New York Now Allows Transfer on Death Deeds, but Should You Use Them?
12.10.2024
New York State recently authorized transfer on death deeds for real property offers. Property owners and their counsel can take advantage of this simplified method of transferring assets to beneficiaries; however, a transfer of death deed is not appropriate for all situations and has, in some cases, complicated matters more than it simplified them.
History of TOD Deeds in New York State
Adopted on April 20, 2024 as part of Governor Hochul’s fiscal year 2025 budget, New York State adopted legislation to allow the automatic transfer of real estate to the owner’s chosen beneficiaries upon their death through a transfer on death deed as of July 19, 2024.[1] This policy initiative was introduced as a measure to combat deed fraud, but this novel non-probate opportunity will also streamline the process by which a property owner’s beneficiaries gain access to their entitlements.[2]
The change in policy follows a trend in implementation of asset-specific will substitutes to avoid probate, allowing beneficiaries to gain access to the asset after the transferor’s death while minimizing legal fees and delays. Motivated by this move and seeking to establish a consistent basis for nationwide policy implementation, the Uniform Law Commission created and published a transfer on death deed statute recommendation in 2009 for enactment in all states known as the Uniform Real Property Transfer on Death Act. New York now joins 20 other states in enacting a bill modeled after this proposal.[3]
How To Create a Transfer on Death Deed
To create a transfer on death deed, a transferor must have the same capacity to make a will, i.e., that the transferor must be above the age of 18 and “of sound mind and memory.”[4] The deed must state that the transfer is to occur at the transferor’s death. It must be signed by two witnesses who were concurrently present witnessing the signing of the deed, acknowledged by the notary public, and recorded in the public records at the relevant county clerk’s office.[5]
Benefits of Transfer on Death Deeds
Beyond just avoiding probate, the use of a transfer on death deed entails a host of benefits and drawbacks to consider when selecting it as a means of estate distribution.
One critical benefit is that it allows transferors to maintain complete control over the property during their lifetime. They may freely choose to modify or sell their property at any time without the consultation of the deed’s beneficiaries.
Revocation of Transfer on Death Deeds
Transfer on death deeds are also favorable due to their absolute revocability. All transfer on death real property deeds are revocable under law, even if the deed itself contains a contrary provision.[6] A deed may be revoked in one of three ways: by completing a new deed that revokes the deed either expressly or by inconsistency, by executing and recording a revocation form, or by creating an inter vivos deed to transfer the property that expressly revokes the transfer on death deed. Whichever instrument of revocation is employed must be acknowledged by the transferor and recorded in the public records of the county clerk’s office prior to the transferor’s death.[7]
Potential Downsides of New York’s Law
These deeds, however, may result in complications in scenarios of conflicting interests of joint owners or real property. A deed of joint owners may only be revoked collectively; all surviving joint owners must agree to the revocation for it to be valid.[8] This requirement may lead to stalemates if one or more owners disagree or are uncooperative. Furthermore, a deed is not put into action until all original joint owners are deceased, which permits the surviving joint owners to make changes or revocations to the deed that may not be in accordance with the wishes of their predeceased co-owners.
Transfer on death deeds also greatly restrict one’s options for distribution of property. The law designates that all beneficiaries must inherit equal shares of the property, barring transferors from engaging in methods of weighted allocation.[9] Additionally, if one of the beneficiaries passes, the distribution must then be split equally among the remaining members.[10] This could create undesirable outcomes, for example, when it comes to distributions among one’s descendants. If one’s property were to be distributed equally among all children, and if the eldest child were to pass away, the ownership rights would immediately be redistributed among the other children. This would leave all offspring of the first child without any benefits that they might have had were their parent still alive. This could lead to unintentional disinheritances, which poorly reflects the intentions of the deceased.
Lessons From Other Jurisdictions
Although transfer on death deeds are new in New York, case examples from other states that have adopted these deeds provide cautionary tales of other issues that can arise.
In 2021, the Eighth Circuit decided Strope-Robinson v. State Farm Fire and Casualty Company, an appeal concerning whether the beneficiary of a property was insured under the transferor’s insurance policy.[11] The transferor in Strope-Robinson had insured his Minnesota property with State Farm for losses from fire damage. Three days before the transferor’s death, he recorded a transfer on death deed transferring the property to his niece upon his death. Six days after the transferor’s death, his ex-wife “intentionally set the house of fire, damaging the home and personal property inside.”[12] State Farm agreed to cover the loss of personal property (which was part of the transferor’s estate), but denied the claims for loss of the house and loss of use for fair rental value because the beneficiary was not covered under the policy. The Eighth Circuit found that the property transferred immediately as of the transferor’s death and, accordingly, the beneficiary and transferor’s estate were unable to recover under the transferor’s insurance policy.[13]
A 2015 Kansas case, Sheils v. Wright illustrates the complexities when a property owner uses more than one legal mechanism to transfer real property.[14] A transferor, Richard, signed a transfer on death deed to his house in 2010, providing that the house would go to his brother Charles upon his death; however, shortly before his death, Richard transferred the property to both himself and his nephew Kevin as joint tenants with right of survivorship via a quitclaim deed.[15] The quitclaim deed giving Kevin the right of joint tenancy was never recorded, but was delivered to Richard’s attorney, who had instructions to record it. The court summarized:
Had only the transfer-on-death deed existed, the property would have transferred to Charles on Richard’s death. Similarly, had there been only the deed transferring ownership jointly to Richard and Kevin with rights of survivorship, the property would have transferred to Kevin’s sole ownership on Richard’s death.[16]
The question became which of the two deeds controlled. Although the quitclaim deed purportedly revoked the earlier deed, the court found that the attempted revocation did not meet the statutory standards to revoke a transfer on death deed because it was not recorded during the transferor’s lifetime.[17] However, although the deed was not effectively revoked, the quitclaim deed was not invalidated. The court ruled that Charles, the beneficiary of the deed, would be entitled to only the interest that Richard held upon his death. Since his entire interest was conveyed via the quitclaim deed to a joint tenant, there was no remaining interest for Charles to take.[18] Although the court did not look beyond its ruling, it follows that if, in the second deed, Richard had conveyed half of the interest in the property to Kevin as a tenant-in-common, Charles would have been entitled to receive the one-half interest that Richard would have retained upon his death.
