On September 21, 2015, Governor Brown approved AB 139, creating the Revocable Transfer on Death Deed (“RTODD”), effective January 1, 2016. For those who do not have a Living Trust in place, a RTODD, which is similar to a beneficiary designation on an IRA, 401(k), 457(b), life insurance policy or annuity, allows an individual to designate a beneficiary to inherit his or her real estate after that individual’s death without the time and expense associated with probate. For a RTODD to be valid, the transferor must have had capacity to contract at the time of execution; the transferor must use the valid statutory form; and the RTODD must be signed in front of a Notary and recorded within 60 days of signing. You can revoke it at any time by recording a Revocation with the County, or by executing a new RTODD.
A form of this bill was submitted in 2007, 2009, and 2010, but did not pass the Senate until 2015. At this time, 20 other states recognize the authority of an RTODD, or similar legal documents, as a method for avoiding probate.
Executing a RTODD does not affect the owner’s rights during his or her lifetime, and the property remains included in the owner’s estate for Medi-Cal eligibility and reimbursement.
If the property is owned as joint tenancy or community property with right of survivorship, and you are the first owner to die, the RTODD will be void and has no effect. The property transfers to your joint tenant or surviving spouse and not according to the RTODD. If you are the last joint tenant or spouse to die, the RTODD takes effects and controls the ownership of your property when you die. An RTODD will not transfer the share of a co-owner. Any co-owner who wants to name a Transfer-on-Death Beneficiary must complete and record a separate deed.
It is important to note that if you name multiple beneficiaries on the RTODD, the shares to those beneficiaries must be equal (no leaving 50% to your child, and 25% to each grandchild). Additionally, if a named beneficiary on a RTODD passes away, the property will pass entirely to the other named beneficiaries, and not the children of a deceased beneficiary.
Please also take into consideration the practical implications of having multiple owners inherit one piece of property. There is no centralized management like there would be with the Executor of a Will or Trustee of a Trust, so coming to a fair agreement regarding who pays the taxes and other expenses of the home may be an issue, not to mention the logistics of executing a listing agreement offer, counteroffer, escrow documents, etc., if selling the property. Each owner will be jointly and severally liable for all expenses of the home, meaning it doesn’t matter which of your beneficiaries is actually living in the home – if that person stops paying the property tax, any one of your beneficiaries can be sued for the entire amount owed.
Even more frightening is that the RTODD offers a convenient method to commit elder abuse. For example, an elderly person with dementia could be unduly influenced or fraudulently induced to sign a RTODD, transferring title to his or her home to a caregiver or greedy relative or neighbor. If a fraudulent RTODD is executed, it is unlikely that the rightful heirs of that property will learn about the fraudulent RTODD until after the owner has passed away and title to the home has passed to the wrongdoer, when the options for reversing the transfer are limited and expensive. Additionally, when used by transferors without advice from legal counsel, an improperly executed RTODD could create confusion and ambiguity that could cloud legal title. More significantly, an improperly executed RTODD may require a court proceeding to resolve the issue, requiring a significant time commitment and pricey fees to address the problem. Furthermore, the law allowing for these deeds expires on December 31, 2019, – we personally hope that all of our clients live far beyond that date!
For the reasons provided above, our office has elected not to prepare the Revocable Transfer on Death Deeds. However, if you are considering transferring property to a loved one, either now or upon your death, we would be happy to discuss the safer and more efficient use of a Trust and Will, in order to ensure that your wishes are carried out legally and with minimal expense.
This article was authored by Attorney Mark S. Drobny and Associate Attorney Hannah A. Shakin. To contact Hannah, email her at email@example.com or call (916) 419-2100.