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When contemplating the most effective method to transfer your family home and circumventing the probate process, it is essential to consider both the advantages and limitations of New York’s Transfer on Death (TOD) deed. It is imperative to compare the use of a transfer on TOD deed, life estate deed, or a trust. Each option offers unique features that can impact your estate planning decisions.
What is the Transfer on Death Deed?
The TOD deed is a new provision under New York State Real Property Law that went into effect on July 19, 2024. A TOD deed provides property owners with the ability to designate beneficiaries who will inherit real property upon their passing, bypassing the probate process. This approach simplifies the transfer of real estate assets and can be a cost-effective solution when real property is the only asset.
How Does the Transfer on Death Deed Differ From a Life Estate Deed?
Unlike the life estate deed, which has always been recognized under NY law, owners are not giving away their right to the property during their lifetime but only upon their death. This means the owner can change the remainder beneficiaries after the deed is signed. Under the traditional life estate deed, if you name your children on the deed and they predecease you, their share will pass according to their estate plan, not yours. Under the TOD deed option, you could change the beneficiary of the real property anytime until your death. You are free to change your mind!
Asset Protection Considerations
The TOD deed does not offer asset protection from long-term care expenses. While a life estate deed allows you to live in and use the premises during your lifetime and protects the home from long-term care costs (since the underlying property has been transferred), the TOD deed provides no such protection. For Medicaid long-term care, only the value of the life estate is a countable resource.
In Medicaid planning, the life estate deed can be useful but is limited. A Medicaid qualifying trust may be a better option, especially if the value of the life estate is high and the home is not the applicant’s only asset. The TOD deed provides no protection from such costs.
Trusts as Alternatives
A revocable trust will avoid probate, and a Medicaid qualifying trust will both avoid probate and protect seniors’ assets from the cost of long-term care. Both trusts offer a comprehensive estate planning tool that allows for the efficient transfer of real estate and various other assets, such as bank accounts, investments, and personal property.
A TOD deed limits the scope of transfers to real property only, and would need to be used in conjunction with other estate planning techniques. Moreover, trusts typically involve more detailed planning, such as beneficiary trusts that can pass the property to the next generation and protect the beneficiary from creditors and divorce. A trust also provides clarity of intent – dictating when and how a particular asset should be sold to avoid conflict between multiple beneficiaries. A TOD deed could be an elegant solution only if the real estate is the only asset and the owner’s beneficiaries are straight forward (certainly not minors or special needs individuals).
Consult an Estate Planning and Elder Law Attorney
When comparing these options, it’s essential to weigh the benefits and drawbacks of each based on your specific estate planning goals and circumstances. The choice between a TOD deed, a life estate deed, and a trust depends on your circumstances and priorities. You must balance the benefits of simplicity and cost-effectiveness against your need for asset protection and other estate planning goals. Consulting with an experienced estate planning and elder law attorney can help you navigate these options and make informed decisions that align with your specific needs and objectives.
