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It's the Law: Transfer on death deeds may be adopted soon

Posted: October 15, 2009 9:51 p.m.
Updated: October 16, 2009 4:55 a.m.
The California Law Revision Commission is currently analyzing whether our state will allow a new type of deed to be adopted for use.

It is called a Revocable Transfer on Death Deed or "beneficiary deed." This deed would transfer real property to a named beneficiary on the death of the owner without probate; it is revocable until that time.

At present, nine states currently allow a revocable Transfer on Death Deed: Missouri, Kansas, Ohio, Arizona, New Mexico, Nevada, Colorado, Arkansas and Wisconsin. A revocable Transfer on Death Deed passes real property to a beneficiary (without the beneficiary having to be on title to the property during the owner's life) outside of probate.

The argument typically made for this type of deed is that it is cheaper and quicker than probate, less expensive than a lawyer-prepared trust and preferable to a joint tenancy. The commission reviewed the other sources of transfer currently available in California and currently has provided the summary of advantages a revocable Transfer on Death Deed would offer over other options as follows:

n The deed avoids probate. It is substantially cheaper and quicker. It also ensures more privacy than public probate proceedings, although ultimately the deed must be recorded to be effective.

n Like a will, the deed is revocable, preserving flexibility for the transferor to change the beneficiary designation, revoke the deed or sell or encumber the property.

The deed is less expensive than a trust, and is also self-executing, requiring no intermediary to effectuate the transfer.

Unlike joint tenancy, the property is protected against claims of the beneficiary's creditors during the transfer's life, does not incur potential gift tax liability and the entire property receives a "stepped-up" basis.

The deed does not impact the transferor's Medi-Cal eligibility.

The commission has received numerous communications that make the general point that a homeowner should be able to deed property directly to heirs without the expense of a trust or a probate proceeding. Many senior citizens have little in liquid assets and most of their estate is in their residence.

When they find out they have to incur the expense and administrative burdens of a revocable trust, or subject their heirs to the cost and delays of probate, they sometimes try to use other devices to pass on their property.

One of the most frequent is to retitle their property in joint tenancy with the heirs. It is very risky since they subject the property to liabilities incurred by the joint tenants.

Often they execute an undated quitclaim deed that is not recorded with the hope it can be used to transfer the property after their death.

In other situations they deed the property to the heirs and reserve a life estate.

While the revocable Transfer on Death Deed is a way to cheaply and quickly transfer property, it is not necessarily the safest or most reliable method of transfer. Historically, a "quick and easy" conveyancing document such as a quitclaim deed is often the instrument of choice of a perpetrator of fraud who preys on seniors and unsophisticated consumers.

Because it would be easy to use, cheap to record and would not require the use of an attorney or other third party intermediary, it facilitates fraud. Such devices trigger elder abuse concerns when the relationship between the parties becomes strained.

The nonprobate revolution has largely bypassed real property. Nearly all other significant assets including life insurance, securities, bank account and pension plans pass commonly by beneficiary designation outside the probate system.

Real property is the last significant holdout. The Law Revision Commission is recommending the adoption of this new deed. It will now be up to the legislature to see if California will adopt the use of Transfer on Death Deeds in this state.

Gina MacDonald's practice is limited to Estate Planning, Trust Administration, Probate and Elder Law. Her column reflects her own views and not necessarily those of The Signal. "It's The Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. ( Nothing contained herein shall be or is intended to be construed as providing legal advice.


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