The New Transfer on Death (TOD) Deeds in New York: A Game Changer for Estate Planning?

Attention! Effective July 20, 2024, Transfer on Death (TOD) deeds will be permitted in New York State. This new legislation marks a significant change in estate planning, allowing homeowners to transfer their property directly to a named beneficiary without the need for probate. This streamlined process is set to provide a simpler and more cost-effective alternative to traditional methods, especially benefiting those with limited resources. Let's dive into the details of TOD deeds and explore their benefits and limitations.

What is a TOD? 

Until now, avoiding probate for real estate in New York required setting up a living trust and transferring the title of the property into that trust. While effective, this process can be complex and costly, posing a barrier for many individuals. The introduction of TOD deeds offers a more accessible option. By allowing property owners to name a beneficiary who will inherit the property upon their death, the TOD deed simplifies the transfer process and potentially reduces costs. The flexibility of the TOD deed is another attractive feature; it can be revoked at any time before the transferor's death, ensuring that the property owner retains control.

Key Features of TOD Deeds

• Transfer Timing: 

The TOD deed explicitly states that the transfer to the designated beneficiary occurs only at the transferor’s death.

• Witness Requirement: 

Unlike standard deeds, a TOD deed must be signed by two witnesses.

• Recording Requirement: 

The TOD deed must be recorded before the transferor's death to be valid.

• Multiple Beneficiaries: 

It allows for naming multiple and alternate beneficiaries, providing flexibility in estate planning.

• Joint Ownership: 

Joint owners with right of survivorship, such as married couples, can create a TOD deed. The property will first pass to the surviving spouse, and then to the named beneficiaries upon the second spouse's death.

• Encumbrances:

Liens, encumbrances, or mortgages remain with the property when it is passed to the beneficiaries.

• Estate Claims: 

If the transferor’s estate lacks sufficient assets to cover creditor claims or statutory allowances for surviving spouses or children, the property under a TOD deed can be brought back into the estate to satisfy these obligations.

Potential Issues and Concerns

Despite the apparent benefits, TOD deeds are not without their complications:

• Disputed Sales and Closings: 

The involvement of multiple owners and beneficiaries can complicate property transactions, potentially leading to disputes.

• Asset Protection: 

TOD deeds are not effective for Medicaid planning, as the transferor remains the owner of the property. For Medicaid purposes, transferring real property to a revocable trust well in advance (at least five years) or to an exempt person remains the preferred method to protect assets.

• Estate Recovery:

Unlike assets held in a trust, properties transferred via TOD deeds can be reclaimed by the estate to satisfy creditor claims, undermining some of the intended benefits of avoiding probate.

The introduction of TOD deeds in New York is a promising development in estate planning, particularly for those seeking a straightforward and cost-effective way to transfer property. However, as with any legal mechanism, it is crucial to understand the potential complexities and limitations. Consulting with knowledgeable and experienced attorneys, such as those at the Law Offices of Leslie Sultan, is essential to determine the best approach for your specific situation. Our attorneys are always available to guide you through the intricacies of estate planning and ensure that your assets are protected according to your wishes.

About the Author

Leslie has been practicing law since 2009 and is the host of the estate planning podcast 'Legacy Purse'. She has a long history of representing family members struggling to inherit property and/or wealth from deceased family members through the Probate Courts. Knowing how time-consuming and expensive the probate process is, Leslie takes great pride in helping her clients learn how to plan and protect their families during their lives so they can avoid the probate court process and save their loved ones that additional grief (and expense).