Transfer on Death Deeds: To Deed or Not to Deed?

Effective July 20, 2024, Transfer on Death (TOD) deeds will be permitted in New York State. This will allow the transfer of a home to a named beneficiary(ies) without Probate of a Will or administration of an estate.  

Until now, if an individual wanted to avoid probate regarding real estate, they had to create a living trust and transfer title to the property into the trust. The TOD deed is an attractive alternative because it is a simpler process and appears to be cost effective. It may also allow for flexibility in that the TOD deed can be revoked any time prior to the transferor’s death (the transfer is not effective until the death of the transferor). The suggestion is that this will be very helpful to those with lower income and limited resources, including those whose main asset is residential real property. However, these deeds may not be all they are cracked up to be.

Read on to find out why.

Key Points:

• A TOD deed must state that the transfer to the designated beneficiary is to occur at the transferor’s death.
• Unlike a typical bargain and sale deed, a TOD deed must be signed by two witnesses.
• A TOD deed must be recorded before the transferor’s death.
• Multiple and alternate beneficiaries can be named.
• Joint owners with a right of survivorship (such as a married couple) can create a TOD deed, which will remain with the surviving spouse first, then pass to the beneficiary(ies) when the second spouse passes away. 
• Liens, encumbrances, or mortgages stay with the property when passed to the beneficiary(ies).
• If the transferor’s estate does not have enough assets to satisfy creditor claims or statutory allowances to surviving spouses or children, a property subject to a TOD deed can be brought back into the estate to satisfy those claims. 

Issues and Concerns: 

Disputed Sales/Closings: The potential for multiple owners and multiple beneficiaries can make the TOD deed very complicated, leading to disputes over the sale of the property.

Asset Protection Planning: A TOD deed is not a Medicaid planning tool; the transferor is still the owner of the property, and it is therefore an asset of that individual for Medicaid planning purposes. Transferring real property to an Irrevocable Trust (five years in advance), or to an exempt person, is still the only way to protect real property for Medicaid purposes.  

Estate Recovery: Medicaid recovery and pay-back is limited to estate assets. Unlike assets held in a Trust that are not subject to estate recovery, a TOD deed provides that the property can be brought back into the estate to satisfy creditors. 

As always consult with the knowledgeable and experienced Long Island Trusts and Estates attorneys at Cona Elder Law to discover what is right for you. Our attorneys are always available to meet your needs.

Watch our webinar to learn more about this topic here.