What You Need to Know about California’s Revocable Transfer on Death Deed
On January 1, 2016, Assembly Bill 139 (A.B. 139) went into effect in California, allowing Californians a new alternative to keep their homes out of probate. The revocable transfer on death deed, colloquially referred to as “poor man’s trusts,” is an inexpensive and quick way of effecting a transfer of real property to a named beneficiary (or beneficiaries) upon the death of the real property owner.
Up until January 2016, the most commonly used ways to transfer real property upon death was through 3 methods:
1. Ownership of property in joint tenancy or community property with right of survivorship.
2. A living trust.
3. A will.
The transfer on death deed is considered a nonprobate method for transferring property to a named beneficiary. There are several conditions governing the type of property that can be transferred through this deed:
1. A single-family home or condominium unit, or
2. A single-family residence on agricultural property of 40 acres or less, or
3. A residence with no more than four residential dwelling units.
Pros & Cons of a Transfer on Death Deed
As with any method of estate planning, there are advantages or disadvantages that differ from person to person. Price, convenience, and security all affect the decision process for creating an estate plan, as well as the amount of assets that someone may want to protect or pass on. According to a San Francisco Chronicle article, this deed is most useful for single people, as opposed to married couples who can avoid probate by simply owning their home under joint tenancy or community property. This means that if one spouse dies, the surviving spouse would fully inherit the other's share.
1. Filing and recording the transfer on death deed is fast, simple, and very inexpensive (especially compared to the living trust and last will options).
2. Protects your property from probate court as long as the beneficiary does not predecease you.
3. Fully revocable during the real property owner’s life time. See section on revoking transfer on death deed.
4. You are still the full owner of your property, instead of adding your beneficiary as a joint tenant and making him/her an immediate legal owner.
5. No taxes to worry about. Adding a joint tenant is considered a gift by the IRS and thus requires the filing of a gift tax return, not to mention possible higher taxes in the future.
6. In terms of protecting real property, it is a good solution to avoid probate if the real property owner does not have the time or ability to create a living trust.
1. Your property will be subject to probate court if your beneficiary predeceases you and you do not have an alternate estate plan.
2. If you co-own property under joint tenancy, your joint tenant becomes the sole owner upon your death and has full control of the property despite your deed, unless your co-tenant has also filed the deed separately naming the same beneficiary or beneficiaries.
3. If the beneficiary is a minor upon the death of the property owner, a court-appointed custodian will be granted control and management of the property until the child reaches legal age, and only then will the child own the property outright. This process may incur legal and court fees.
4. Should the real property owner pass away, the named beneficiary will be held personally liable for all unsecured debts (mortgages and taxes) of the deceased property owner, up to the value of the property that passes to the named beneficiary.
5. The property may still be subject to Medi-Cal estate recovery if the property owner was a recipient of Medi-Cal benefits.
How Do I Prepare the Transfer on Death Deed?
Fortunately, the process of filing and recording the transfer on death deed to leave real estate for a beneficiary is quite simple. The copy of the deed you prepare must meet state requirements and contain the correct language and formatting. This simple, one-page document can be found for free at your county clerk’s office or website. Los Angeles County offers the form for free here. These are the simple steps to making sure your transfer on death deed is prepared correctly:
1. Fill out all general required information about your identity and address.
Make sure the “Assessor’s Parcel Number” and “Property Description” directly matches the description from your property’s current deed, or your deed may be invalid if it isn’t titled correctly.
2. Name your beneficiary or beneficiaries.
Be specific and do not use categories such as “my children” or “my brother.” The state will likely not recognize these types of titles even if your identity is clear. It is safest to list the full legal name of each beneficiary you wish to name.
a. If you name more than one beneficiary, be sure to indicate how they will take title to your property upon your death. Will they be titled “as joint tenants” who will own the property in equal shares?
