Almost everyone needs an estate plan. Many people think the term “estate plan” is something only high net worth individuals need. Not true.
California Transfer on Death Deed
Warning - It may not work
If you are one of those people who are looking for a deal, you may be enticed by California's Transfer on Death Deed as way to cheaply do your estate planning. As you know, real estate - your home, must go through an expensive and time consuming process when you pass away, unless your home is owned by a living trust or unless it is owned in joint tenancy and the other joint tenant outlives you.
Big Promise to Simply Avoid Probate
California's Transfer on Death Deed promises a way to transfer your home and avoid a costly California probate without a living trust. However, for many people, the promise is a false hope.
The concept of a California Transfer on Death deed is that you can name your beneficiary, the person you want to get your home when you die, on the transfer on death deed, and when you die, your beneficiary receives your home. Simple as that, no probate, and you outfox the attorneys who told you needed a living trust to avoid probate.
But in many cases, it won't work, and it may be too clever by half.
Why Are California Transfer on Death Deeds a False Hope?
The California legislature introduced Transfer on Death Deeds in 2016, and they updated the law effective 2022. The law is not simple.
Transfer on death needs must be notarized and recorded with the local county recorder. Just like a standard grant deed or quitclaim deed. However, the similarity ends there.
In addition to the notary requirement, a transfer on death deed must be signed by two witnesses (similar to a will), and it must be recorded within 60 days of the notary date. Further, when the property owner dies, the beneficiary of the transfer on death deed must give legal notice to the property owner's heirs. The notice must follow the California Probate Code requirements and describe the effect of the transfer on death transfer and advise the heirs of their right to contest the transfer. In other words, the beneficiary of the transfer on death deed must send a formal letter to the dead owner's children that their dad left her the family home and you all can file a lawsuit to try to get it back.
In addition, the California Transfer on Death law limits how you can name beneficiaries. If you name more than one beneficiary, they must each receive an equal share. You can't designate certain percentages to each beneficiary. Also, you can't name a contingent beneficiary. If your beneficiary dies before you, and you don't go through the procedure to execute a new transfer on death deed, your home will go through probate, the very thing you hoped to avoid.
Liability for the Beneficiary
The beneficiary of the transfer on death death deed may also be personally liable for the dead owner's debts, including unsecured debts and credit cards. And the liability extends for three years after death. If there are debts from the estate, the creditors could go after the transfer on death deed beneficiary.
Hard to Sell the Property
Because of the three year liability window, many title companies will not issue title insurance until the three year period is up. Which means it will be difficult for the beneficiary to sell the property.
A California Transfer on Death Deed is not easy to use, and it may create more problems than it promises to solve. If you intend to use one, be careful. You must follow all the rules and execute the transfer on death deed correctly. And you and your beneficiary must be fully aware of the consequences. For most people, the tried and true living trust estate plan will be a more reliable and effective solution.