There are several ways an owner of real property can direct the transfer of real property when they die. Up until recently, the most common way was through a trust, will or owning the property in joint tenancy with another person or persons. Effective January 1, 2016, there is now a new way California allows real property to be transferred upon a person’s death and avoid probate.
Governor Jerry Brown signed Assembly Bill 139 which established a procedure to transfer real property upon death through a revocable transfer on death deed. This revocable transfer on death deed is a new simple and inexpensive way to transfer real property to a beneficiary in California. The deed allows a person to leave their real property to a designated person or persons such as a family member, friend, lifelong partner or other loved one, without having to set up a living trust.
Important Factors Re Transfer on Death Deed (TOD Deed)
The new TOD (transfer on death) deed allows an owner of residential real property to name one or more beneficiaries to receive the property when the owner dies, thus bypassing the need to probate the estate. There are some specific criteria, however, that a person should be aware of when considering recording a revocable transfer on death deed.
• The real property must be a single family home or condominium unit, or a multiple residence of not more than 4 residential dwelling units, or be a single family residence on no more than 40 acres of agricultural land.
• A revocable TOD deed must be signed and dated before a notary public to be effective and valid.
• The transfer on death deed must be recorded within 60 days or less from the date it is signed.
• The transfer on death deed can be revoked by the transferor at any time.
Revoking a Transfer on Death Deed
There are three ways the transferor/owner can revoke a transfer on death deed.
1. The owner can record a formal notice of revocation.
2. A new transfer on death deed may be recorded.
3. The real property can be transferred to someone else prior to the transferor’s death.
Although the transfer on death deed must be recorded within 60 days or less from the date is it signed and before the owner’s death, it is important to understand that the interest in the real estate only transfers when the owner dies. This means that the beneficiary identified on the TOD deed does not have any rights to the real property when the owner is alive. Furthermore, creditors of a named beneficiary cannot place any liens on the property. While the owner is living, the owner has the right to sell or encumber the property. The property is also subject to involuntary liens that may be recorded by creditors of the owner which would transfer with the property to the beneficiary upon the owner’s death.
In theory, a person that owns real property in California could execute and record more than one revocable transfer on death deed. The new law provides that the deed with the most recent recording date will be the one in effect.
Downsides to a Transfer on Death Deed
If the person named in the deed as the transfer on death beneficiary dies before the real property owner does, the deed simply has no effect. This could result in the property having to be probated.
If the owner becomes incapacitated through stoke, dementia, or other event, there may be no one to revoke the deed which may be necessary due to a change in family circumstances or the need to qualify the person for Medicaid assistance.
Trust vs. New Transfer on Death Deed
For people with very few assets, recording a Transfer on Death Deed may be a quick and easy fix to set up beneficiaries to real property and avoid probate as compared to setting up a revocable living trust. However, since this transfer on death deed only directs the transfer of real property, it is not a great solution for people or couples that have minor children or have other assets that would be better administered through a trust. Additionally, since the transfer is to specific beneficiaries, problems could arise if the named beneficiaries are no longer living. Lastly, a person or couple with minor children would not be able to name their minor children on a TOD deed.
Courtesy of Orange Coast Title