New York 2024 Law Change – NY Real Estate can now be a Transfer on Death (TOD) Asset

Effective July 19, 2024, New York Law now allows a real estate owner, including owners of a house, condominium unit or vacant land, to designate one or more beneficiaries to automatically receive the owner’s NY real estate when the owner dies, without the property having to go through probate.[1] 

Based on the current significant delays in the NY Surrogate Court system, particularly in New York County (Manhattan) where it is currently taking approximately 5-6 months to just OPEN probate for an Estate, the use of this new law may allow certain Estates to fully avoid probate or, at a minimum, to at least keep the Estate’s real estate, generally one of the most valuable assets of an Estate, out of the delays caused by probate.

An Estate must file for full probate when an Estate owns probate assets, over a certain value, at the time of a Decedent’s death.

A probate asset is an asset that is solely in the Decedent’s name, with NO transfer on death (TOD) beneficiary named.  In contrast, assets that have named TOD beneficiaries on file are non-probate assets and pass by operation of law.  Such accounts can include brokerage accounts/bank accounts/retirement accounts/other accounts in which the TOD beneficiary has been named on file with the applicable financial institution and upon the owner’s death, the beneficiary owns the property and the property does not go through the probate process.

New York (unfortunately still not New Jersey, as of now) has now joined several other states in allowing real estate, similar to such financial accounts, to also be TOD beneficiary assets.  Naming a beneficiary on TOD does not affect the ownership rights until after death and can always be changed/revoked by the owner during his or her lifetime.

Pursuant to this new law, such NY real property deeds allowing TOD beneficiaries will need to be signed before two witnesses and notarized before they are recorded before the owner’s death in the applicable clerk’s office in the county in which the real estate property is located.  It is important to note that the mental capacity required to make this TOD deed is the same as the mental capacity required to make a Will.

Ownership Transfer

Real property subject to a TOD deed is still under the control of the property owner and does not preclude the owner from selling, transferring or otherwise encumbering fee title to the real property during the owner’s lifetime.  Moreover, the designee of the property takes it subject to any liens or mortgages to which the real estate is subject at the property owner’s death.

Finally, similar to TOD beneficiary financial accounts, the transfer lapses if the beneficiary does not survive the owner, so to provide for such a potential event, the owner may designate an alternate beneficiary in the TOD deed or have a qualified attorney provide for such an occurrence in other estate planning documents.  Further, if two joint owners transfer real property by TOD deed, the transfer to the beneficiary is not effective until both joint owners pass away.

Conclusion

This new law may be very useful to many estate plans, particularly very straightforward plans as a complement to a Will, as well as may allow certain Estates to fully avoid NY probate.  However, despite its advantages, it is not for everyone as the TOD real estate deed is a blunt instrument that does not allow for specific succession planning that can alternatively be done through Trusts and/or Wills, so it may not be right for your estate plan. One example of its simplicity, and potential shortcoming, is if you name your two kids as beneficiaries on the TOD deed and one predeceases you.  Under the new law, that deceased child’s share is automatically transferred to the other child, who now just received 100% of your house at your passing. The new law does not currently allow the TOD deed to allow for a common per stirpes allocation and if you had wanted that deceased child’s 50% share to go to his/her child (your grandchild) at your death, using the TOD deed for your real estate asset would not be consistent with your intent.

[1] Unfortunately, ownership in traditional New York co-ops are not real estate, but instead owned shares in a corporation, so this NY law change does not apply to such assets.