Probate avoidance is a primary consideration for estate planners and their clients. A revocable trust is usually the vehicle of choice for making nonprobate transfers, but alternatives have always existed for personal property such as cash in the bank, retirement plan benefits, and brokerage accounts. For real property, no such vehicle existed. Until January 1, 2016, that is.
For personal property assets, a beneficiary designation may be used to transfer the property automatically at death outside the decedent’s probate estate. Personal property up to $150,000 also may be collected by affidavit. Prob C §13100. By contrast, real property valued at more than $50,000 can’t be collected by an affidavit, except by a surviving spouse. Prob C §§13200, 13500.
The California legislature has created a new way to avoid probate on real property transfers: a revocable transfer on death (TOD) deed for real property. Prob C §§5600–5694.
The objective of the legislation is to permit the transfer of real estate at death in a way somewhat similar to a pay on death (POD) account under the California Multiple-Party Accounts Law (Prob C §§5100–5407) or a transfer on death (TOD) securities account under the Uniform TOD Security Registration Act (Prob C §§5500–5512), except that there’s no third-party holder of the property.
The new law also may be seen as permitting a nonprobate transfer of real property that’s similar to a transfer by joint tenancy, except that the initial conveyance is revocable, and the transferee or beneficiary acquires no ownership rights, not even future interest rights, in the property before the transferor’s death.
Here’s the form required for a revocable TOD deed (Prob C §5642):
I transfer all of my interest in the described property to the named beneficiary(ies) on my death. I may revoke this deed. When recorded, this deed revokes any TOD deed that I made before signing this deed.
The deed must be recorded under Prob C §5626(a) within 60 days after it’s signed and notarized under Prob C §5624.
Note that a revocable TOD deed is void with respect to the survivor’s interest in joint tenancy property and community property with right of survivorship. Prob C §5664. But it remains effective to transfer the property at the survivor’s death if the transferor was the surviving joint tenant or surviving spouse.
A revocable TOD deed shares the disadvantage of joint tenancy in that benefits can’t be divided unequally and contingent beneficiaries can’t be named. The surviving beneficiaries take the property in equal shares as tenants in common. And the beneficiaries are liable for the transferor’s debts, unlike surviving joint tenants.
The new law is a 5-year trial, set to expire on January 1, 2021. Prob C §5600(c).
The common use of trusts may give way to increasing use of statutory nonprobate transfers now that these will also available for real property. But in most cases, the superior flexibility of trusts should still make it the vehicle of choice.
For more on nonprobate transfers, turn to CEB’s California Estate Planning, chap 7. Also check out CEB’s California Will Drafting §§3.34-3.37C.
Other CEBblog™ posts you may find useful:
- Dead Man “Kwoking”: Estate Planning Property Transfers Can Trigger Title Insurance Nightmares
- The Gift That Keeps on Giving: Property Tax Information on Parent-Child Transfers May Reveal Unreported Gifts
- Perpetual Motion for the Rule Against Perpetuities
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