NOTICE: Californians Have a New 2016 Law to Keep Homes out of Probate And You Can Use The Law to Help Your Family Law Clients
In California, there are a variety of ways to hold title to your home that will dictate who will become the new owner of your home when you die.
Starting January 1, 2016, California homeowners can add a new way of holding title to their homes called the "Revocable Transfer on Death Deed" (TOD deed). TOD deed is a non-probate deed whereby the homeowner may deed his/her home to a named beneficiary and the transfer becomes operative on the homeowner’s death, but will remain revocable until he/she dies. California Assembly Bill 139 2015-2016 Reg. Sess. created the "Revocable Transfer on Death Deed" (TOD deed) as an alternative "poor man’s" estate planning instrument to avoid probate without having a trust. It was approved on September 21, 2015 and will take effect on January 1, 2016 and expires on January 1, 2021.
The TOD deed covers only one to four residential dwelling units, a condominium, or agricultural land of forty acres or less with a single-family residence. To be valid, a form called "Simple Revocable Transfer on Death (TOD) Deed" must be recorded within sixty days of execution in the county where the property is located, must be signed, dated, notarized, must contain a legal description of the property, and name the beneficiaries getting your property and their relationships to the creator of the TOD (one cannot make a class gift such as "to my children or grandchildren.") The beneficiary of a TOD deed effectuates the transfer when the homeowner dies by recording an affidavit of the transferor’s death certificate and notifies Medi-Cal of the death. A TOD deed essentially allows a homeowner to execute a deed (instead of a trust) that names a beneficiary who will obtain title to ones home when the homeowner dies without going through probate. This Notice examines the advantages and disadvantages of using this new California TOD deed.
The primary goal of the California legislature when they created this new TOD deed was to allow single seniors or widows to escape probate without the need to draft a trust. Some parents add their children on to their house as joint tenants for the sole purpose of avoiding probate. The problem with this method is that the children immediately own part of the house, which may subject the house to the children’s creditors. A TOD deed does not create a present interest for the children, meaning the children only own the house when the parent dies; therefore, the children’s creditors would have to wait until the parents die to attach any of the children’s liens to the house. (The children or people who are the beneficiaries on the TOD deed would be tenants in common.) The parent who drafted the TOD deed giving the home to a particular child or person can change his or her mind and revoke the TOD deed, which is an advantage over quit claim deeds or joint tenancy because those are not revocable. The TOD deed will preserve the capital gains stepped-up basis of the house for the children because the house is still part of the parent’s estate when the parent dies. This new law is intended to benefit single people including widows.