Estate Planning 101

Transfer on Death in New Mexico: How it Works and What You Need to Know | Snug

January 11, 2024

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Estate planning involves several tools to ensure a smooth transition of assets upon death. One of these tools is the "Transfer on Death" (TOD) provision. This guide will provide a comprehensive look at TOD provisions under New Mexico law and how they operate.

Understanding Transfer on Death

In New Mexico, a Transfer on Death (TOD) deed, also known as a beneficiary deed, is a legal instrument that allows an individual to transfer property to a beneficiary upon their death without going through probate. This beneficiary has no legal rights to the property until the original owner's death.

Transfer on Death vs. Joint Tenancy

While joint tenancy and TOD deeds both allow for the direct transfer of property upon death, they differ in several ways. Joint tenancy involves shared ownership of property, with the surviving owner(s) automatically inheriting any deceased owner's share. In contrast, a TOD deed allows the owner to retain sole ownership during their lifetime and designate a beneficiary to receive the property upon their death.

Creditor Protections from Transfer on Death

In New Mexico, a TOD deed may offer some protection against the deceased's unsecured creditors. Since the property transfers outside of probate, creditors may not be able to claim it. However, secured debts, such as a mortgage or lien on the property, must still be paid.

Conflicts Between Your Will and TOD Deeds

In the event of a contradiction between a will and a TOD deed, New Mexico law typically upholds the TOD deed. This means that if your will directs a property to one person, but the TOD deed names a different beneficiary, the person named in the TOD deed will receive the property.

Tax and Debt Implications of TOD

In New Mexico, real estate transferred via a TOD deed is subject to the same tax rules as property transferred through probate. Furthermore, the property is still subject to any secured debts, including mortgages or liens.

Real Estate and TOD in New Mexico

New Mexico law allows property owners to use a TOD deed to name a beneficiary for their real estate. Upon the owner's death, the property automatically transfers to the beneficiary without going through probate. To be valid, a TOD deed must be signed, notarized, and recorded in the county where the property is located before the owner's death.

The Validity of Lady Bird Deeds in New Mexico

While Lady Bird deeds — also known as "enhanced life estate deeds" — are used in some states as an estate planning tool, they are not recognized by New Mexico law. Instead, property owners can use a TOD deed to achieve a similar outcome.

How to Establish a TOD Deed in New Mexico

Creating a TOD deed in New Mexico involves drafting the deed, signing it in front of a notary public, and recording it with the county clerk's office in the county where the property is located. The deed must clearly identify the property and the beneficiary. It's advisable to seek the guidance of an experienced real estate or estate planning attorney when creating a TOD deed.

The Limitations of TOD Deeds

While TOD deeds offer a simple way to transfer property upon death, they do have limitations. They cannot be used to transfer property to a trust or business entity, and if the sole named beneficiary dies before the property owner, the TOD deed becomes void, and the property will have to go through probate.

Revoking a TOD Deed

A TOD deed can be revoked or changed at any time during the owner's life, as long as they are mentally competent. This can be done by recording a revocation with the county clerk's office or creating a new TOD deed that names a different beneficiary. It's important to note that simply destroying the deed does not revoke it.

To sum up, TOD deeds offer a simple and effective way to pass on real estate upon death without the need for probate in New Mexico. However, understanding the specifics of TOD deeds and their implications is crucial. It's always advisable to consult with an experienced attorney when making estate planning decisions.