By Rosemary Liuzzo Mohamed

The Adam Leitman Bailey, P.C. transactional department has seen a flood of properties transferred to trusts in the past five years. In addition to financially protecting one’s estate, a trust saves the property owner’s estate the lengthy probate process upon their death. Our transactional department has also seen a high number of estate sales taking an excessive time to close due to delays in probate court. We now see a new type of deed which will also serve to prevent the heir’s and beneficiary’s of property owners the long waiting time endured in probate court.

On April 20, 2024, the New York State Legislature adopted the new Section 424 to the New York Real Property Law titled “Transfer on Death Deed” which went into effect on July 19, 2024. Section 424 allows a property owner to transfer property to one or more beneficiaries effective at the transferor’s death by a transfer on death deed (“TOD deed”). The TOD deed does not become effective until the death of a property owner and are completely revocable if a property owner changes their mind, even if the deed or another instrument contains a contrary provision. In passing such a law, New York has followed the majority of states in adopting a TOD deed.

Section 424 lists the specific requirements that must be met for a TOD to have legal effect. The property owner who is the transferor must have the same capacity that is required of an individual making a will. Additionally, the TOD deed must explicitly state that the transfer to the designated beneficiary or beneficiaries is only to occur at the transferor’s death. The TOD deed must be acknowledged by a notary public and signed by two witnesses that are present at the same time and witness the signing of the TOD deed by the transferor. Further, the TOD deed is to be properly filed and recorded with the county clerk’s office in which the property is located as with any other type of deed. Notice, delivery, acceptance, and consideration by a designated beneficiary is not required.

The TOD deed will provide many benefits to New York property owners.

A major benefit of the TOD deed is that beneficiaries will be able to avoid the lengthy probate process. The probate process is court supervised and refers to the administration and transfer of a deceased person’s estate in accordance with the terms of their will. This is a very timely and costly process. The TOD deed allows a beneficiary to automatically receive property and become owner of the property upon the transferor’s death.

Additionally, transferor’s retain control over their property until their death. Thus, they can sell or encumber the property however they wish. The consent of a beneficiary or beneficiaries is not required before doing so.

As previously stated, a transferor can revoke a TOD deed at any time during their lifetime prior to their death as long as the revocation is by instrument. A transferor cannot revoke a TOD deed by act. Pursuant to Section 424, an instrument can revoke an entire TOD deed or any part of a TOD deed as long as the instrument is a TOD deed that revokes the deed or part of the deed expressly or by inconsistency, an instrument of revocation that expressly revokes the deed or part of the deed, or an inter vivos deed that expressly revokes the transfer on death deed or part of the deed. Additionally, the instrument must be acknowledged by the transferor and recorded prior to the transferor’s death in the proper county clerk’s office. In the case of a TOD deed made by joint owners, it may only be revoked by the consent of all living joint owners.

However, there are some drawbacks associated with the TOD deed.

A concern about TOD deeds is that there is a lack of control over property once it transfers to beneficiaries listed on the deed. Unlike a will, there is not an executor who oversees managing or selling the property.

Also, where a transferor designates two or more beneficiaries and one of the beneficiaries passes away prior to the transferor’s death, that beneficiary’s share automatically lapses to the other beneficiary or beneficiaries. Thus, a descendant of the beneficiary who predeceases the transferor is not entitled to the property.

TOD deeds are not effective if beneficiaries are minors. Minors cannot own the property in the event of a transferor’s death.

Lastly, since property is still an asset of a transferor until their death in the case of a TOD deed, the property will be considered a resource for the purposes of Medicaid.

Overall, TOD deeds are an effective and beneficial alternative to wills in the transfer of real property. The transactional department at Adam Leitman Bailey, P.C. is ready to assist any client who may want to explore this estate planning option.