Another issue arose in a West Virginia case, Sherry v. Bank of America, N.A., when a would-be transferor did not have authority to transfer the property.[19] A married couple owned four lots of property and built a house on one of the lots.[20] In December 2008, the owners obtained a mortgage, secured by a deed of trust.[21] Although the mortgage application documents attested that all lots and the house were being pledged as collateral, the actual deed of trust only listed two of the lots, neither of which was the lot on which the house was built.[22]
In 2014, there was a default in the loan and the deed of trust was sold to Bank of America.[23] Separately, in 2015, Sherry, the petitioner who held a power of attorney for the wife, executed a transfer on death deed attempting to transfer the house to himself upon the wife’s death.[24] Four months later, the wife died.[25] Bank of America brought an action to set aside the deed and reform the deed of trust to include the lot on which the house was built.[26]
In ruling for Bank of America, the court ruled that the deed of trust’s exclusion of two of the lots was a mistake, that the deed of trust was able to be reformed to include the excluded lots, and that Sherry knew or should have known that his title to the property may not have been valid.[27]
Conclusion
Property and estate planning attorneys have a wide selection of tools in their arsenal for planning for the distribution of real property. New York’s new transfer on death deed scheme provides yet another valuable tool which, if used properly, can simplify the transfer of real estate to beneficiaries while avoiding the costs and time delays of probate. However, a transfer on death deed may not be appropriate where a transferor wishes to plan for contingency options or weigh distributive shares among various parties, or where there is disputed or joint ownership of a property. Property owners must weigh the benefits of retaining control and ensuring a smooth transfer against the restrictions the statute places on distribution to decide whether this option effectively reflects their desires in estate planning.
Special thanks to Chloe Banino for her invaluable contributions.
Randall Tesser is an associate attorney at Tesser, Ryan & Rochman in White Plains, New York, where he manages the firm’s professional responsibility and ethics practice and advises a wide range of professionals on matters of ethics, professionalism and disciplinary matters. He is the recipient of the American Bar Association’s 2024 Rosner & Rosner Young Lawyer Professionalism Award. Tesser is co-editor of One on One, the General Practice newsletter. This article appears in a forthcoming issue of One on One. For more information, please visit NYSBA.ORG/GEN.
Endnotes
[1] Senate Passes 2024-25 Budget Addressing Critical Priorities for New Yorkers & Enacting Key Majority Proposals, N.Y. State Senate, Apr. 20, 2024, https://www.nysenate.gov/newsroom/press-releases/2024/senate-passes-2024-25-budget-addressing-critical-priorities-new; N.Y. Real Property Law (RPL) § 424.
[2] Governor Hochul and Advocates Celebrate Landmark Agreement To Address New York’s Housing Crisis, N.Y. State Off. of the Governor, Apr. 23, 2024, https://www.governor.ny.gov/news/governor-hochul-and-advocates-celebrate-landmark-agreement-address-new-yorks-housing-crisis.
[3] Uniform Law Commission. Real Property Transfer on Death Act: Legislative Bill Tracking (last visited Sept. 23, 2024), https://www.uniformlaws.org/committees/community-home?CommunityKey=a4be2b9b-5129-448a-a761-a5503b37d884#LegBillTrackingAnchor.
[4] N.Y. RPL § 424.6; see N.Y. EPTL § 3-1.1.
[5] N. Y. Real Property Law § 424.7
[6] RPL § 424.4
[7] RPL § 424.9
[8] RPL § 424.9(b)
[9] RPL § 424.11(3).
[10] RPL § 424.11(4).
[11] Strope-Robinson v. State Farm Fire and Cas. Co., 844 Fed. Appx. 929 (8th Cir. 2021).
[12] Id., at 929.
[13] Id.
[14] See Sheils v. Wright, 51 Kan. App. 2d 814 (2015).
[15] Id., at 814-15.
[16] Id., at 816.
[17] Id.
[18] Id., at 817.
[19] See Sherry v. Bank of America, N.A., 2017 WL 2210151 (W. Va. 2017).
[20] Id., at *1.
[21] Id.
[22] Id., at *1-2.
[23] Id., at *2.
[24] Id.
[25] Id.
[26] Id.
[27] Id., at *4.
