A new New York law will soon allow for transferring real estate on death outside of probate through a Transfer on Death Deed. Individuals have long been able to name beneficiaries for various financial accounts (and retain the right to change those beneficiaries), and this law aims to make this easier to accomplish for real estate. But there are risks and downsides to consider.
At its most basic, a Transfer on Death Deed allows a property owner to designate who will receive the property upon their death. When the owner passes, the named beneficiary will automatically become the new owner without the necessity of probate. There are certain requirements that need to be met for the deed to be effective, including that it be notarized, be witnessed by two people, specifically state that it is a Transfer on Death Deed, and that it is recorded while the owner is still living.
The Transfer on Death Deed is different than a life estate deed, which has been an option for avoiding probate for a long time. While a typical life estate deed does avoid probate, it also gives the remainder owners a vested interest in the property immediately and the remainder owners cannot be changed without their consent. A Transfer on Death Deed does not grant any present right to the property, and the owner reserves the right to change the beneficiary.
While a Transfer on Death Deed seems like a simple way to transfer property at death, it is important to take note of all of the other estate planning considerations. To start, it is not an ideal tool for Medicaid planning if the owner was in need of expensive long-term care, as the property may still be considered an asset of the owner. Further, the statute is not sufficiently clear as to whether a property passing by this type of deed is subject to Medicaid estate recovery. Furthermore, if the deed names individuals as beneficiaries, the inheritance may not be protected if the beneficiary has creditors, is the target of a lawsuit, or is receiving government benefits.
For many New Yorkers, their home is their single largest asset. As such, it is extremely important to plan to protect that asset during your life and to ensure that it passes to your heirs in a protected fashion. A Transfer on Death Deed may be too simple of a solution to meet all of your planning goals. In many cases, an Irrevocable Trust is the best solution to accomplish those goals, or at least a Will with protective trusts for beneficiaries.
Consult with the experienced estate planning attorneys at Kurre Schneps to discuss how best to protect and plan for your real estate.
