What is the Transfer on Death Deed?

The TOD deed is a new provision under that went into effect on July 19, 2024.听 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.听 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.听 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鈥檚 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鈥� 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.听 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 鈥� 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鈥檚 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.

Tenancy by the Entirety

In New York, tenancy by the entirety is a means of ownership that is only available to married couples. This allows the surviving spouse to inherit the entire property immediately at the first spouse鈥檚 death, without probate. Additionally, it protects the property from the creditors of the deceased spouse. It is important to note that if a couple purchases a house before marriage and then gets married, their ownership of the house will remain as it was before marriage 鈥� the way in which the couple originally owned the property will remain intact unless a new deed is signed and recorded.

Joint Tenants With Rights of Survivorship

For unmarried individuals that want to own a property together and for the survivor of them to own the property in full, they will be listed on the deed as joint tenants with rights of survivorship. This means that the individuals that own the property all have a stake in the entire property without limiting any owner鈥檚 access to any part of the property. Because of the right of survivorship, the property is distributed equally among the remaining owners when one owner dies.

Tenants in Common

If the deed to the property lists the names of multiple individuals without stating that they have rights of survivorship, they will own the property as tenants in common. Tenants in common may own equal or unequal percentages of the property as specified on the deed. For example, one owner may have a 75% share while the other has 25%. If silent on percentage, the ownership is deemed to be in equal shares. When one tenant in common dies, that person鈥檚 share passes to the named beneficiaries in a Will after probate is completed. If the deceased tenant did not have a will, the share of the property will pass to their legal next of kin through a court administration process.

Those who own their property in their sole name or as tenants in common may want to avoid a court process upon their death to pass along ownership. When a trust owns the real property, the trustee or successor trustee can sell the property or transfer it to the appropriate beneficiaries immediately after the death of the original owner without court intervention.

There are many ways to hold title to real property in New York. It is important to understand the type of ownership you hold, so you can determine what will happen to the property when you die. Knowledge is power, and you deserve to have the power to decide who inherits your property.

By Britt Burner, Esq. & Erin Cullen

Britt Burner, Esq. is a Partner at 明星黑料, P.C. focusing her practice areas on Estate Planning and Elder Law. Erin Cullen is a graduate of the Maurice A. Dean School of Law at Hofstra University. 明星黑料, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

Should I gift my house to my son now, or when I die?

It is usually better for your heirs to inherit real estate at your death rather than to receive it as a gift from you during your life. This is because it is tax efficient for the property to pass at death due to the 鈥渟tepped up basis鈥� for capital gains tax purposes.听

The cost basis of a property is the amount you purchased it for or, if you inherited from someone else, the value at the date of death when it transferred to you. When property is sold, there is a tax on the difference between the cost basis and the sale price鈥攖his is called a capital gains tax. When you sell your primary residence, a portion of this gain is excluded, $250,000 per individual or $500,000 for a couple. The cost of capital improvements to the home while you owned it are also excluded from the gain. Upon your death, any gain is wiped out and the new cost basis is the value of the property at your date of death. If your son sells it right after your death, there will be no capital gain鈥� no tax.

Let鈥檚 use a simple example to explain tax basis in property: You bought your house 50 years ago for $200,000 and now the fair market value of the house is worth $1,000,000. If you and your spouse sell during your lifetime, you will pay capital gains tax on $300,000 of gain (the difference between purchase and sale, less the $500,000 primary residence exclusion for the couple). If you gift your house to your son while you are alive, your son will inherit your same basis in the property, i.e., $200,000. Thus, if your son decides to sell the house at any time, he will have to pay over 30% in Federal and New York State capital gains tax on the $800,000 increase in value; this could be over $260,000 paid out of the proceeds.听

However, if you pass away owning your home, the property gets the step up in basis to the fair market value as of your date of death. If you leave the house to your son, he鈥檒l inherit the property with the stepped up basis. If he sells it now, he will completely avoid capital gains tax liability.听

While it may be tempting to gift your house now, there are tax consequences in doing so. Leaving your house to pass to your son after death may be the better option here, especially if you plan on living there for the rest of your life. While taxes are just one piece of the puzzle, your planning with the house, perhaps your largest asset, deserves the time and considerations of an estate planning and elder law attorney who can guide you to the best decision for you and your son.

Author: Britt Burner, Esq.

Who can put a lien on my home?

Liens can be consensual, statutory or pursuant to a judgment. Your home mortgage is a consensual lien and usually takes priority over any other debts. Notice requirements vary and are dependent on the type of lien. Some common examples of liens:

• A licensed contractor can place a mechanics lien on your property for unpaid construction work.
• The IRS or State can place a lien on property for unpaid income taxes. The county can place a lien for unpaid real estate taxes.
• Any creditor who obtains a judgment can place a lien on real estate.
• The Human Resources Administration or the Department of Social Services can place a聽聽on a home for the cost of long term care

How do I find out if there are any liens of record against my name or the property?

