There are several ways an owner can direct the transfer of their real property when they die. Typically, the most common way to transfer real property is with a trust, will, or joint tenancy. However, in 2016, California Governor Jerry Brown signed Assembly Bill 139, establishing a new procedure to transfer real property upon death with a revocable transfer on death deed.
Now, California allows for the transfer of real property upon a person’s death, thereby avoiding probate. This revocable transfer on death deed is a simple and inexpensive way to transfer real property to a beneficiary. Now, Californians can leave their real property to a designated family member, friend, partner, or other loved one, without having to set up a living trust.
Criteria For Transfer on Death Deed in California
The new transfer on death (TOD) deed allows an owner of residential real property to name one or more beneficiaries to receive the property upon their death. This process bypasses the need for probate. Therefore, a transfer on death deed may be a great option for a person whose only asset is their home. However, there are some specific criteria to keep in mind when considering recording a revocable transfer on death deed:
- The real property must be one of the following: a single family home or condominium unit; a multiple residence of not more than four residential dwelling units; or a single family residence on no more than 40 acres of agricultural land.
- For validity and effectiveness, a transferor must sign and date a revocable TOD deed before a notary public.
- The transfer on death deed must be recorded within 60 days or less from the date it is signed.
- The transferor may revoke the transfer on death deed at any time.
Although the transferor must record the transfer on death within 60 days or less from the date of signing and before the owner’s death, it is important to understand that interest in the real estate only transfers when the owner dies. This means that the beneficiary identified on the TOD deed does not have any rights to the real property when the owner is alive.
Furthermore, while the owner is living, they retain the right to sell or encumber the property. Likewise, the property is subject to involuntary liens recorded by the owner’s creditors. These liens transfer with the property to the beneficiary upon the owner’s death. However, creditors of a named beneficiary cannot place any liens on the property.
Revoking a Transfer on Death Deed
There are three ways a transferor can revoke a transfer on death deed:
- Recording a formal notice of revocation;
- Recording a new transfer on death deed; or
- Transferring the real property to someone else prior to the transferor’s death.
Considerations for Transfer on Death Deeds
Downsides of Transfer on Death Deeds
Unfortunately, if the intended beneficiary dies before the real property owner, the TOD deed has no effect. As a result, the property may have to be probated. On the other hand, if the owner becomes incapacitated through stoke, dementia, or other event, there may be no one to revoke the deed. This may be necessary due to a change in family circumstances or the need to qualify the owner for Medicaid assistance.
Additionally, if the TOD deed is not recorded within the statutory deadline, it becomes invalid. In fact, we have witnessed this occurrence firsthand in our office! In one case, we helped a client prepare a TOD deed for them to record. However, the client failed to record the deed in a timely manner, and unfortunately died within a very short period of time. By the time the beneficiary realized the decedent had not recorded the deed, it was invalid. As a result, the estate had to go through probate. For these reasons, TOD deeds should only be used as a last resort; for example, if there is not sufficient time to prepare proper estate documents.
Minors as Beneficiaries
For people with very few assets, recording a TOD deed may be a quick and easy way to set up beneficiaries to real property and avoid probate, compared to setting up a revocable living trust. However, since TODs only direct the transfer of real property, they are not a great solution for people who have minor children or have other assets that would be better administered through a trust.
In fact, people with minor children should not name their children on a TOD deed. Under California law, although a minor may own real property or an interest therein, they may not convey or make contracts relating to real property. More specifically, California Family Code Section 6701 provides that minors cannot enter into contracts relating to real property or personal property not in their immediate possession and control, and they cannot give a delegation of power. Further, California Civil Code § 1556 also provides that minors are incapable of contracting. Therefore, since a minor cannot sell or purchase property held directly in his or her own name, transactions involving a minor’s interests in real property are best set up through a trust, custodian, or guardian, for the benefit of a minor.
The California Uniform Transfers to Minors Act (CUTMA) makes provisions for the transfer of property to an adult “custodian” for the benefit of a minor. After this transfer, the custodian would then hold, control, manage, and invest the custodial property on the minor’s behalf. Finally, following termination of custodianship, title to the custodial property can be transferred to the minor or the minor’s estate.
If you co-own property as joint tenancy or community property with right of survivorship, the other owner automatically receives your share of the property upon your death. Therefore, a TOD deed has no effect unless you outlive the other joint tenant. Therefore, co-owners may consider signing separate TOD deeds if they both want the same beneficiaries to receive the property after both die. That said, a better solution in this case would be setting up a living trust.
Whether you are considering using a transfer on death deed as part of your estate plan, or need to revoke a deed, contact A People’s Choice. We offer professional, low-cost options for all your estate planning needs. Call us today at 800-747-2780 for more information.