I’ve written about wealthy relatives bearing gifts and how New York bankruptcy can help elderly debtors to illustrate the tension between elderly debtors’ options for shielding their assets from probate while enabling smooth transfers to their descendants (usually their children). The tension works like this: Elderly debtors may have own substantial assets they want to pass to their children when they die, but they may also have debts that they don’t want to be repaid via probate. The probate system can be costly—mostly when there’s a disagreement as to who should inherit what—but while it’s mostly similar to bankruptcy it’s not as generous. In particular, deceased people’s estates don’t receive exemptions that protect assets from creditors.
As a result, many debtors want a way to pass their property on without losing it to creditors and staying out of probate. One method is “transfer on death” (sometimes “ToD”) or “payable on death” instruments—something New York pioneered in the early 20th century. In many states, debtors can use ToD mechanisms to avoid probate, e.g. a transfer-on-death deed for a home.
Unfortunately, New York is among a handful of states that does not allow homeowners to execute ToD deeds for homes. Consequently, homeowners are stuck with other traditional transfer mechanisms: wills, living trusts, joint-ownership agreements, and gifts. These all have their pitfalls: They may be hard to set up, or they may expose the owners to the recipients’ financial difficulties. No parent wants a bankruptcy trustee to demand a child’s share in their jointly owned home he or she is currently inhabiting.
There are, however, a few instances where New York allows ToD instruments, namely bank accounts. This is the payable-on-death account from the early 20th century I referred to. New Yorkers can designate a payable-on-death beneficiary for their savings accounts and deposit certificates. Some of the value in these accounts may be protected by cash exemptions in New York bankruptcy, and upon death, their contents automatically transfer to the owner’s descendants without going through probate. New York also disallows ToD for vehicles, but it does permit ToD securities in brokerage accounts.
Although ToD is not possible for real estate in New York, the state does offer generous homestead exemptions that can help shield equity from bankruptcy and keep property in the family. Homesteads in New York City’s five counties, plus Nassau, Suffolk, Rockland, Westchester, and Putnam counties receive a $165,550 exemption. In Dutchess, Albany, Columbia, Orange, Saratoga, and Ulster counties, it’s $137,950, and in all other counties it’s $82,775.
If you are an elderly debtor who is concerned about creditors taking assets you want your children to inherit, then talking to an experienced New York bankruptcy lawyer can help you strategize your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