础听聽will turn up any liens on the property and the owner. Anyone can check with the clerk鈥檚 office in the county where the property is located for judgments, liens, or lis pendens. If you are planning on selling your home, you should know whether there are liens on the property before starting the process.

If there are liens of records, what do I have to do?

If liens are discovered, the next thing to do is contact each judgment holder/creditor and settle the outstanding debt. Occasionally the judgment holder might be willing to negotiate a smaller sum in full satisfaction of the debt. Once paid, the judgment holder or creditor issues a Release of Lien or Satisfaction. It is crucial that the release is recorded at the county clerk and a copy given to you for record-keeping. Without the Release of Lien or Satisfaction, paying the debt in full alone does not automatically erase the lien from the record.

I know there are liens recorded against my home, can I still sell?

Yes, you can still sell your home if there are liens against it. A mortgage is a common lien that is normally paid off at the closing. You are required to pay off any open liens from your personal funds or at the Closing out of sale proceeds. Sometimes it is possible to find a cash buyer who is willing to pay the liens o铿� on your behalf above the agreed upon sale鈥檚 price.

What if I have a cash buyer who wants to take title to my home with the liens?

If a buyer is considering purchasing the property with open liens, they would order a lien and judgment search to determine the exact amount. This often leads to negotiation in the purchase price. The liens would still have to be paid at the closing and all necessary payo铿� letters obtained from lien and judgment holders. An聽experienced real estate attorney聽can advise you on the most effective way to sell property with open liens.

1. LLCs avoid double taxation.听

An LLC is a disregarded entity which results in the profits taxed as income to each individual owner. A corporation is not a see-through entity. The corporation pays taxes on all profits. To pass income to the shareholders, they must be W2 employees or receive dividends which count as individual income. Either method causes the same profits to be taxed again. You can avoid double taxation by electing S Corp status, but you do not avoid any other drawbacks of a corporation.

2. Transferring existing real estate into a Corp may be a taxable event.

If someone transfers real estate to a corporation in exchange for stock, they recognize a capital gain.听 They are taxed on the difference between the original purchase price and the fair market value at time of transfer. One exception is when the transferor has 鈥渃ontrol鈥� of the corporation immediately after the transfer.听 In general, 鈥渃ontrol鈥� is defined as 80% of the vote and value of the corporation. As you can imagine, this exception doesn鈥檛 always apply when there are multiple business owners.

3. Taxed for Debt Relief.

When real property transferred into a Corp has a mortgage, capital gains tax is due even if the transferor has a controlling interest. Since the corporation assumes the mortgage liability, the transferor recognizes a capital gain to the extent the mortgage exceeds the original purchase price. For example, if the tax basis (sale price) was $100,000 and the mortgage is $500,000, the transferor is taxed on the $400,000 gain because it is 鈥渄ebt relief.鈥�

4. No Step Up in Basis

Corporations never die so when an individual owner passes away, there is聽no step up in basis to fair market value. If the real estate appreciated, heirs inherit capital gain if they want to sell the underlying property. The issue is that step-up applies only to the stock shares but not the underlying real estate.

5. LLCs are easier to operate than a Corporation.

Corps require shareholders to adopt by-laws and hold annual meetings. The transfer of shares between shareholders or to a third party requires the issuance of new stocks. LLC ownership interests transfer easily from one member to another or to third parties via an Assignment of Interest. Once a property is titled in the name of the LLC, a change in ownership does not require a change in the deed or trigger a taxable event.

Tenancy in Common

A tenancy in common (TIC) is when multiple people own different portions of the property. In TIC co-owners are not required to own equal shares or bear equal financial responsibilities for the property. When one of the tenants dies, their share is conveyed to their own respective heirs and not to the other tenants. Each tenant can freely transfer their interest to a third party without the consent of the other tenant.

Joint Tenants with Rights of Survivorship

Joint tenants with rights of survivorship (JTWROS) is ownership by two or more individuals who have equal rights to the property while alive and survivorship rights at death. Rights of survivorship means that when one owner dies the entire ownership interest transfers to the surviving owners.听 This survivorship right is the main benefit of structuring this type of ownership. It allows the surviving co-owner(s) to gain title and control over the property without the need to go through probate proceedings. In New York, if the parties are not married and rights of survivorship are not specified in the title documents, tenancy in common is presumed.

Tenancy by the Entirety

When spouses take title to real estate, New York law presumes that they own the property with rights of survivorship, called 鈥渢enants by the entirety鈥�.听 An advantage is that creditors cannot put a lien on property owned by a couple as tenants by the entirety. Tenancy by the entirety cannot be altered except by mutual consent. A husband and wife cannot be tenants the entirety with a third party as it would violate the 鈥�.鈥�

What if you took title with someone as JTWROS but later no longer wish for that someone to inherit your share?聽 One owner can sever the joint tenancy without a consent of another tenant by transferring their interest in the property to a third party or recording a deed evincing such intent. This turns the JTWROS into a tenancy in common.

