How to Title Your House To Avoid Probate

When we are working with clients on their estate plan, one of the primary objectives is to assist them in titling their assets so they avoid the probate process after they pass away.  For anyone that has had to serve as the executor of an estate, you have probably had firsthand experience with how much of a headache the probate process is. For that reason, it's typically a goal of an estate plan to avoid the probate process altogether. 

While it’s fairly easy to protect an IRA, a brokerage account, bank accounts, and life insurance policies from the probate process, it has historically been more difficult to protect the primary residence from the probate process without setting up a trust to own the house.

But there is good news on this front, especially for residents of New York State.  As of July 2024, New York allows residence to add a Transfer on Death (TOD) designation to their deed.  Adding a TOD designation is like naming beneficiaries on an IRA account or brokerage account.   Prior to July 2024, residents of New York State were not allowed to add a TOD designation to a deed for real estate, so their only ways to protect their house from the probate process was:

1. Gift the house to their child before they die (Not a good option)

2. Gift the house with a life estate (Ok….but not great)

3. Set up either a Revocable or Irrevocable Trust to own the house

Those three options are still available but now there is a fourth option which is simple and costs less money than setting up a trust. Change the deed on your house to a “TOD deed”. 

32 States Now Allow TOD Deeds

While New York just made this option available in 2024, there were already 31 other states that already allowed residents to add a TOD designation to their deed.  Depending on which state you live in, a simple Google search or contacting a local estate attorney, will help you determine if your state offers the TOD deed option.

What Is The Probate Process?

Why is it a common goal of an estate plan to have your assets avoid the probate process?  The probate process can be expensive and time consuming depending on what state you live in.  In New York, the state that we are located in, it’s a headache.  Any asset that is not owned by a trust or does not have beneficiaries directly assigned to it, pass to your beneficiaries through your will.  The process of moving assets from your name (the decedent) to the beneficiaries of your estate, it a formal legal process called the “probate process”.

It is not as easy as when someone passes away with a house, they just look at their will which list their children as beneficiaries of their estate, and then the ownership of the house is transferred to the kids the next day.  The probate process is a formal legal process in which the court system is involved, an estate attorney may need to be hired to help the executor through the probate process, an accountant may need to be hired to file an estate tax return, an appraiser may need to be hired to value real estate holdings, and investment advisors may be involved to help retitle assets to the beneficiaries. All of this costs money and takes time to navigate the process. We have seen some estates take years to settle before the beneficiaries receive their inheritance.  

How Assets Pass to Beneficiaries of an Estate

There are three ways that assets pass to a beneficiary of an estate:

1. Probate

2. By Contract

3. By Trust

Assets That Pass By Contract

Assets that pass “by contract” to beneficiaries of an estate avoid the probate process because there are beneficiaries contractually designated on those accounts. Examples of these types of assets are retirement accounts, IRAs, annuities, life insurance policies, and an asset with a TOD designation like a brokerage account, bank account, or a house with a TOD deed.   For these types of assets, you simply look at the beneficiary form that was completed by the account owner, and that's who the account passes to immediately after the decedent passes away.  It does NOT pass by the decedent’s will. 

Example: Someone could list their two children as 50/50 beneficiaries of their estate in their will but if they list their cousin as their 100% primary beneficiary on their IRA, when they pass away, that IRA balance will go 100% to their cousin because IRA assets transfer by contract and not through the probate process. Any assets that go through the probate process are distributed in accordance with a person’s will.

Asset That Pass By Trust

One of the primary reasons for an individual to set up either a revocable trust or irrevocable trust to own their house or other assets is to avoid the probate process, because assets that are owned by a trust pass directly to the beneficiaries listed in the trust document outside of the will.   Example: your brokerage account is owned by your Revocable Trust, when you pass away, the assets can be immediately distributed to the beneficiaries listed in the trust document without going through the probate process. The beneficiaries listed in your trust document may or may not be different than the beneficiaries listed in your will.

House With A Transfer of Death Deed

Prior to New York allowing residents to attach a TOD designation to the deed on their house, the only options for titling the house to avoid the probate process were to:

1. Gift the house to the kids before they pass (not a good option)

2. Gifting the house with a life estate

3. Setting up a trust to own the house

The most common solution was setting up a trust to own the house which costs money because you typically have to engage an estate attorney to draft the trust document.  If the ONLY objective of establishing the trust was for the house to avoid probate, the new TOD deed option could replace that option and be an easier, more cost-effective option going forward.

How To Change The Deed to a TOD Deed

Changing the deed on your house to a TOD deed is very simple.  You just need to file the appropriate form at your County Clerk’s Office. The TOD designation on your house does not become official until it has been formally filed with the County Clerk’s Office.

What If You Still Have A Mortgage?

Having a mortgage against your primary residence should not preclude you from changing your current deed to a TOD deed.  Even after you file the TOD deed, you still own the house, the bank still maintains a lien against your house for the outstanding amount, and even if you pass and the house transfers to the kids via the TOD designation, it does not remove the lien that the bank has against the property.  If the kids tried to sell the house after you pass, they would first need to satisfy the outstanding mortgage, potentially with proceeds from the sale of the house.

The TOD Deed Does Not Protect The House From Medicaid

While changing the deed on your house to a TOD deed will successfully help the house to avoid the probate process, it does not protect the house from a future long-term care event.  While the primary residence is not a countable asset for Medicaid, Medicaid, depending on the county that you live in, could put a lien against your house for the amount that they paid to the nursing home for your long-term care.   Individuals that want to fully protect their house from a future long-term care event will often set up an Irrevocable Trust, otherwise known as a Medicaid Trust, to own their house to avoid these Medicaid liens. That is an entirely different but important topic that we have a separate article on. If you are looking for more information on how to protect your house from probate AND a long-term care event, here are our articles on those topics:

Article: Gifting Your House with a Life Estate vs Medicaid Trust

Article: Don’t Gift Your House To Your Children!!

Article: How to Protect Assets From A Nursing Home

Changing the House TOD Beneficiaries

The question frequently comes up during our estate planning meetings, “What if I change my mind on who I want listed as the beneficiary of my house?” With a TOD Deed, it’s an easy change. You just go back to the County Clerks Office and file a new TOD Deed with your updated beneficiary designations. Remember, once you Change the deed to a TOD deed, the house no longer passes in accordance with your will, it passes by contract to the beneficiaries list on that TOD designation.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.