California’s new transfer on death deeds (“ToD deeds”) allow for the transfer of real estate upon the occurrence of death without the need for costly estate planning or probate administration. Codified at California Probate Code section 5600 – 5696, the new mechanism may fill a void in the array of estate planning options, but it is not likely to catch on with traditional estate planning attorneys for the reasons discussed below.
Fresno attorney Mark Poochigian presented a thoughtful and at times critical assessment of ToD Deeds at a Sacramento County Bar Association luncheon in June. At the Summer Education Conference of the California State Bar Trusts and Estate section, only one of the more than one hundred attorneys in attendance acknowledged having prepared one of these new deeds since the law went into effect on January 1, 2016.
What Are They?
A ToD Deed is recorded in the local county recorder’s office, but is not operative until the grantor (the person transferring the property) passes away. Most deeds are effective at the time of delivery to the grantee (the person receiving the property) and recordation is an optional task. With ToD Deeds, the recordation is what makes the deed effective. After recordation, and until the time of the transferor’s death, a ToD Deed is fully revocable and the grantee has no interest in the property until the grantor’s death.
How Do They Work?
A ToD Deed must be “substantially” in the form specified in Probate Code section 5642. This section includes a sample form for what a ToD Deed must look like and what it must say. The grantor fills in his or her name on the form ToD Deed, provides the legal description of the property, and then lists the name(s) of the beneficiary(ies) who will receive the property on the grantor’s death. The form expressly states “I transfer all of my interest in the described property to the named beneficiary(ies) on my death.”
After completing the form, the grantor is required to sign and date it in front of a notary. Importantly, the Probate Code requires recordation of the ToD Deed on or before 60 days after the date it was signed. If not recorded within 60 days then the deed is void and ineffective to accomplish the intended transfer.
If Grandma signs and dates a ToD Deed on January 1, 2017 that purports to leaves her home in Davis, California to Grandson, but then heads off to bingo and forgets to record the ToD Deed at the Yolo County Recorder’s Office until she discovers it in a stack of papers on March 15, 2017, the ToD Deed is ineffective. This is true even though (a) it may be Grandma’s intent that Grandson receives the property and he would not, but-for the ToD Deed, and (b) the ToD Deed was otherwise fully compliant with the law and was accepted for recording by the County Recorder. When Grandma passes away in 2025, the Davis home would not be subject to the ToD Deed and would instead pass pursuant to the terms of Grandma’s will or trust (or if she has neither, then the California intestacy statutes).
How Are They Different?
Traditional methods of estate planning consist primarily of (1) a last will and testament that is administered by a personal representative with oversight by the probate court and results in a judicially-approved collection and distribution of property; and (2) a trust instrument that is administered by a trustee and generally outside the step-by-step approval process of the probate court, assuming all goes well.
It is relatively simple and straightforward to prepare a last will and testament, but the process of probating a will in the probate court can be lengthy after a decedent passes away, and it can be more complex if the estate involves the sale or transfer of a piece of real property.
On the other hand, a trust allows for the speedy and efficient transfer of assets, including real estate, very soon after a decedent passes away, but a trust is more expensive and involved to create during the decedent’s lifetime, and requires careful attention during post-death administration.
The aim of a ToD Deed is to address and resolve the downsides of both wills and trusts. ToD Deeds are easy and quick to administer after a decedent passes away and they are easy, quick, and inexpensive to create during the decedent’s lifetime.
If Grandma’s sole significant asset is her home in Citrus Heights, and she knows that she wants it to go to her Sister at her death, a ToD Deed is an efficient and inexpensive means of accomplishing Grandma’s estate planning objectives that will decrease Sister’s administrative burden in transferring the home after Grandma’s death.
What’s The Concern?
Some of the consternation about the new ToD Deeds likely stems from the fact that they are new, and not everyone is comfortable with how they operate.
Beyond neophobia, there are a few sticking points with ToD Deeds that could lead to litigation and may be give planners heartburn:
- Undue Influence: There is a concern among attorneys that abuse of ToD Deeds may become rampant among those who prey upon the elderly. Wills are usually prepared by an attorney because of their complexities and formalities, and attorneys almost always prepare trusts. When a client comes to an attorney to make a modification to his or her estate plan, the attorney can serve as protective barrier between an elder who may be susceptible to undue influence and a potential abuser. A ToD Deed can be easily prepared at home using freely available forms that are then mailed to the recorder’s office to be made effectual. By removing attorneys from the estate planning process, one potential level of protection for elders has been eliminated.
- Statutory Kinks: There is a concern among practitioners that the statutes in the Probate Code that implement ToD Deeds are lacking in essential details that could lead to litigation. For example, the types of properties that are eligible for transfer by ToD Deed per Probate Code section 5610 are (a) real property improved with between 1 and 4 residential dwelling; (b) a condominium unit; and (c) a single tract of agricultural real estate consisting of 40 acres or less that is improved with a single-family residence. But, the statutes are silent about when the property must be eligible. What if Grandma signs a ToD Deed in 2017 when the farmhouse is on the 35 acre farm, but by the time Grandma passes away in 2030 the farmhouse has been demolished for more than a decade and the 35 acre farm lacks a single-family residence? Is the ToD Deed still effective? This fact pattern seems likely to be litigated between second generation farming siblings when the effect of the ToD Deed would be to favor one sibling over the other. Over time, appellate courts interpreting the ToD Deed statutes will fill the holes if the Legislature does not address them first.
- Timing Concerns: Per the above, a ToD Deed must be recorded within 60 days of execution in order to be effective. A ToD Deed is still effective if the decedent dies after executing the deed but before recording it, as long as recordation occurs within 60 days of execution. If Deceitful Caregiver convinces Grandma to sign a ToD Deed on her death bed on January 1, and Grandma dies on January 2, Deceitful Caregiver may record the ToD Deed until March 2 (i.e., 60 days after January 1), establishing Deceitful Caregiver’s title interest in the home.
- Revocations: Even more complex are the rules for revoking a ToD Deed, which seem to require that revocations be recorded prior to the decedent’s death, even though a new ToD Deed that revokes a prior ToD Deed can conceivably still be recorded up to 60 days after a decedent’s death. The potential for confusion, and therefore litigation, is high.
ToD Deeds are an interesting new development in a California estate planner’s tool kit. While they are not a perfect fit for everyone, for certain types of people transferring certain types of property, they may be a beneficial tool. Nevertheless, there is some uncertainty as to how these deeds will work in practice. Stay tuned for what are certain to be more developments and case law concerning these deeds.