New York Introduces Transfer on Death Deeds: A New Path to Simplify Estate Planning

We are catching up to states like Texas that already permit Transfer on Death Deeds!

In a significant shift for estate planning in New York, the New York State Real Property Law has been amended to include Section 424, which introduces the Transfer on Death (TOD) Deed. Effective July 19, 2024, this new provision offers a streamlined method for transferring real estate to beneficiaries, bypassing the often cumbersome probate process.

Key Benefits of the TOD Deed

The primary advantage of the TOD deed is its ability to transfer property directly to beneficiaries upon the death of the property owner without the need for probate. This can save time, reduce legal expenses, and provide a more straightforward transfer of assets to loved ones.

Essential Features of Section 424

Several critical factors define the use and application of the TOD deed under the new Section 424:

  1. Direct Transfer to Beneficiaries: An individual can designate one or more beneficiaries to receive their property upon their death by recording a TOD deed. The transfer only becomes effective when the transferor passes away.
  2. Witness Requirement: The TOD deed must be signed by the transferor in the presence of two witnesses, who must also sign the document, attesting to its execution.
  3. Revocability: A TOD deed is revocable. The transferor can revoke it by recording a new document. Importantly, the TOD deed cannot be revoked through a will.
  4. Recording Requirement: The deed must be recorded in the county clerk’s office where the property is located before the transferor’s death for it to be valid.
  5. Beneficiary Notification: The TOD deed is effective without requiring notice to, delivery to, or acceptance by the designated beneficiary.
  6. Transferor’s Rights: Even after recording a TOD deed, the transferor retains full rights to transfer or encumber the property during their lifetime.
  7. Lapse of Transfer: If the designated beneficiary does not survive the transferor, the transfer lapses, and the property does not transfer under the TOD deed.
  8. Subject to Liens and Encumbrances: The property passes to the beneficiary subject to any liens, encumbrances, or other interests existing at the transferor’s death.
  9. Renunciation: A beneficiary can renounce all or part of their interest in the property in the same manner as they would with an inheritance under a will.

The Role of Irrevocable Trusts in Estate Planning

While the introduction of the TOD deed provides a valuable tool for estate planning, it is not a one-size-fits-all solution. For aging New Yorkers, particularly those concerned about healthcare costs, creditor protection, and Medicaid planning, an irrevocable trust remains a superior strategy.

Irrevocable trusts offer robust protection and benefits that TOD deeds do not:

  • Medicaid Planning: Assets placed in an irrevocable trust can be shielded from Medicaid eligibility requirements, helping to preserve wealth for beneficiaries. Assets in an irrevocable asset protection trust avoid Medicaid estate recovery and liens.
  • Creditor Protection: Irrevocable trusts can protect assets from creditors, providing financial security for the grantor and beneficiaries.
  • Control and Management: These trusts allow for detailed instructions on asset management and distribution, offering more control over how and when beneficiaries receive their inheritance.

In conclusion, while the TOD deed under New York’s new Section 424 simplifies the transfer of real estate upon death and bypasses probate, it is essential to consider individual circumstances and long-term planning goals. For comprehensive estate planning, particularly where healthcare costs and asset protection are concerns, irrevocable trusts continue to be a vital tool. Consulting with an estate planning attorney can help determine the best approach to meet personal and financial objectives.