In a prior article I wrote about the potential benefits, or nuts and bolts, of “Pay on Death” designations as an efficient and common way for assets to transfer to your intended beneficiary without Probate (the court-supervised process that oversees distributing a deceased person’s assets). Many people prefer to avoid having their estate going through Probate because their heirs will receive the inheritance faster, privately, and at a much lower cost.

Similarly, the named beneficiaries on file with your life insurance and retirement accounts will need to simply present a death certificate and fill out some forms to receive their benefit.

This beneficiary option was not available for the transfer of real estate.  However, in July 2024, New York joined 31 other states that allow a transfer on death deed for real estate.  For many homeowners, this additional option is tremendous.

The new law provides us with guidance.  For example, the transfer on death deed must be signed by the property owner, notarized and recorded with the appropriate County Clerk prior to the owner’s death.  The beneficiary does not need to sign anything or even know they are the beneficiary.  Similarly, the property owner can revoke the beneficiary designation by a written, notarized document filed prior to death without the beneficiary’s involvement.  

Unlike most deeds, this TOD deed is not transferring a present interest in the property.  It is merely creating a legal expectation of benefit.  In prior articles, I have written about a deed “with reserved life estate”, which transfers a vested future interest to the named person(s) and avoids probate.  Because the interest is vested, a substantial portion of the sale proceeds will go to the remainder beneficiaries who will likely be subject to capital gains tax.  Additionally, if some problem arises in a remainder beneficiary’s life, their ownership share may be affected.   This could make for a difficult situation that does not arise with the TOD deed.  

Keep in mind, however, because the owner has total control of the asset during life, the TOD deed provides no asset protection in the event you become ill.  

A more comprehensive solution would be to establish a living trust.  Like a TOD asset, a properly funded trust avoids Court probate process and is handled privately. A living trust can provide substantial flexibility, incorporate alternate beneficiaries, and provide long-term asset protection for you and your beneficiaries, protecting your assets against lawsuits, judgments, divorce, and bankruptcy courts.   Most importantly, a living trust can help ensure continuity of your estate plan while providing you with greater security that your assets will be properly managed in accordance with your wishes.  Trusts provide all the benefits and peace of mind of a TOD account without any of the downsides.

Remember: Estate Planning Tools are Context Dependent

Selecting appropriate planning tools can be tricky.   We’re here to help find the right tool for your situation.

LAW OFFICE OF KATHLEEN M. TOOMBS PLLC

157 Barrett Street, Schenectady, NY  12305

(518) 688-2846

KToombs@ToombsLawNY.com

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