Q. I hear that Governor Brown just signed a new law that makes it easier for a homeowner to transfer a home, on death, to his name beneficiaries without going through probate or creating a trust. Do you know more about this?
A. Yes. The new law (AB 139) creates a Revocable Transfer on Death Deed (“TOD Deed”) as a simple way for homeowners to transfer residential property to named beneficiaries, effective upon death. When properly executed, notarized and recorded, the TOD Deed will allow your named beneficiaries to acquire ownership of your home following your demise without the formalities of a probate or trust administration. For many, this new deed will be a welcome alternative to the more elaborate Living Trust and in most cases will accomplish the same result.
In substance, it operates much like the Transfer on Death (“TOD”) or “Pay on Death” (“POD”) provisions long available for brokerage or bank accounts. The new law requires use of a specific form, with required provisions, and should be readily available at stationery stores or for online download in the very near future. Attorneys may even begin using the TOD Deed in appropriate situations for their own clients.
For many, this new deed will be a welcome alternative to the more elaborate Living Trust, as it promises to reduce the complexity and cost of designing a plan for the transfer of one’s home at death.
As with anything, however, the new law has both “good” and “bad” features. Among them are the following:
The Good: The new TOD Deed
- Will be simple to use;
- Will be less expensive than creating a Living Trust;
- Will eliminate the time and expense of a probate;
- Will remain revocable during the lifetime of the grantor; and,
- Will greatly simplify the transfer process at death.
- Because it dispenses with post-death transfer formalities, it may reduce or eliminate the acrimony among heirs or beneficiaries which sometimes accompanies a formal probate or trust administration.
The Bad: The New TOD Deed
- Offers no protection from the grantor’s creditors;
- Can only be used for a residential property of up to four units or sitting on up to 40 acres of agricultural land.
- Does not permit the designation of beneficiaries by class description (e.g., “my children”);
- Cannot designate contingent beneficiaries: If a designated beneficiary predeceases the grantor, the property goes to the other surviving beneficiaries or, if none, then it reverts to the grantor and may then require a probate;
- Cannot be used to transfer residential property held as Joint Tenancy or as Community Property with Right of Survivorship;
- Unlike a “Living Trust”, cannot be used to manage, sell, or borrow against the residential property during the grantor’s incapacity;
- Title Insurance Companies have indicated a reluctance to insure clear title until the running of three (3) years after the death of the Grantor. During this time, the beneficiary will likely be unable to sell or borrow against the property;
- Validity requires strict adherence to the statutory form. Any deviation might render the deed void. Example: Some title companies require that the Q&A’s, which accompany the form in the statute, also be recorded;
- Most importantly, there is concern among some advocates that the availability of this simple transfer deed will facilitate the commission of elder abuse upon frail seniors.
The TOD Deed will be effective for grantors who die after January 1, 2016. Initially, the new law will have only a five-year life-span. During that term, lawmakers will study its operation and will later decide whether it should be extended or modified. However, even if the law is not extended, a TOD Deed will still be effective if properly executed and recorded while the law was in effect.
Caution: While the new TOD Deed holds much promise as a way of simplifying the title transfer of a home upon the owners’ demise, it is not suitable for everyone. Before deciding upon its use, it is best to seek professional guidance from an elder law or estate planning attorney. Even More Caution: [Updated 7/7/2017]: Further, many practitioners, including this author, believe the statute authorizing same to be fundamentally flawed and now recommend against use of the TOD Deed. See the opinion of the Executive Committee of the Trusts & Estates Section of the California Bar, appended as an exhibit to the California Law Revision Commission’s Memorandum # 2017-35 (June 22, 2017).
References: AB 139 Signed by the Governor on September 21, 2015; California Law Revision Commission Staff Memorandum, July 10, 2015; California Board of Equalization Opinion issued Jan. 20, 2016. Update: The bill’s author, Assembly Member Gatto, has recently proposed an expansion of the law to permit a trust to be a beneficiary of a TOD Deed, in AB 1779; Follow Up Study by California Law Revision Commission, ) Memorandum 2017-6 (January 9, 201) on whether the Q&A’s Need to be recorded with the TOD Deed.