What if one owner in either a tenancy in common or joint tenancy with rights of survivorship wants to the sell the entire property? The sale of the entire property interest to a third party requires the聽consent of all joint tenants. If disagreement arises regarding ownership, use or sale of the property, the only option is a legal action known as partition so that a judge can order the sale of the property. If one owner insists on selling, the court is likely to order a partition sale.

The decision on how to take title to real estate depends on individual circumstances.听 Each ownership structure has its pros and cons. TIC is often used by business partners when purchasing an investment property. Parents often own property with children by JTWROS. The implications of joint tenancy versus tenancy in common should be considered. If you are not sure which form of title best suits your needs, consult a聽real estate聽or estate planning attorney.

Estate Tax vs. Capital Gains Tax

There is a push-pull between stepped up basis and estate tax. To get the stepped-up basis, the assets must pass through the decedent鈥檚 estate. Once assets pass through a decedent鈥檚 estate, there is potential estate tax. But the federal estate and gift tax exemption is at an all-time high of $12.06 million per person. This allows for stepped up basis planning that may not have been available pre-2017 when the estate tax exemption was much lower.

A married couple鈥檚 Trust or Will that utilize a credit shelter trust to save on estate tax is a good example of a trust that needs updating. The classic A-B trust structure splits assets into a聽marital share聽and a non-marital share. The marital share qualifies for the unlimited spousal deduction. The marital share, either left outright or in trust, gets a stepped-up basis when it passes through the surviving spouse鈥檚 estate at death and is also subject to estate tax. The non-marital share captures the estate tax exemption amount in a聽credit shelter trust.听 Any assets in the credit shelter trust do not get a step up in basis at the surviving spouse鈥檚 death but are pass estate tax free.

What if the credit shelter trust holds low basis assets? If the surviving spouse鈥檚 estate is under the estate tax exemption amount, then it may be more beneficial to get the stepped-up basis.听 In that case, it is better that the assets pass through the surviving spouse鈥檚 estate, so heirs avoid capital gains. This similarly applies to existing irrevocable beneficiary trusts created for adult children.

The question is which do you choose. When the choice is clear, we can amend the trust to get the stepped up basis. If it is not so clear, we can add flexibility by including a trust protector with the power to cause the step up if needed or use a聽.

How Can We Fix an Existing Irrevocable Trust?

At the grantor鈥檚 death, a trust is generally irrevocable. However, depending on the language in the trust, there are methods for amending the trust to trigger stepped up basis. Estate Planning attorneys have various tools at our disposal, including utilizing lifetime powers of appointment, decanting, and trust protectors. Anyone who has a trust with low basis assets should set up a聽consultation聽to review whether this type of change is necessary and desirable.

Things to Consider When Buying a Condo

As a condo owner you own the interior of the unit. The condo association owns the common area. This can be very convenient since the association handles all common area maintenance, such as repairs, management, maintenance, snow plowing and general upkeep. Of course, it comes at a price. Condo owners pay a monthly maintenance fee in exchange for the services. Condo fees vary depending on the size of the unit and type of common elements. Sometimes condo associations impose an additional 鈥渁ssessment fee鈥� for services not covered in the regular monthly fees. An assessment fee is usually applied when the association does not have sufficient reserve funds to cover emergency repairs. Your real estate attorney will perform due diligence, examine recent engineer reports and board minutes, to determine if any special assessments are anticipated. Condo associations are run by an elected board of directors that establish rules each unit owner must follow. When buying a condo, it is important to familiarize yourself with these bylaws. What if a condo association limits the number of pets you can have or prohibits subleasing?

Things to Consider When Buying a Co-op

A co-op buyer does not receive a piece of real estate but is granted a proprietary lease and is issued shares in the corporation. The number of shares the buyer receives depends on the size of the particular unit. Generally, the larger the unit, the more shares you receive. Co-ops boards are elected volunteers responsible for collecting fees, enforcing bylaws and maintaining the common areas. Yet, all shareholders have a right to take part in the co-op鈥檚 decision-making process by voting at regular shareholders鈥� meetings. The co-op property taxes and maintenance fees are split between the co-op residents.听 Any prospective shareholder or occupant must be approved by the board. A co-op purchase contract is always subject to the co-op board鈥檚 approval. Prospective shareholders submit an application, provide personal financials and go through a rigorous interview. Like condos, co-op shareholders establish their own unique rules, which are important to know before moving in.

Bottom Line

Whether to buy a condo or co-op is a matter of personal choice, finances and the housing market. The聽聽of New York City apartments are co-ops. Condos offer more flexibility when it comes to renovations and purchase financing is often easier to obtain. Co-ops are often less expensive to purchase but have higher monthly fees. In cities like New York, the decision often comes down to availability and whether an applicant is able to pass the co-op vetting process. An experienced聽real estate closing attorney聽will perform the necessary due diligence and help you decide if a particular apartment or townhouse is the right fit for you.