Estate Planning: California’s Transfer on Death Deed

Tamara Polley
By Tamara Polley September 15, 2016 22:00

Californians have a new way to transfer their houses or condos after death without going through the often time-consuming and expensive probate process.

As of Jan. 1, 2016, homeowners can pass on their real estate to children or other beneficiaries via a transfer on death (TOD) deed that is not subject to probate.

By law, any California estate worth over $150,000 is subject to probate. Certain assets, like life insurance and retirement accounts, have long been exempt if there are designated beneficiaries. But home ownership, which invariably boosts an estate beyond the $150,000 mark, can bring the probate requirement into play.

The probate process, in which the court supervises the administration of the will and determines how the assets are to be distributed, often takes a year or longer and can cost thousands of dollars.

Another way to avoid probate is by setting up a revocable living trust that details the disposition of assets. Such trusts are set up by attorneys who can tailor provisions to their clients’ needs.

Also, married couples can avoid probate by holding title to their homes as community property or as joint tenants. In such cases, surviving spouses inherit the home without court review.

The new TOD deed provides a less expensive option for those with simple estate planning goals. The only costs are notary charges and a recording fee collected by the county. But many who file them do so without professional advice, which I do not recommend.

That said, TODs may be useful to single seniors or those whose spouses have already died. Among advantages: Beneficiaries, be they children, siblings or unrelated third parties, have no claim on the title to your property until you die. With a TOD deed, you will remain in sole possession of the home until death and can do whatever you want with it.

If you instead add beneficiaries to your property deed while you are still alive, there can be problems: Their interest in the property vests immediately, and you can’t “undo” the arrangement if you change your mind. Unless – and this is hardly a given – the beneficiaries agree to deed their share of the property back to you.

Also, the property in most cases will also be fair game for new owners’ creditors, who may hold judgments or court orders against them. A TOD deed guarantees this will not happen.

The TOD law will expire on Jan. 1, 2021, but this doesn’t mean there will be an abrupt end to such deeds. Instead, a “sunset clause” was written into the bill as part of a review process.

The law requires the California Law Revision Commission to study and make recommendations to the Legislature by Jan. 1, 2020. Assuming there are no major problems with the TOD deeds, the law could be extended. If there are problems, it may be amended.

If there are significant issues, the law could be allowed to expire. Even then, however, previously executed TOD deeds would remain in effect.

And it’s not as if California is breaking new ground: More than half the states in the U.S. already have TOD deed laws.

Under the new law, a TOD deed must be signed and dated by the owner in front of a notary public. It must then be filed with the county recorder’s office within 60 days.

The property at issue does not transfer to beneficiaries until the owner dies.

Until then, he or she can revoke the TOD deed in the following ways:

  • By filing a notice of revocation with the recorder’s office
  • By recording another, superseding TOD deed
  • By selling or giving the property to someone else before death

Finally, the owner is free to encumber the property while still alive, and any liens will be passed on to the beneficiary.

TOD deeds may work for some, but there are limitations and potential problems.

They are only available for single-family homes or condominium units, residential buildings with no more than four units, or a single-family residence on no more than 40 acres of agricultural land. Other properties and possessions cannot be transferred by such a deed.

If the beneficiary dies before the owner does, the deed will have no effect and the property may end up in probate.

If there are multiple beneficiaries of a TOD deed, all will become joint owners of the property. There will be no centralized management of the estate, and all beneficiaries must cooperate to assure that the owner’s final affairs are concluded, that creditors are satisfied and that the property is managed successfully.

Although the TOD deed may be useful in limited circumstances (find forms online at saclaw.org/legal-form), it is not the best choice for most people and does not offer all of the benefits of a revocable living trust.

A trust, for example, allows appointment of a trustee to collect debts, distribute assets, pay expenses and manage not only real estate but other assets. That trustee, if you wish, can sell your property and distribute proceeds as you desire. If a named beneficiary dies before your home can be deeded over, a secondary beneficiary named by the trust can take title. And if your children are still minors when you die, a guardian named in the trust can manage real estate and other assets until they come of age.

It is always wise to consult an estate-planning attorney to explore all of your options and develop a comprehensive plan that will best achieve your goals.

Tamara Polley is an attorney with the Sonora firm of Gianelli & Polley, gianellaw.com.

Copyright © 2016 Friends and Neighbors Magazine

Tamara Polley
By Tamara Polley September 15, 2016 22:00
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