Transfer on Death Deeds vs. Living Trusts: How to Choose

This overview adapts reporting originally published by Jennie Lin, updated by Jeff Burtka.

If you'd rather keep your house or land out of probate, you're likely weighing a transfer on death deed against a revocable living trust. DIY estate planning software can help you set up either one, but the two tools work quite differently.

If real estate makes up most of what you own, and the rest of your property already passes outside of probate, a plain transfer on death deed may be all you need.

A transfer on death deed — sometimes called a beneficiary deed — does one narrow job. Compare that to a living trust, which can hold and pass along far more than just land or a house. A transfer on death deed simply names who inherits your real estate when you die, while a living trust can also cover bank accounts, personal belongings, and other assets. Here's what to weigh as you decide between the two.

• Not every state allows transfer on death deeds
• TOD deeds cost less and involve less work than trusts
• Trusts can do more than TOD deeds
• Getting help

Not every state allows transfer on death deeds

Before anything else, check whether your state permits transfer on death (TOD) deeds at all — more than half do, but not all. And the state that matters is wherever the property sits, not necessarily where you live now.

If your state doesn't yet allow TOD deeds, that could change. Estate planning software providers regularly update their tools as more states adopt TOD deed laws.

TOD deeds cost less and involve less work than trusts

A transfer on death deed is a fairly bare-bones document: it lists who owns the property, describes the property legally, and names who inherits it after the current owner or owners die. Because they're simple, TOD deeds also tend to be inexpensive to prepare. Many states even publish ready-made sample wording — known as "statutory forms" — for their residents to use.

Living trusts, by contrast, take more effort to establish. Hiring an attorney to draft a trust typically costs noticeably more than hiring one to prepare a simple TOD deed. That gap narrows if you use guided DIY software for either document, since the cost tends to be similar.

Both tools require you to record the paperwork at the land records office in the county where the property sits. But trusts add an extra layer: you also have to retitle the property in the trust's name. For real estate, that means preparing and recording a new deed moving the property from you as an individual to you as trustee of your own trust. That filing process can get complicated, so check with your local land records office or an attorney about exactly what's required.

There's also ongoing upkeep — any new property you acquire has to be formally transferred into the trust if you want it covered. In short, living trusts generally demand more maintenance over time than a TOD deed does.

Undoing or updating a TOD deed is also simpler. You just sign, notarize, and record either a revocation — a short statement canceling the original deed — or a fresh TOD deed that supersedes it. Trusts, on the other hand, can be more involved to amend or unwind.

Trusts can do more than TOD deeds

If real estate is your biggest asset, and everything else you own will already pass to your heirs outside of probate through other means, a simple TOD deed may be enough to keep that property out of the probate process.

If, however, you hold significant assets beyond real estate that you'd also like to shield from probate's costs and delays, a living trust can handle everything in one document.

Trusts cover more property and name someone to manage it

Living trusts offer more flexibility and reach than TOD deeds. As noted, they can hold assets well beyond real estate. They also name "trustees" — the people responsible for managing whatever the trust holds. With many DIY trust tools, you name yourself as trustee, so you keep full control of your property while you're alive. You also designate a "successor trustee," who steps in after your death or incapacity to manage the trust property and eventually distribute it to your beneficiaries. That extra layer of oversight can matter a great deal.

Trusts allow closer oversight of property left to minors

If you have minor children, your trustee — or successor trustee — can hold and manage trust property until your kids reach whatever age you choose. Some DIY trust software lets you build this in through a child's subtrust nested inside your living trust. That structure lets your trustee manage the assets and use judgment to spend trust funds on your child's health, support, and education until the child reaches a specified age, up to 35 years old.

An alternative is naming a "custodian" to manage real estate for a minor child, though the property must be handed over once the child reaches whatever age your state sets under its Uniform Transfers to Minors Act — often 21, an age some parents consider too young to take charge of something as significant as real estate. This custodian option shows up in both living trust and TOD deed tools.

Trusts can plan ahead for incapacity

If you're concerned about becoming incapacitated someday, a living trust has an advantage a TOD deed lacks: it lets you name a successor trustee who can step in and manage the trust property if that happens. If you go the TOD deed route instead, it's worth also setting up a durable power of attorney, naming an "agent" or "attorney-in-fact" who can handle your finances if you're ever unable to do so yourself.

Trusts can be shaped to fit many other situations as well. If your circumstances are more complex, an estate planning attorney can help you draft a trust suited to your specific needs.

Getting help

DIY estate planning tools can walk you through creating both a TOD deed, where your state allows one, and a living trust. If you'd rather not go the DIY route, or your situation involves complicated assets, a child with special needs, or unusual family dynamics, it's worth talking to an attorney licensed in your state who handles estate planning. The right choice for you will depend on your state's laws and your particular circumstances.