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California's Transfer on Death Deed

Posted by Nina Whitehurst | Sep 26, 2019 | 0 Comments

WHAT IS A TRANSFER ON DEATH DEED?

A nonprobate device to transfer residential real property to a named beneficiary upon the owner's death.  Like a will, no consideration is required and the beneficiary's acceptance is not required.  Capacity to contract is required.  TODs are revocable by recording a revocation, recording an absolute conveyance, or recording a subsequent TOD deed.

WHO IS A GOOD CANDIDATE FOR CREATING A TRANSFER ON DEATH DEED?

  • Owner is unmarried.
  • Property is owned free and clear and the owner has no other debt.
  • The owner plans to designate one individual as the death beneficiary.
  • The death beneficiary is a suitable candidate for an outright distribution of real property (not a minor, not a spendthrift, has not judgements against him or her or any pending litigation, not at risk of divorce, not drawing government benefits, etc.)
  • The remainder of the owner's estate is less than $150,000.

WHAT MUST THE DEATH BENEFICIARY DO TO OBTAIN TITLE WHEN TRANSFEROR DIES?

The death beneficiary must RECORD evidence of the transferor's death (Prob. Code § 210), and file a change in ownership notice (Rev. & Tax. Code § 480).  If the transferor received Medi-Cal benefits, the beneficiary must notify the State Department of Health Care Services of the transferor's death and provide a copy of the death certificate (Prob. Code § 215).

WHAT GOALS ARE TODs INTENDED TO ACHIEVE?

  • Transfer on death
  • Avoid probate
  • Cost effective (supposed to be Do It Yourself)
  • Revocable

HOW DO TODs COMPARE TO OTHER TRANSFER ON DEATH DEVICES RE THE ABOVE GOALS?

GOAL

TRANSFER ON DEATH

AVOID PROBATE

DIY

REVOCABLE

Will

Yes

No

No

Yes

Inter Vivos Trust

Yes

Yes

No

Yes

JTWRS

Yes

Yes

No

No

TOD Deed

Yes

Yes

Yes

Yes

HOW DO TODs COMPARE TO OTHER TRANSFER ON DEATH DEVICES ON OTHER CONSIDERATIONS?

GOAL

STEP UP IN BASIS

ANY PROPERTY

NO EXPOSURE TO BENEFICIARY'S CREDITORS

BENEFICIARY MAY NOT SELL OR ENCUMBER HIS/HER INTEREST

CAN MAKE GIFTS OF UNEQUAL SHARES

ANTI-LAPSE

Will

Yes

Yes

Yes

Yes

Yes

Yes

Inter Vivos Trust

Yes

Yes

Yes

Yes

Yes

Yes

JTWRS

Half

No

No

No

No

n/a

CPWRS

Yes

No

No

No

No

n/a

TOD Deed

Yes

No

Yes

Yes

No

No

OTHER DISADVANTAGES OF TRANSFER ON DEATH DEEDS

  1. A little too easy to trick vulnerable seniors due to nature and simplicity of device.
  2. Testamentary capacity insufficient.  Must have the (higher) capacity to contract.  This can be a problem if the grantor's capacity is diminished.
  3. Likely to create more litigation, some say.
  4. Limited to residential real property.  Can only be used to transfer (1) a parcel of property that contains one to four residential dwelling units, (2) a condominium unit, or (3) a parcel of agricultural land of 40 acres or less, which contains a single-family residence.
  5. Potential conflicts with other estate planning devices.
  6. A co-owner must complete and RECORD a separate TOD deed.
  7. Cannot be revoked by will.
  8. TOD does not override JTWRS or CPWRS or just plain community property (i.e., without survivorship).  Spouse's joinder must be by a separate writing.  Spouse may revoke consent.
  9. As a result of the new law, the rights of post-death purchasers are subject to divestment for 60-120 days after date of death.  A TOD deed may be recorded up to 60 days after date of death, and if a successful contest action is filed and a lis pendens recorded within 120 days of the transferor's death, the court must order the TOD deed void and transfer the property to the person entitled to it.  This effectively makes title uninsurable for 120 days after date of death.
  10. Law makes the death beneficiary personally liable to creditors of the decedent's estate, up to the equity in the property, plus net income (not defined, allowable offsets unclear) received from the property plus, if the beneficiary sells the property, interest on the sales price (presumably net of liens, but this is not clear) at 10% from the date of sale.  The personal representative may make a restitution demand up to three years after the decedent's death.
  11. Law expires January 21, 2021, but deeds recorded before then remain effective.

FAQ'S

WHAT IF I NAME MORE THAN ONE BENEFICIARY? Your beneficiaries will become co-owners in equal shares as tenants in common.  If you want a different result, you should not use this form.

HOW DO I NAME BENEFICIARIES? You MUST name your beneficiaries individually, using each beneficiary's FULL name. You MAY NOT use general terms to describe beneficiaries, such as “my children.” For each beneficiary that you name, you should briefly state that person's relationship to you (for example, my spouse, my son, my daughter, my friend, etc.).

WHAT IF A BENEFICIARY DIES BEFORE I DO? If all beneficiaries die before you, the TOD deed has no effect.  If a beneficiary dies before you, but other beneficiaries survive you, the share of the deceased beneficiary will be divided equally between the surviving beneficiaries.  If that is not the result you want, you should not use the TOD deed.

