New this year is California’s new method to transfer title to real property upon the death of its owner. A new law has created a Revocable Transfer on Death Deed (“TOD Deed”). Promoted as a simple and inexpensive way for homeowners to transfer title to certain property to named beneficiaries upon their deaths, there are nevertheless numerous limitations and requirements, including proper completion, execution, notarization and timely recording. If done correctly, the TOD Deed allows the beneficiaries named in the deed to acquire ownership of certain residential property following the death of the owner without any court proceedings such as probate or trust administration efforts.
Seen as an alternative to a revocable living trust which is perceived by the proponents as a costly and burdensome strategy, it overlooks the critical fact that most homeowners will also have other valuable assets such as bank accounts, brokerage accounts, stocks, bonds, etc., that would still be exposed to probate proceedings. Another shortcoming of the new law is that it overlooks the fact that transfer of a residence may need to occur before death, e.g., when someone becomes incapacitated from dementia. A living trust facilitates easy transfer both before and after death. Further, the use of the TOD deed could create major problems when there are circumstances where beneficiaries are deceased, minors, disabled or spendthrifts.
The new law requires use of a specific format with required provisions. While touted as a simpler solution, the enabling statute is 32 pages long. Anything that requires that much explanation cannot realistically be considered simple. Unfortunately, contained within those 32 pages are many traps for the unwary which many unwitting consumers will likely fall into.
Other problems with TOD Deed are that they offer no creditor protection to the property owner; will not avoid Medi-Cal estate recovery for the owner who received certain Medi-Cal benefits; only apply to residential property of up to four units or on up to 40 acres of agricultural land; do not permit the designation of beneficiaries by class description (e.g., “all my children and grandchildren”); do not allow the designation contingent beneficiaries. Instead, if a designated beneficiary predeceases the owner, the property automatically goes to the other surviving beneficiaries or, if none, then it reverts to the owner which will likely trigger a probate; and cannot be used to transfer residential property held in joint tenancy or as community property with right of survivorship.
Many groups, including real estate, title insurance and legal professionals and advocates for the aged and disabled, fear that the TOD Deed also will make it easier for the elderly and disabled to fall victim to abusive transfers.
Our take: The new TOD Deed is far from the perfect estate planning solution. While it may have value in limited circumstances, it falls short of the kind of protection for the home that is afforded to most homeowners with a comprehensive living trust-based estate plan. One should never attempt to implement this planning tool without first seeking the advice of an experienced and qualified estate planning and elder law attorney.