When one dies with assets in their name alone at death, those assets pass according to the terms of their Last Will and Testament (if they have one) or NY’s laws of intestacy (if they do not). Either way, a proceeding must be initiated in the Surrogate’s Court in order for the assets to be distributed. Given the expense, time, and complications that go hand-in-hand with probate or estate administration, a common goal is to stay out of the court system by ensuring that all of one’s assets, including real property (RP), are “non-probate.” It is with this in mind that the Heirs Property Protection & Deed Theft Prevention Act of 2024 authorized the creation of the Transfer On Death Deed (TODD). A TODD allows for the transfer of RP without the need for probate and, at the outset, is less expensive than hiring an attorney to prepare a trust into which you could transfer your RP—but is a TODD truly the best option?
A key problem with the TODD is its revocability. The owner/transferor (O/T) of the RP designates beneficiaries of the TODD to receive the RP upon the O/T’s death, however, during the O/T’s lifetime this transfer can be revoked. As a result, even if the O/T seeks to transfer ownership using a TODD, from both a Medicaid and estate tax perspective, no transfer has occurred. Rather, the O/T retains full ownership of the RP, such that it remains fully accessible to creditors of the O/T.
Since the RP is not protected during the O/T’s lifetime, the TODD beneficiary inherits the RP subject to all liens, mortgages, and claims that have attached up to the date of the O/T’s death. In fact, where the period over which creditors can make claims during probate is 7 months, creditors can claw back RP transferred by TODD up to 18 months following the O/T’s death. Also, if the beneficiary of the TODD predeceases the O/T, and no alternate beneficiary is designated, the transfer to the TODD lapses and the RP becomes a probate or estate asset once again, thereby defeating the purpose for which the TODD was established.
If RP is titled to a trust and the trust’s creator becomes mentally incapacitated, a co-trustee or successor trustee can step in to sell, refinance, maintain the premises, and/or pay expenses associated with the RP. A TODD, on the other hand, confers no legal authority on the TODD beneficiaries to take these actions. The TODD also has strict requirements when it comes to wording, witnessing, notarization, and recording that, if not followed to a tee, can invalidate the transfer. Finally, issues abound with the TODD where joint owners of the RP are in disagreement.
Although the TODD may seem like a viable option, there are a myriad of problems with the TODD that make the benefits of its usage questionable—particularly for those of modest wealth, who are the very individuals that may be inclined to want to utilize the TODD.