WHAT IS THE EFFECT OF A TOD DEED ON PROPERTY THAT I OWN AS JOINT TENANCY OR COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP? If you are the first joint tenant or spouse to die, the deed is VOID and has no effect. The property transfers to your joint tenant or surviving spouse and not according to this deed. If you are the last joint tenant or spouse to die, the deed takes effect and controls the ownership of your property when you die. If you do not want these results, do not use this form. The deed does NOT transfer the share of a co-owner of the property. Any co-owner who wants to name a TOD beneficiary must complete and RECORD a SEPARATE deed.

DOES THE TOD DEED AFFECT MY ELIGIBILITY FOR MEDI-CAL?  No. 

AFTER MY DEATH, WILL MY HOME BE LIABLE FOR REIMBURSEMENT OF THE STATE FOR MEDI-CAL EXPENDITURES? Your home may be liable for reimbursement.  Furthermore, the law requires the beneficiary of a TOD deed to give that notice to the Director of Health Care Services if there is no estate attorney to give the notice.

AFTER MY DEATH, WILL MY HOME BE LIABLE TO PAY OTHER CREDITORS OF MY ESTATE?  Yes.  The executor or trustee can reclaim the TOD Deed property if the property is needed to pay the debts of the estate or trust for up to three years after a person dies.

CAN A TOD DEED BE RECORDED AFTER DEATH OF THE TRANSFEROR?  Yes.  The law allows the TOD Deed to be recorded up to 60 days after it is signed, even if it is after death of the transferor.  So, even if the property has a TOD Deed on it at date of death, nobody can be sure there is not a subsequent TOD Deed out there to be recorded until 60 days after death.   Title companies have indicated they will not give title insurance on property sold within 120 days of date of death as it could have a TOD Deed filed after death and then could have a contest action that would require it to be returned to the rightful owner.

WHAT ABOUT A “REVOCABLE DEED WITH RESERVED LIFE ESTATE”?

Neither the boundaries nor the structure of the device has been fully developed.  The revocable deed with a reserved life estate was created in 1914 by a decision of the California Supreme Court, and the device is based purely in a limited body of law.  However, for the brave at heart, this might be a better option that an TOD deed, but certainly not as certain and advantageous as a revocable living trust.

HYPOTHETICAL #1

Grandma executes a TOD deed naming Grandson as the death beneficiary on July 1.   On July 14, having a change of heart, Grandma executes a quitclaim deed conveying her interest in the same property to a newly created revocable trust naming a charity as the death beneficiary.  Grandma dies on July 16.   The quitclaim deed is recorded on July 17.  The TOD deed is recorded on July 30.

  1. Which deed controls? The quitclaim deed dated July 14 and recorded July 17 or the TOD deed dated July 1 and recorded July 30?
  2. Even though Grandma signed the quitclaim deed well after the TOD deed and the events indicate that Grandma intended for the quitclaim deed to control, not the TOD deed, the TOD deed would govern the disposition of the property.

HYPOTHETICAL #2

Grandma records a TOD deed designating Grandson as her death beneficiary with respect to her home, which she owned free and clear.  Grandma dies.  Grandson properly records an Affidavit of Death and files a notice of change of ownership.  Grandson sells the home for $500,000 approximately 2 months after Grandma's death.   Just before the third anniversary of Grandma's death, the executor of her probate estate finishes litigating creditors' claims and needs to reclaim the property to pay Grandma's debts.  The executor makes demand on Grandson. 

  1. Must Grandson return the property in kind?
  2. No. Cash will do just fine.
  3. How much must Grandson pay to the estate?
  4. $500,000 (sale price) plus any net income earned between Grandma's date of death and Grandson's date of sale (we'll assume zero), plus interest on the (presumably net) sales price at 10% from the date of sale to the date of restitution (approximately $150,000) for a grand total of approximately $650,000.
  5. What if Grandson pays the $650,000 back to the estate and it turns out the funds were not needed to pay debts after all? Does the executor have to return the unused portion of the “property”?
  6. Yes.
  7. What if Grandson pays the $650,000 back to the estate and it turns out the funds were not needed to pay debts after all? Does the executor have to return the income and interest that the Grandson paid to the estate?
  8. The answer is not clear.
  9. What if Grandson pays the $650,000 back to the estate and it turns out the funds were not needed to pay debts after all? Does the executor have to pay income and interest to Grandson for the time the estate held the property?
  10. The answer is not clear.
  11. What if Grandson placed a mortgage on the home between the date of death and date of demand for restitution? Is Grandson liable to the estate for the amount of the mortgage?
  12. No! This seems to be a legislative oversight. 
  13. What if Grandson paid capital gains tax when he sold the property? Is the estate liable to Grandson for the capital gains tax he paid?
  14. Apparently not! This also seems to be a legislative oversight. 

About the Author

Nina Whitehurst

Attorney at Law Nina has been practicing law for over 30 years in the areas of estate planning, real estate and business law She is currently licensed in Alaska, Arizona, California, Colorado, Oregon and Tennessee. Her Martindale-Hubbell attorney rating is the highest achievable: 5 stars in peer...

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