allowed claims against the estate and statutory allowances to a surviving spouse and children, to the extent the statute provides.
Medicaid estate recovery is a state-by-state question. Federal law at 42 U.S.C. 1396p(b)(4) defines the estate for recovery to include the probate estate and lets states define it more broadly to include assets passed outside probate through joint tenancy, tenancy in common, survivorship, life estate, living trust or another arrangement. Whether a TOD property is reachable depends on which definition your state uses.
Stepped-up basis for TOD deed beneficiaries
Property received through a transfer on death deed generally gets a stepped-up basis to its fair market value at the owner’s death. Because the owner keeps full ownership until death, the property is part of their gross estate, and Section 1014 covers property acquired from a decedent by reason of death, form of ownership or other conditions.
For a rental building this is a big deal. The owner’s depreciation, which would have been taxed as unrecaptured Section 1250 gain at up to 25% on a sale during life, isn’t recaptured when the basis resets. The beneficiaries also get an automatic long-term holding period under Section 1223(9), even if they sell right away.
Compare a gift during life. If an owner signs a deed giving the building to a child, the child takes the owner’s basis under Section 1015, along with the built-in gain and the depreciation recapture. That is one reason many owners pick a TOD deed or trust over a lifetime gift.
Worked example: selling a building inherited by TOD deed
An owner bought a 12-unit building for $1,500,000 and took $600,000 of depreciation, leaving an adjusted basis of $900,000. The building is worth $4,000,000 when the owner dies, and a TOD deed names two children as beneficiaries. Each child takes a half interest with a basis of $2,000,000, for $4,000,000 in total.
Eight months later the children sell for $4,200,000 with $126,000 of selling costs, so the amount realized is $4,074,000 and the total gain is just $74,000, or $37,000 each, all long-term. For taxpayers in the top bracket who owe the 3.8% net investment income tax, the federal tax is about $17,612 combined.
If the owner had sold on the same terms the day before death, the gain would have been $3,174,000: $600,000 of unrecaptured Section 1250 gain and $2,574,000 of long-term capital gain. In the top brackets, with the net investment income tax, that is about $785,412 of federal tax.
| Line | Owner sells during life | Children sell after inheriting |
|---|---|---|
| Amount realized | $4,074,000 | $4,074,000 |
| Basis | $900,000 | $4,000,000 (stepped up) |
| Total gain | $3,174,000 | $74,000 |
| Unrecaptured Section 1250 gain at 25% | $600,000 → $150,000 | $0 |
| Capital gain at 20% | $2,574,000 → $514,800 | $74,000 → $14,800 |
| Net investment income tax at 3.8% | $120,612 | $2,812 |
| Total federal tax | $785,412 | $17,612 |
How to sell a property after inheriting it by TOD deed
Selling after a TOD transfer is usually faster than selling out of probate because no court has to approve the sale. The usual steps:
- Get certified copies of the death certificate.
- Record whatever your state requires to show the transfer, often an affidavit of death with the death certificate, along with any county change-of-ownership form.
- Get a date-of-death appraisal of the building to document the stepped-up basis.
- Notify the lender, insurer, property manager and tenants, and move rent and deposits into accounts in the new owners’ names.
- If there are several beneficiaries, agree in writing on who signs, who manages and how proceeds will be split.
- Decide whether to sell, hold or use a 1031 exchange. With a stepped-up basis, there may be little gain to defer.
How this works for a 5+ unit apartment building
With a 5+ unit building, the hard part after a TOD transfer usually isn’t the paperwork. It’s running a business nobody planned to run. Rents still need collecting, the loan still needs paying and the building’s NOI and cap rate decide what it’s worth on the day you sell.
Heirs who keep the building start depreciation over again from the stepped-up basis, which can shelter rental income for years. Heirs who want out can sell with little tax, but often face a building with deferred maintenance or a loan that won’t transfer. Settling that early, while the date-of-death value is fresh, keeps more of the value in the family.
Selling an inherited apartment building to Skyline
Skyline Capital Investments buys apartment buildings with five or more units nationwide, including buildings that passed by TOD deed to several heirs. We can buy the whole building in one closing so every beneficiary is paid at once, take it as-is and, where it helps, offer seller-carry terms or work around a 1031 exchange timeline.
Send the address and unit count through the form on this page or call (469) 660-2977. We typically respond within 48 hours.
