What is a Transfer on Death Deed in New York City

A transfer on death deed is a deed transferring real property to a grantee, and upon such grantee’s death, the property is transferred to a beneficiary. A transfer on death deed is used by most people to avoid probate. In most cases of transfer of death deeds, the grantor and grantee are one and the same person, while the person given the property after the grantor/grantee’s death is the grantor/grantee’s child. In New York, transfer on death deeds are not allowed for real property, but allowed for securities and brokerage accounts.

Benefits of a Transfer on Death Deed

Many people use transfer on death deeds because it avoids probate, is revocable prior to the owner’s death, and provides a quick transfer of real property after death.

Avoids Probate

A transfer on death deed avoids probate. It uses a simplified process of transferring real property at the death of the owner. This usually requires the submission to the county recorder of a death certificate and an affidavit of the remainder beneficiary. Without such deed, real property is transferred after the death by means of a more expensive probate process, which requires the filing of a petition with the court.

Revocability

The main advantage of a transfer on death deed over a survivorship deed is revocability. In a survivorship deed, once executed, it is irrevocable without the consent of all the co-owners, even if only one co-owner paid for the property. In transfer on death deeds, the deed can be revoked by the execution of a new deed, without needing the consent of the remainder beneficiary.

Disadvantages of a Transfer on Death Deed

Some disadvantages of a transfer on death deed are the non-recognition of the deed in some states, the lack to nominate alternate beneficiaries, and inflexibility to adapt to contingencies.

Non-Recognition in Some States

Not all states recognize transfer on death deeds. In fact, New York does not allow it. When determining whether to execute a transfer on death deed or not, check the laws of your local jurisdiction to see what is allowed. The following states recognize transfer on death deeds:

• Alaska
• Arizona
• Arkansas
• California
• Colorado
• District of Columbia
• Hawaii
• Illinois
• Indiana
• Kansas
• Maine
• Minnesota
• Mississippi
• Missouri
• Montana
• Nebraska
• Nevada
• New Mexico
• North Dakota
• Ohio
• Oklahoma
• Oregon
• South Dakota
• Texas
• Utah
• Virginia
• Washington
• West Virginia
• Wisconsin
• Wyoming

Cannot Nominate Alternate Beneficiaries

In transfer on death deeds, you cannot nominate alternate beneficiaries. So in case the designated beneficiary dies before the owner, the property goes back to the estate of the owner and will require probate proceedings in order to be transferred.

Inflexibility to Adapt to Contingencies

Issues may arise in unforeseen cases such as incapacity, disability, and minority.

For example, when the grantor/grantee becomes incapacitated, the transfer on death deed cannot be revoked anymore unless the grantor/grantee has previously executed a durable power of attorney. When the deed cannot be revoked, the property cannot be sold to spend for the incapacitated person’s expenses.

When the beneficiary is disabled, the property will form part of his estate for purposes of determining eligibility for government benefits.

When the beneficiary is a minor, the property cannot be given to the minor without the appointment of a legal guardian.

These contingencies cannot be addressed by an inflexible transfer on death deed, but remedies may be given if the property was under a revocable trust.

Transfer on death deeds are an estate planning tool used by some states to immediately transfer property after the death of the decedent, avoiding probate. Should you need assistance in estate planning matters, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].

The New York Approach: Living Trusts as the Alternative

Since New York does not recognize transfer on death deeds for real estate, New York residents who want to avoid probate for their real estate must use other tools. The most common alternative is the revocable living trust:

• The grantor creates a revocable living trust during their lifetime.
• The grantor transfers their real estate to the trust by deed.
• The grantor typically serves as the initial trustee.
• The trust document names a successor trustee who takes over upon the grantor's death.
• The trust document specifies how the property is distributed after the grantor's death.
• At the grantor's death, the property passes through the trust rather than through probate.

The living trust accomplishes the same probate avoidance as a TOD deed in states that allow them, while offering additional flexibility that TOD deeds lack.

Other New York Probate Avoidance Tools

Besides living trusts, New York offers several other ways to transfer property at death without probate:

• Joint tenancy with right of survivorship. Property held by two or more people as joint tenants passes automatically to the surviving owner(s) at death.
• Tenancy by the entirety. A special form of joint tenancy available only to married couples for their primary residence and other property.
• Life estate deeds. The owner conveys the property but retains a life estate, with the property passing automatically to the remainder beneficiary at death.
• Beneficiary designations on financial accounts. POD (payable on death) and TOD (transfer on death) designations available for bank and brokerage accounts.
• Beneficiary designations on retirement accounts. 401(k)s, IRAs, and similar accounts pass to named beneficiaries outside of probate.
• Life insurance beneficiary designations. Insurance proceeds pass to named beneficiaries outside of probate.

Life Estate Deeds as a TOD Alternative

One specific alternative to a TOD deed in New York is the life estate deed. The owner conveys the property to a remainder beneficiary while retaining a life estate, with these consequences:

• The owner continues to occupy and use the property during their lifetime.
• The remainder interest is owned by the future beneficiary from the date of the deed.
• At the owner's death, the property automatically passes to the remainder beneficiary.
• No probate is required for the transfer.
• The owner cannot easily sell or refinance without the remainder beneficiary's consent.
• The remainder interest is a present gift for tax purposes.
• Medicaid five-year look-back rules may apply to the transfer.

Life estate deeds work for some situations but have significant limitations compared to a fully flexible living trust.

Enhanced Life Estate Deeds (Lady Bird Deeds)

Some states recognize "enhanced life estate deeds" or "Lady Bird deeds" that combine life estate features with retained power to sell or modify the deed. New York does not recognize these enhanced deeds. New York residents who want the flexibility offered by these deeds must use living trusts instead.

POD and TOD for Financial Accounts in New York

While New York doesn't allow TOD deeds for real estate, it does allow payable-on-death and transfer-on-death designations for financial accounts:

• Bank accounts. Can name a POD beneficiary who receives the account at the owner's death.
• Investment accounts. Can designate TOD beneficiaries on brokerage accounts under the Uniform Transfer on Death Securities Registration Act.
• U.S. Savings Bonds. Can be registered in beneficiary form.
• Treasury Direct accounts. Allow beneficiary designations.

These designations transfer the accounts directly to the named beneficiaries at the owner's death without probate. They are easy to set up and modify and are widely used in New York.

Tax Considerations

Whether the property passes through probate or outside it does not generally affect estate tax:

• Property in revocable living trusts is included in the grantor's estate for estate tax purposes.
• POD and TOD accounts are included in the owner's estate for estate tax purposes.
• Joint property is generally included in proportion to contribution (with some exceptions for spousal property).
• Life insurance proceeds are typically included in the insured's estate unless owned by someone else or held in an irrevocable life insurance trust.

Probate avoidance saves time and probate costs but does not save estate tax. Estate tax planning requires different tools (irrevocable trusts, gifting strategies, etc.).

The Probate Avoidance Goal in Context

It's worth asking whether avoiding probate should be a primary goal. New York probate is procedurally rigorous but generally manageable:

• Probate costs are typically a small percentage of the estate value.
• The probate process can take 6-12 months for uncontested estates.
• The Surrogate's Court provides oversight that protects against fiduciary misconduct.
• Probate creates a clear, public record of the estate's disposition.

For some families, probate avoidance offers real benefits (privacy, faster transfer, predictability). For others, the cost of setting up and maintaining probate avoidance structures exceeds the benefits. The decision should be based on the family's specific situation and goals rather than a generic preference for probate avoidance.