This issue has come up three times over the past couple of weeks and it has me a bit perplexed. Can an owner designate as beneficiaries in his Transfer of Death (TOD) Designation Affidavit one beneficiary to receive a life estate and another to receive the remainder? In two cases, I had clients that wanted such a result, in another someone sent me a TOD Designation Affidavit that purported to designate one beneficiary as a life tenant and another as remainderman. I did a little reading and I'm not certain it works... but I think it probably should.
In Ohio, R.C. § 5302.22 states that "any individual who, under the Revised Code or the common law of this state, owns real property or any interest in real property as the sole owner, as a tenant in common, or as a survivorship tenant, or together with the individual's spouse owns an indivisible interest in real property as tenants by the entireties, may designate the entire interest, or any specified part that is less than the entire interest, in that real property as transferable on death to a designated beneficiary or beneficiaries by executing, together with the individual's spouse, if any, a transfer on death designation affidavit as provided in this section."
Among the requirement for a TOD Designation Affidavit is "if less than the entire interest in real property is to be transferred on death under the affidavit, a statement of the specific interest or part of the interest in the real property that is to be so transferred." The reference to a "part of the interest," sure makes it sound like an owner can designate something other an a fee simple absolute interest - a life estate is a "part that is less than the entire interest" in real property. And, this doesn't seem like an unusual thing to want to do.
Certainly, an owner can make a present transfer of a life estate to one person, and designate the remainder to another. An owner can also make a similar testamentary disposition of the property by will to be effective upon his death. So, why not allow the same thing to be done by TOD Designation Affidavit?
R.C. § 5302.23 specifies that "an interest of a deceased owner shall be transferred to the transfer on death beneficiaries who are identified in the affidavit by name and who survive the deceased owner or that are in existence on the date of the deceased owner's death. If there is a designation of more than one transfer on death beneficiary, the beneficiaries shall take title to the interest in equal shares as tenants in common, unless the deceased owner has specifically designated other than equal shares or has designated that the beneficiaries take title as survivorship tenants." It does not include an option for multiple designated beneficiaries to take take title to different estates, such as a life estate and a remainder.
So, on one hand the statute seems to broadly permit creating such an interest, but on the other it narrowly specifies how multiple beneficiaries take title upon the death of the owner. The two statutes are somewhat contradictory.
Personally, I do not think there should be a problem creating such a designation. It is simple, and apparently people want to be able to do it as part of a probate avoidance estate plan. Maybe this was an oversight when the legislation was drafted, and they just didn't anticipate this creative use. Or, perhaps they did consider it and they decided that this was too complicated to do without the oversight of the probate court. I am not sure.
But, I have decided to err on the side of caution and if I do attempt to create such an affidavit for a client it will come with a stern warning that it may not be effective, which could result in a probate estate. Of course, I will add the same distribution scheme to the will, just in case.
Have any of you seen a Transfer on Death Designation Affidavit creating a life estate and remainder? Do other states account for this in their statutes? Do you think it's authorized by the Ohio statute?