Don’t Just Deed it All Away

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In general, when a person dies in New York, that person’s Last Will & Testament must be probated in Surrogate’s Court so that an Executor can be appointed to legally distribute assets. If there is no Will, an administration proceeding will be required and an administrator will be appointed to distribute the decedent’s assets according to New York State intestacy law. However, many people decide that they will avoid probate and just put someone else on the deed – such as a child. This is not the best, or only way, to avoid probate.

Adding Someone to a Deed

Every estate planning attorney has clients who had, with D.I.Y. enthusiasm, added their children to the deed of their home. This is usually done so that the parties own the property with “rights of survivorship.” This type of ownership avoids probate because the property passes automatically to the survivor(s). Alternatively, someone is added without using survivorship language, as “tenants in common.” This does not avoid probate – requiring each owner’s share to pass through Surrogate’s Court. Other times, we find that parents transferred the property directly to children but plan to live there for life.

Although transfers via a deed can avoid Surrogate’s Court, such transferences are not always recommended as there are issues other than probate to consider. Any such transfer opens up the property to the new owner’s creditors and spouses, in case of death or divorce. If the property is transferred so that the grantor does not retain a life estate, all real estate exemptions are lost, such as STAR, and there is no step up to fair market value at death -thereby resulting in an almost 40% in capital gains tax when the heirs go to sell the property.

Trusts Provide Protection

The best option is for the homeowner to create a trust and transfer the property to that trust by executing a new deed. This option avoids probate at death and passes the property to the beneficiaries according to directions laid out in the trust. The trust dictates how the property passes, including to contingent beneficiaries in the event a beneficiary predeceases the grantor. The trustees of the trust will be able to distribute or sell the property right away without court intervention. The beneficiaries will not own the property until death, thereby avoiding any creditor or divorce issues. The trust can even be drafted to provide creditor, divorce and estate tax protection to beneficiaries. Depending on the type of trust, the home can be protected from the high costs of long-term care and help seniors qualify for Medicaid, at the same time retaining any real estate tax exemptions and preserve the step up in basis at death so as not to incur capital gains tax.

Your mother should speak with an experienced estate planning attorney to discuss these options, as every situation is different and depends on a family’s overall assets and goals.

Burner Law Group, P.C.

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