3. Sign and date the transfer on death deed before a notary public.
If you’re not the sole owner of your property, then the transfer on death deed is useless if you predecease your co-tenant, who will own the property outright. Your co-tenant (such as a spouse or sibling) would have to file a separate transfer on death deed naming the same beneficiaries in order to ensure the transfer of property in the event of both property owners’ deaths.
4. Have the notarized deed recorded with your county clerk’s office.
Remember that the law requires you to record the deed within 60 days of notarization, otherwise it will be null. This can be done by mailing or bringing your deed to your local recorder/county clerk's office. Be prepared to any filing and recording fees.
How Do I Revoke a Transfer on Death Deed?
The transfer on death deed is fully revocable before the death of the real property owner. There are 3 effective ways to revoke this deed:
1. File and record a Revocation of Revocable Transfer on Death Deed form.
2. Record a new transfer on death deed naming a different beneficiary. The newest recorded deed will automatically revoke any and all previous deeds of the same type.
3. Sell or transfer the real property to someone else prior to the real property owner’s death.
Potential Risks and Uncertainties of the Transfer on Death Deed
Since the transfer on death deed was only recently introduced as a legal way to transfer property upon a property owner’s death, there are several legal implications that have not been fully studied and understood yet. There are possible unforeseen or unintended consequences of having the transfer on death deed as a new option for real property transfer:
1. Opponents of the transfer on death deed have cited concerns relating to issues of undue influence, fraud, or incompetence when it comes to preparing these deeds. For example, scammers or predators may persuade or pressure an elderly person to prepare this type of deed to transfer a home to them upon death. Elder abuse and other types of undue influence or fraud are a main concern. The current safeguard for this is a law that prohibits a beneficiary from selling a home within 120 days of the grantor’s death.
2. Claims of undue influence, fraud, or incompetence may invite litigation by family members and friends upon the death of a property owner who prepared a transfer on death deed.
3. Any mortgage or debt that is attached to the property is transferred along with the property to the beneficiary upon the property owner’s death.
4. Any liens placed upon a property by the homeowner’s creditors are transferred to the beneficiary upon the homeowner’s death.
What if I’m a Co-Owner of a Property?
There are several ways to own a property jointly, with one or more people such as a spouse, family member, or friends. There is joint tenancy with right of survivorship, community property (with or without right of survivorship), or tenancy in common. Joint tenancy is the main form of co-ownership that may affect the use of a transfer on death deed.
If you co-own a property under joint tenancy, things can get tricky if you want to leave property to a beneficiary with a transfer on death deed. Legally, your joint tenant(s) has the right of survivorship and legally inherits your share of the property upon your death. This means that even if you had a transfer on death deed prepared, it becomes useless since your joint tenant now owns the property in full. There are only two ways to avoid your transfer on death deed from becoming null:
1. You outlive the other joint tenant(s).
2. Your joint tenant(s) shares your interests and prepares a separate transfer on death deed naming the same beneficiary. However, since this deed is fully revocable, your joint tenant may choose to revoke the deed upon your death, making your joint tenant the sole owner of the property.
The Transfer on Death Deed in a Nutshell
The transfer on death deed, like any other method of estate planning, has its benefits and drawbacks. These pros and cons all depend on the status of your finances, the amount of assets you possess, the urgency of your situation, and much more. Any type of estate planning is a step in the right direction if you have your loved ones’ futures in mind. However, it is always safest to consult with a trusted estate planning attorney if you are ever unsure about your options.
Learn Your Best Options for Planning Ahead
There are many ways to create an estate plan and make sure your family is prepared for a future without you. Now that you’ve heard about a newer method to transfer property to a loved one, do you know if this is the perfect method for you or not?
Just as with any major life decision, you don’t have to be alone in making it. You want to consult a professional who can advise you on your best options. Our estate planning attorneys are ready to help.
Just call (626) 307-2800 to schedule your free consultation.
- Edmund Yan, Los Angeles Wills & Trusts Lawyer