California’s New Transfer on Death Deed

This year, California joined the growing number of states that allow a real estate owner to use a Transfer on Death Deed (“TOD Deed”) to designate one or more beneficiaries who will inherit property on the owner’s death.

The new law requires use of a specific form and certain provisions. The deed looks much like any other real estate deed; it names the current owner (“grantor”), describes the property, and names the person to whom the property will be transferred (“beneficiaries”). The significant difference is a clarifying statement that the deed does not take effect until the grantor’s death.

The TOD Deed is similar to the Transfer on Death (“TOD”) or Pay on Death (“POD”) provisions that have long been available for brokerage or bank accounts. Following the owner’s death, the surviving beneficiary(ies) acquire ownership without the formalities of a probate or trust administration.

This new deed will be a welcome alternative for those who wish to avoid the complexity and cost of designing a Revocable Living Trust to avoid probate of their home, which is often their most valuable asset. It is also a much safer – and smarter – option than adding an intended beneficiary as a joint tenant. However, as with any other estate planning strategy, the TOD Deed will not be appropriate for everyone.

Here are some advantages of the TOD Deed:

  • Easy to use
  • Inexpensive
  • Simplifies transfer at death (avoids probate)
  • Revocable during the grantor’s life

Now for the disadvantages:

  • Only available for a residential property
  • Must be recorded within 60 days of execution
  • Cannot be used for property held as joint tenants or community property with right of survivorship
  • Contingency planning is not available (if one of multiple beneficiaries predeceases the grantor, the property goes to the surviving beneficiaries; if a sole beneficiary fails to survive the grantor, the property reverts to the grantor and will likely require probate)
  • Designation of a minor beneficiary will require a guardianship proceeding
  • Property passes subject to the grantor’s debts, which may include Medi-Cal estate recovery
  • As a stand-alone solution, fails to plan for the grantor’s incapacity

This law has a five-year life-span to allow lawmakers to study its operation and later decide whether it should be extended or modified. But even if the law is not extended, a TOD Deed that is properly executed and recorded from 2016-2020 will be effective.

 

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