The TOD deed is non-testamentary, which means that the interest in the real property transfers automatically to the designated beneficiary named in the TOD deed by operation of law and no probate or administration proceeding is required.
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The TOD deed is non-testamentary, which means that the interest in the real property transfers automatically to the designated beneficiary named in the TOD deed by operation of law and no probate or administration proceeding is required.
Effective as of July 19, 2024, newly enacted Real Property Law (“RPL”) Section 424 [see https://bit.ly/4dojqrQ] now allows for property owners to execute a transfer on death deed designating one or more beneficiaries to receive the real property upon an owner’s death. New York State has followed a number of other states that allow for this new form of real property transfer. It is important for real estate professionals to be aware of this new legislation as it relates to how real property can now be disposed of in the event of an individual’s death.
Before the enactment of RPL Section 424, there were very limited alternatives for property owners to effectuate a transfer of real property at death. Customarily, one would either have to execute a life estate deed, where the interest in the property would be transferred to one or more beneficiaries outright, subject to a retained life estate, but without the right or ability to take the property back. Alternatively, one could set up a revocable trust and transfer the property to the trust, which is usually not inexpensive, but would allow for added flexibility relating to the disposition of real property should one change one’s mind (as opposed to a life estate deed), or the property would become part of a Surrogate’s Court probate proceeding if there was a will, or an administration proceeding through the Surrogate’s Court if the owner did not have a will.
RPL Section 424 now allows an owner or joint owners of real property to be able to designate one or more beneficiaries to receive the real property upon the death of the last joint owner, similar to designating a beneficiary on a bank account. The TOD deed allows for individuals to designate one or more beneficiaries to receive real property without having to execute a will or trust, or execute a life estate deed. Additionally, the TOD deed is not only limited to individuals, but may be utilized by any “…association, board, corporation, whether municipal, stock or non-stock, court, governmental agency, authority or subdivision, partnership or other firm and the state.”
While the TOD deed is a cost-effective method of having real property transfer to one or more beneficiaries without having to incur the cost or expense of commencing a probate or administration proceeding, it is important for real estate professionals to recommend to clients that they seek legal counsel before choosing the TOD deed option, as there are many other issues (e.g., estate planning, tax, etc.) that may need to be considered.
The TOD deed is non-testamentary, which means that the interest in the real property transfers automatically to the designated beneficiary named in the TOD deed by operation of law and no probate or administration proceeding is required. An individual executing a TOD deed must have the same legal capacity required as when executing a will.
The TOD deed must also meet the following requirements: (1) it must contain all of the “essential elements and formalities of a properly recordable inter vivos deed”, (2) it must state that the transfer to the named beneficiary (ies) shall occur on the death of the transferor(s), (3) it must be signed by two witnesses, (4) it must be acknowledged before a notary public, and (5) it must be recorded prior to the transferor’s death in the county clerk’s office where the property is located. The form of the TOD deed is contained in Subsection 15 of Section 424 of the RPL. A TOD deed will also require that the usual transfer tax forms be prepared in order for it to be recorded.
A TOD deed may be revoked only by one of the following written instruments in accordance with Section 424, subsection 9(a)(1):
“(A) a transfer on death deed that revokes the deed or part of the deed expressly or by inconsistency;
(B) an instrument of revocation that expressly revokes the deed or part of the deed; or
(C) an inter vivos deed that expressly revokes the transfer on death deed or part of the deed; and
(2) is acknowledged by the transferor after the acknowledgment of the deed being revoked and recorded before the transferor's death in the public records in the county clerk's office of the county where the deed is recorded.”
Further, if a TOD deed is made by more than one transferor, subsection 9(a)(2) provides that a revocation by one transferor shall not affect the deed as to another transferor and the deed of joint owners may only be revoked by all living joint owners. The form of revocation is found in Subsection 16 of Section 424. The form of revocation would also need to be recorded with the county clerk’s office.
What are the Effects of a TOD Deed During the Transferor’s Life?
According to RPL Section 424, subsection 10, a TOD deed does not affect an owner’s right to any interest in the property or any right to encumber the property. It also does not affect any right or interest of a transferee or any secured or unsecured creditors, whether or not they had actual or constructive notice of the TOD deed.
The TOD deed does not affect the transferor’s or designated beneficiary’s eligibility for any form of public assistance. Additionally, a designated beneficiary does not acquire any legal or equitable interest in the property prior to the owner(s) death, nor does it subject the real property to any claims of a creditor of any beneficiary designated in the TOD deed.
Upon the death of the last surviving joint tenant, the real property transfers automatically to the named beneficiary(ies) in accordance with the provisions of the TOD deed. If a named beneficiary predeceases the owner, then the interest of the beneficiary lapses (i.e., terminates) and is of no further force or effect. However, if there are two or more named beneficiaries designated to receive concurrent interests in the property, then the interest in the property will transfer to the remaining beneficiaries in equal undivided shares with no right of survivorship.
Additionally, under subsection 11(a)(4), “If the transferor has identified two or more designated beneficiaries to receive concurrent interests in the property, the share of one which lapses or fails for any reason shall be transferred to the other, or to the others in proportion to the interest of each in the remaining part of the property held concurrently.” Upon the death of the transferor, or the last surviving joint owner, the designated beneficiary or beneficiaries immediately take title to the property subject to “…all conveyances, encumbrances, assignments, contracts, mortgages, liens, and other interests to which the property is subject at the transferor's death.” Therefore, for example, if there is a mortgage or other lien on the property, the beneficiary would be taking title to the property subject to any such lien, mortgage or other encumbrance.
Subsection 11(c) provides that “If a transferor is a joint owner and is survived by one or more other joint owners, the property that is the subject of a transfer on death deed shall belong to the surviving joint owner or owners with right of survivorship.” Further, in accordance with subsection 11(d), upon the death of the last surviving joint owner, the TOD deed is immediately effective and the property transfers to the named beneficiary(ies) automatically. However, it is important to note that the TOD deed transfers the property to the named beneficiary without any covenant or warranty, even if the deed provides to the contrary. Notwithstanding the fact that the property automatically transfers to the designated beneficiary(ies), any such beneficiary(ies) retain(s) the right to renounce all or part of the interest in the same manner as if were transferred by a will.
In the event there exist any claims against the estate of a transferor or there are any statutory allowances to a surviving spouse or child, subsection 14(a) provides that ‘the estate may enforce the liability against property transferred at the transferor's death by a transfer on death deed.” Further, in accordance with subsection 14(b), if there is more than one property transferred by multiple TOD deeds, then any liability of the estate of the transferor would be “apportioned among the properties in proportion to their net values at the transferor's death.” Any proceeding to enforce the liability under Subsection 14 must be commenced no later than 18 months after the transferor's death.
The TOD deed does provide individuals with a new way to dispose of real property upon death by way of beneficiary designation, however, it is important to note that there may be complex estate planning and tax issues that need to be reviewed with legal and tax professionals. For individuals whose estate consists of limited assets (e.g., one or two parcels of real property and a few bank accounts), the TOD deed may be a simple and cost-effective option. However, for individuals who have significant assets and require advanced estate planning, the TOD deed may or may not be an option. The advice of an attorney, accountant and financial adviser should be sought prior to utilizing and recording a TOD deed.
Legal Column author John Dolgetta, Esq. is the principal of the law firm of Dolgetta Law, PLLC. For information about Dolgetta Law, PLLC and John Dolgetta, Esq., please visit http://www.dolgettalaw.com. The foregoing article is for informational purposes only and does not confer an attorney-client relationship and shall not be considered legal advice. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views or positions of HGAR, its affiliates, or any other entity.
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