On April 20, 2024, New York State passed legislation as part of its Fiscal Year 2025 Executive Budget, allowing for transfer-on-death (TOD) deeds. This new law, known as the TOD Deed Law, is set to take effect on July 19, 2024, and will be integrated as a new Section 424 of the N.Y. Real Property Law.
What is a transfer-on-death deed? The TOD Deed Law enables transferors to name a beneficiary who will automatically inherit their real property upon their passing. With the enactment of this law, New York joins the majority of states in the U.S. that permit some form of transfer-on-death deed. This deed requires the presence of two witnesses and a Notary Public; and must be recorded by the county clerk, where the property is situated, prior to the transferor’s death in order to be recognized. The deed will become public record, unlike other designations that remain private.
The TOD Deed Law offers a way for people who own only real estate that would go through probate to avoid that process. Instead of going through probate, ownership of the property can go directly to the person they choose as the beneficiary. This can be helpful because it means the property can be passed on to the beneficiary without having to deal with the time and expense of probate court. Also, since creating and recording a TOD deed doesn't count as giving away property while the owner is alive, it doesn't trigger gift taxes or change the value of the property for tax purposes. Plus, the person who owns the property still has complete control over it until they pass away.
However, there are still some parts of the TOD Deed Law that aren't entirely clear. For example, it's not certain if someone can name a group of people, like all their children, as beneficiaries, or if they can name a trust or charity instead. Also, it's not clear how recording a TOD Deed might affect any existing title insurance policies. Additionally, there's confusion about whether the person named as the beneficiary can also be a witness when the TOD deed is signed, or if the person notarizing the deed can also be a witness. Lastly, it's uncertain if someone can use an agent to sign a TOD deed on their behalf.
At first glance, a TOD is enticing due to its simplicity, but it has its limitations. Depending on each person’s needs, a TOD may not be the way to go. There are other options that may be more comprehensive that better line up with an individual’s situation. With all legal decisions, it is best to consider all options and speak with a qualified elder care and/or estate planning law attorney prior to any action regarding a TOD.
