PROBLEMS WITH THE NEW TRANSFER-ON-DEATH-DEEDS LAW
In April 2024, New York State adopted the new Transfer-On-Death Deeds (“TODD”) law. The law aims to simplify the transfer of one’s home to their heirs by bypassing the Court proceedings which are part of the probate process. Theoretically, this law succeeds at that because now a homeowner can list beneficiaries on a TODD. Those beneficiaries will become owners by operation of law immediately upon the homeowner’s death. However, the TODD transfer fails to recognize common issues facing many seniors. Those issues include costs of admission to a nursing home, divorce or having a child or other beneficiary pre-decease the senior.
From a elder law viewpoint, the greatest problem with a TODD transfer is that it does not protect the home from the claims of a nursing home, the New York State Department of Social Services or other creditors. At Meyer & Spencer PC, we typically recommend an Irrevocable Medicaid Asset Protection Trust for our senior clients who are looking to protect their home from any future nursing home costs. If a senior wants to transfer their home via a TODD in order to avoid probate, they must understand that, without the asset protection features of a trust, there may be no equity left in the home to probate.
Another significant problem with a TODD transfer is that it does not protect the family of a child who dies before the grantor. We find that most of our clients strive to treat their children equally in their estate plan. Whether it is a Will or a Trust, there is typically a provision that provides that if a child predeceases a senior, that child’s share would go to his or her children (the senior’s grandchildren). With a TODD transfer, if three children are listed on the deed as beneficiaries and one of those children dies, it would then be a two-way split with no protection added for the children of a deceased child. This is contrary to the way most people would like to see their assets divided.
Yet another problem with a TODD transfer is that they are susceptible to fraud in cases where a senior has questionable mental capacity. The new law states that the mental capacity required to make a TODD is the same as the mental capacity required to make a Will. That makes perfect sense; however, the simplified process of signing a TODD is not the same as the formalities of a Will or Trust signing. While the TODD form provided in the law requires two witnesses and a notary, there is no formal procedure for establishing capacity. Further, there is no formal requirement that the TODD signing be supervised by an attorney. At Meyer & Spencer PC (and virtually all other law firms), we have a procedures in place to ensure someone has mental capacity. For example, where a person is signing a Will or Trust, s/he will have to answer a series of questions in front of the witnesses so that the witnesses can be comfortable knowing that mental capacity to sign the document has been established. When someone signs a Will or a Trust, it usually takes two or three meetings where the attorney meets with the client to discuss their objectives. These meeting happen well in advance of the actually signing of the documents. If an attorney is not involved in the TODD transfer, it is easy to imagine how an unscrupulous fraudster can take advantage of a vulnerable senior and convince him or her to sign a TODD they may not really understand.
Financially, there is a financial problem with TODD transfers. It costs money to make changes. For example, if a beneficiary dies or if a senior simply wants to change beneficiaries, they have to file a new deed with the county clerk. That will cost upwards of $250.00. If an attorney is used, there will be legal fees. At the end of the day, probably the most significant cost is a hidden cost. It is the cost of foregoing placing the home in an Irrevocable Medicaid Asset Protection Trust. By failing to do so, the TODD can cost the homeowner hundreds of thousands of dollars if they ever end up in a nursing home. The TODD transfer will give many seniors a false sense of security that by avoiding probate they have a good plan in place. The fact is that there are better ways of avoiding probate while at the same time protecting your assets.
If you would like more information regarding Estate Planning strategies please call Meyer & Spencer PC to schedule a consult at either of our Westchester or Putnam County offices. We can be reached at (914) 741-2288 or (845) 628-0009.
