New York Enacts Transfer-on-Death Deed Law

May 21, 2024 | Nicholas G. Moneta | Trusts & Estates

On April 20, 2024, New York State adopted legislation that allows for so-called transfer-on-death (TOD) deeds as part of its Fiscal Year 2025 Executive Budget. The TOD Deed Law, which takes effect on July 19, 2024, will be codified as a new Section 424 of the N.Y. Real Property Law.

Similar to a payable-on-death designation for a bank account or a beneficiary designation for a retirement account, the TOD Deed Law allows transferors to designate a beneficiary to inherit their real property automatically upon their death. By enacting the TOD Deed Law, New York joined the majority of states in the U.S. that allow for some form of transfer-on-death deed.

The TOD Deed Law provides a TOD deed form and TOD deed revocation form, each of which must be executed by the transferor in the presence of two witnesses and a Notary Public. The TOD Deed Law requires the transferor to have testamentary capacity in order to execute the TOD deed. Further, the TOD deed must be recorded during the transferor’s lifetime by the Clerk of the County where the property is located. Thus, unlike most beneficiary designations, which are private decisions, a TOD Deed becomes part of the public record.

The TOD Deed Law might be helpful to an individual whose only probate asset is real property, as it allows that individual to avoid probate (as to that particular property) by transferring ownership of the property directly to the intended beneficiary. Also, because the recording and execution of a TOD deed does not confer a present interest, the TOD deed does not trigger the gift tax and it does not affect the transferor’s cost basis in the transferred property. Further, the transferor retains ownership and total control over the property for his/her lifetime.

The TOD Deed Law leaves some questions unanswered. For example:

  1. Are transferors are allowed to designate a class of beneficiaries, for example, “my then living issue, per stirpes.” Also, can a transferor designate a trust or a charity as a beneficiary?
  2. Does recording a TOD Deed affect an existing title insurance policy? This remains to be seen in New York but is the case in other states.
  3. May a designated beneficiary serve as a witness to the execution of a TOD deed? Prudence would dictate that a witness should not do so. See, e.g., N.Y. Estates, Powers and Trusts Law 3-3.2; see also N.Y. General Obligations Law (“GOL”) § 5-1501B(b)
  4. May the individual performing the notarial act also serve as a witness to the execution of a TOD deed? See GOL 5-1501B(b).
  5. May an agent execute a TOD deed on behalf of the transferor?

Although the apparent simplicity of a TOD deed might seem appealing at first glance, other estate planning techniques might be more appropriate. As always, we recommend that all possible planning options are thoroughly considered prior to deciding on a TOD deed.

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