Beginning on January 1, 2016, California began offering a new type of property transfer deed known as the Revocable Transfer on Death (“TOD”) Deed that allows the transfer of real property outside of probate.
While the new TOD Deed was designed to be simple and inexpensive, the underlying laws are currently temporary and may result in unintended consequences or create new opportunities for fraud, undue influence or elder abuse.
The new law has been under study for over 10 years and is now in effect for the next five years. The California Law Revision Commission must analyze the effects of this new type of deed and report back to the legislature by January 1, 2020 in order to continue its validity beyond the scheduled expiration one year later.
The requirements for the TOD Deed are numerous:
- Capacity. The transferor must have “capacity to contract” (higher than the testamentary capacity required to write a will) to create or revoke a TOD Deed;
- Eligible Interest. The transferor may only transfer his / her own interest. Other owners must execute their own TOD deeds to transfer their interests;
- Specific Beneficiary(ies). The TOD Deed must identify the beneficiary(ies) by full name and relationship, not just by class (i.e. “my grandchildren”);
- Notarization. The TOD Deed must be notarized;
- Recordation. The TOD Deed must be recorded within 60 days after the transferor signs it. It does not require filing of a Preliminary Change of Ownership Report. It does not require notice to beneficiaries; and
- Revocable: The TOD Deed may be revoked by the transferor any time prior to his / her death. However, capacity and specific revocation methods are required.
The new TOD Deed also has several limitations:
- Form: Unlike other deeds, which can be written in multiple forms, the TOD Deed is fixed in one statutory form which everyone must use.
- Eligible Property: The TOD Deed applies only to certain residential property interests: (1) one to four residential dwelling units; (2) a condominium unit; or (3) agricultural land of 40 acres or less, improved with a single family residence. The TOD Deed does NOT apply to larger apartment complexes, vacant land or business properties.
- Single Beneficiary. If only one beneficiary is named, and he/she dies before the transferor, the TOD deed is VOID and not effective. This could result in probate where the transferor’s original objective was to avoid probate.
- Multiple Beneficiaries. If multiple beneficiaries are named, the interest transferred must be in equal shares as tenants in common. If one beneficiary dies before the transferor, that beneficiary’s interest is divided equally amongst the other beneficiaries (not transferred to the deceased beneficiary’s descendants);
- Joint Tenancy: If the transferor owns property in Joint Tenancy (JT) or Community Property with Right of Survivorship (CPROS), upon the transferor’s death the property passes to the surviving joint tenant / spouse and the TOD deed is VOID and not effective;
- Revocation. A TOD Deed is revocable by the transferor any time prior to his / her death: (1) through a specific revocation form; (2) by recording a new TOD Deed; (3) by recording an inconsistent document; (4) by selling the property; or (5) by transferring title to a trust. However, in order to revoke the TOD Deed, the transferor must still possess the capacity to contract at the time of revocation. A Will may not revoke a TOD Deed.
- Sunset Date: The law authorizing the Revocable Transfer on Death Deed sunsets on January 1, 2021. However, TOD Deeds signed with the 5-year period (2016 – 2020) will still be valid if the transferor’s death occurs after the sunset date.
Problems with the TOD Deed
Attorneys and elder advocates have been discussing the new TOD Deed in depth, and remain concerned by the following issues:
- Complexity. The TOD Deed was created to provide a simpler and less expensive way for a transferor, who otherwise has no need for a revocable trust, to leave real property to an adult beneficiary. However complex rules regarding conflicting TOD Deeds, conflicts between TOD Deeds and other estate planning documents, valid revocation, and spousal rights if the TOD Deed is executed by only one spouse make this instrument very complex.
- Effect of Agency. Since the ability to create or revoke a TOD Deed requires a certain level of capacity, it is unclear whether conservators or agents under a power of attorney may execute or revoke this instrument on behalf of a principal transferor who lacks such capacity.
- Does Not Protect Against Medi-Cal or SSI Recovery Claims. Since the TOD Deed is revocable, it does not protect the transferor (or the beneficiary) from estate recovery claims related to needs-based public assistance. Instead, an irrevocable deed retaining a life estate in favor of the transferor may be more appropriate.
- Potential for Elder Financial Abuse. Elder advocates are concerned that the TOD Deed could provide new opportunities for financial abuse of low-income elders who do not fully understand the complexities of the law.
As a reminder, there are many other ways to transfer real property:
- Probate if by Will or Intestate Succession (minimum of 7 months)
- Abbreviated Petition (if passed to spouse)
- Clerk Affidavit (if gross value is $50,000 or less)
- Joint Tenancy
- Community Property with Right of Survivorship (CPROS)
Lisa L. Fiance is a California estate planning attorney and the owner of Epiphany ADR. The information contained in this article is intended as general information and does not constitute legal or tax advice. You can reach Attorney Fiance at (760) 201-5637 or by email at firstname.lastname@example.org.