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Articles

Disposing of Real Property at Death? New York Adds Transfer on Death Deeds

AK Alert

  • Published On: July 3, 2024

Beginning July 19, 2024, owners of real property located in the State of New York will have a new tool to dispose of their New York real property at the time of their death.  The new Section 424 of the New York Real Property Law allows owners of real property to transfer property upon their death to one or more beneficiaries by utilizing a Transfer on Death Deed (“TOD Deed”).  Similar to transfer on death and payable on death accounts, TOD Deeds allow the owners of real property to pass their assets to their chosen beneficiaries by operation of law rather than by involving the New York Surrogate’s Court.

Requirements

TOD Deeds will follow the typical formalities of other deeds under New York law with several additional requirements.  First, it must name one or more beneficiaries and state that the property under the deed will pass to those beneficiaries upon the owner’s death.  Second, the execution of the deed must take place before two witnesses.  Third, the transferor’s signature must be acknowledged by a notary public.  Finally, the fully executed TOD Deed must be recorded in the county where the real property is located.  The text of Section 424 makes it clear that this form of deed creates a non-testamentary asset which passes without judicial intervention.  It also makes it clear that the named beneficiaries do not need to consent to the execution of a TOD Deed, nor do they need to be notified for the deed to be effective.

Advantages

It will likely take months after the new law goes into effect to determine the value of TOD Deeds, but on its face, the use of TOD Deeds can provide two clear advantages.  First, use of any form of transfer on death asset reduces the time and cost of estate administration.  With the New York Surrogate’s Courts still backlogged, an expedited transfer through a TOD Deed can allow the beneficiaries access to the real property months earlier than they would if they wait for court approval.   Second, for individuals with few assets, a common mistake made has been adding a child or another beneficiary to an existing owner’s deed.  This created an unintended gift of a portion of real property and cost the transferee some or all of the step up in tax basis that they would have received if the property passed at the transferor’s death.  TOD Deeds allow a similar arrangement to occur while leaving the owner’s control of the property and the potential step up in tax basis preserved.

Be Aware

There have been several potential red flags raised by real estate and trust and estates professionals alike.  If property is owned by joint tenants with a right of survivorship, the execution of a TOD Deed may confuse who received the property and when.  Properties that are subject to one or more mortgages will need to get approval from their lenders before executing a TOD Deed and it is unclear whether the mortgage holders will allow such changes without additional assurances or potentially at all.

The statute also explicitly notes that the survival of the name beneficiaries is necessary for the deeds to be effective.  If the beneficiaries predecease the transferor, the bequest lapses and the property would have to pass by the transferor’s will or by the intestacy statute.  Additionally, because this form of bequest does not require notice to any parties, litigation over the veracity of the deed or other issues loom over their use.  Finally, if the deeded property passes by TOD Deed and the transferor’s other testamentary assets are insufficient to cover all estate administration costs, litigation to bring the transferred property or a portion thereof become a possibility.

It is likely that the legislature and/or the courts will further clarify how TOD Deeds will be used and interpreted once the statute goes into effect.  Anderson Kill will provide additional updates as we learn more about this new planning tool.

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