There are several ways an owner of real property can direct the transfer of real property when they die. Up until recently, the most common way was through a trust, will or owning the property in joint tenancy with another person or persons. Effective January 1, 2016, there is now a new way California allows real property to be transferred upon a person’s death and avoid probate.
Governor Jerry Brown signed Assembly Bill 139 which established a procedure to transfer real property upon death through a revocable transfer on death deed. This revocable transfer on death deed is a new simple and inexpensive way to transfer real property to a beneficiary in California. The deed allows a person to leave their real property to a designated person or persons such as a family member, friend, life-long partner or other loved one, without having to set up a living trust.
Criteria For Transfer on Death Deed (TOD Deed)
The new TOD (transfer on death) deed allows an owner of residential real property to name one or more beneficiaries to receive the property when the owner dies, thus bypassing the need to probate the estate. There are some specific criteria, however, that a person should be aware of when considering recording a revocable transfer on death deed.
- The real property must be a single family home or condominium unit, or a multiple residence of not more than 4 residential dwelling units, or be a single family residence on no more than 40 acres of agricultural land.
- A revocable TOD deed must be signed and dated before a notary public to be effective and valid.
- The transfer on death deed must be recorded within 60 days or less from the date it is signed.
- The transfer on death deed can be revoked by the transferor at any time.
A Transfer On Death Deed may be a great option for a person whose only asset is the home in which he or she lives.
Revoking a Transfer on Death Deed
There are three ways the transferor/owner can revoke a transfer on death deed.
- The owner can record a formal notice of revocation.
- A new transfer on death deed may be recorded.
- The real property can be transferred to someone else prior to the transferor’s death.
Although the transfer on death deed must be recorded within 60 days or less from the date it is signed and before the owner’s death, it is important to understand that the 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, creditors of a named beneficiary cannot place any liens on the property. While the owner is living, the owner has the right to sell or encumber the property. The property is also subject to involuntary liens that may be recorded by creditors of the owner which would transfer with the property to the beneficiary upon the owner’s death.
In theory, a person that owns real property in California could execute and record more than one revocable transfer on death deed. The new law provides that the deed with the most recent recording date will be the one in effect.
Transfer on Death Deeds and Joint Tenancy
If you co-own the property as joint tenancy or community property with right of survivorship, the other owner automatically receives your share of the property upon your death. The TOD deed has no effect unless you outlive the other joint tenant. In this regard, co-owners may consider signing separate TOD deeds if they both want the same beneficiaries after both die. A better solution, however, would be to set up a living trust.
Downsides to a Transfer on Death Deed
If the person named in the deed as the transfer on death beneficiary dies before the real property owner does, the deed simply has no effect. This could result in the property having to be probated.
If the owner becomes incapacitated through stoke, dementia, or other event, there may be no one to revoke the deed which may be necessary due to a change in family circumstances or the need to qualify the person for Medicaid assistance.
If the Transfer on Death deed is not timely recorded within the statutory deadline (60 days or less from the date it is signed) the TOD deed becomes invalid. We recently had this situation happen to an individual who was attempting to record TOD deeds rather that set up a living trust. The TOD deeds were prepared and, as they requested, we sent to them client so they could record them. Unbeknownst to anyone, the client failed to timely record the deeds and then within a very short period of time died. By the time it was realized by the beneficiary that they had not been recorded, the TOD deeds had became invalid. The estate is now having to be probated. For these reasons, Transfer on Death Deeds should only be used as a last resort if there is not sufficient time to prepare proper estate documents.
Trust vs. New Transfer on Death Deed
For people with very few assets, recording a Transfer on Death Deed may be a quick and easy fix to set up beneficiaries to real property and avoid probate as compared to setting up a revocable living trust. However, since this transfer on death deed only directs the transfer of real property, it is not a great solution for people or couples that have minor children or have other assets that would be better administered through a trust. Additionally, since the transfer is to specific beneficiaries, problems could arise if the named beneficiaries are no longer living. Lastly, a person or couple with minor children should not name their minor 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. Refer to California Family Code Section 6701 which 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. 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 provision for the transfer of property to an adult “custodian” for the benefit of a minor. The custodian would then hold, control, manage, and invest the custodial property on behalf of the minor. When the custodianship terminates, title to the custodial property can then be transferred to the minor or the minor’s estate.
If you are considering using a Transfer on Death Deed as part of your estate plan, contact A People’s Choice. We offer professional, low-cost options for all your estate planning needs.