By Joseph Ferrucci
December 15, 2015

 

AB 139, which will go into effect on January 1, 2016, allows individuals to execute Transfer on Death Deeds (“TOD Deeds”) for their California real property. A properly executed and recorded TOD Deed will transfer real property to a named beneficiary without the need for joint tenancy, probate proceedings, or a living trust. TOD Deeds come with significant limitations, and it is important to be fully informed about how TOD Deeds work. Whether a TOD Deed is right for you depends on your circumstances and your wishes. Consult with a qualified attorney if you are considering executing a TOD Deed.

TOD Deeds provide another way for owners of real property to avoid probate proceedings. A TOD Deed names a beneficiary to receive the property after the death of the original owner.

Under current law, an estate is subject to probate proceedings if the deceased person had an interest in real property worth $50,000 or more. There are currently two ways to keep real property out of probate:

  • Living Trust. Real property and other assets subject to probate can be transferred into a living trust during lifetime. Those assets will then avoid probate at the time of death. Setting up a living trust is a preferred probate-avoidance strategy for many California residents. For some individuals, however, setting up, funding, and maintaining a living trust may be too expensive or burdensome.
  • Joint Tenancy Deeds. If you co-own your property with another person in joint tenancy, the real property will pass to the survivor upon the death of either owner without probate. Some property owners purposely add joint tenants to title with the intent of passing the property to the joint tenant at death without probate. Use extreme caution before adding anyone other than a spouse on title to real property. The addition of a joint tenant to title can have unintended tax consequences. It will also result in the sharing of the benefits and responsibilities of the property, and it will expose the property to the liabilities of the joint tenant.

A TOD Deed is generally a better way to avoid probate than a joint tenancy deed, because it avoids the tax issues and other complications associated with joint tenancy. However, the scope and effect of a TOD Deed is limited in several important ways:

  • If a TOD Deed names more than one beneficiary, the beneficiaries will become co-owners in equal shares as tenants in common. A TOD Deed should not be used if the original property owner intends a different result.
  • A TOD Deed must identify the beneficiaries by name. So-called “class gifts,” e.g., “to my children” are not allowed on a TOD Deed.
  • If the beneficiary named on the TOD Deed dies before the original owner, the TOD Deed will have no effect, but if the TOD Deed names more than one beneficiary, the TOD Deed will still be effective with respect to the other surviving beneficiaries.
  • If there is more than one original owner, and they hold title as joint tenants or as community property with right of survivorship, a TOD Deed has no effect upon the death of the first joint tenant or spouse, but the TOD Deed will still have effect after the death of the last joint tenant or spouse. If the original owners want to sever the joint tenancy or transmute from community to separate property, a TOD Deed should not be used.

In these ways, TOD Deeds have limited distribution options. If a beneficiary unexpectedly passes away first, the original owner will have to execute a new TOD Deed to keep the property out of probate. Compared to a TOD Deed, a living trust provides the full range of distribution options, as well as more comprehensive protection from probate. In many cases, setting up and funding a living trust will still be preferable to executing a TOD Deed.

A TOD Deed must be substantially in the form provided in Probate Code section 5642. Like ordinary deeds, a TOD Deed must be signed by the original owner and acknowledged by a notary public. Unlike ordinary deeds, a TOD Deed must be recorded in the county where the property is located within 60 days of signing. Failure to record the TOD Deed within 60 days makes the instrument invalid.

During life, the original owner can revoke a TOD Deed at any time, and the beneficiary does not need to be informed of a revocation. There are several ways to revoke a TOD Deed: (1) Execute a Revocation of the TOD Deed, (2) Execute a new TOD Deed, (3) Sell, gift, or otherwise transfer the property to a third party, or (4) Transfer the property to a trust. Each of these methods requires completing, executing before a notary, and recording an instrument. Notably, a TOD Deed cannot be revoked in a Will.

A TOD Deed can be executed and recorded before January 1, 2016, but it will only have legal effect for original owners who pass away on or after January 1st. AB 139 will expire on January 1, 2021, unless the State legislature decides to renew the law. If the law is not renewed, TOD Deeds validly executed before January 1, 2021 will continue to have legal effect.

 

DISCLAIMER: This article contains general information about legal topics. It is not, and is not intended to be, legal advice. Your use of information in this article does not make Joseph Ferrucci, Attorney at Law P.C., or any of its attorneys, your attorney and does not establish an attorney-client relationship. Every case must be analyzed independently, based on the specific and unique facts of the case. If you have questions about your particular case, consult with a licensed, qualified attorney. This article is intended for personal use only, and not for publication or distribution. 

© 2016 Joseph Ferrucci, Attorney at Law P.C.