This is an update to our earlier article on the 2016 implication of the Transfer on Death Deed in California.
What is a Transfer on Death Deed
Simply put, a Transfer on Death Deed (or “Revokable Transfer on Death Deed” or “TOD”) it is a deed, recorded on your property’s title, that allows for a simplified process of transferring your property upon your death. Far better than dying without any estate planning (called dying “intestate”, which then requires the formal probate process), but not nearly as advantageous as a formal trust and estate plan. This article will explore the pros and cons of the TOD, as well as the newer requirements for compliance with the deed itself, as well as the post-death transfer of the real estate.
Advantages and Disadvantages of the Transfer on Death Deed
Advantages of the Transfer on Death Deed:
• Avoids probate, if done correctly, and if no unexpected family changes occur (like beneficiaries
who die before transferor);
• Simpler and less expensive alternative to a living trust or other probate avoidance techniques;
• Can be revoked at any time during the lifetime of the transferor;
• Same tax advantages as transfers by trust or inheritance under a will.
Disadvantages:
• Technical requirements are straightforward but very strict, and errors can void the TOD deed and/or expose the beneficiaries to later liability;
• If a beneficiary dies before the transferor, their share won’t go to their heirs. Instead, the remaining beneficiaries split it. If no beneficiaries survive, your home will probably need to go through probate (i.e. it does not have a succession plan for your real estate as can be incorporated into a trust);
• After your death, the beneficiaries must take several formal steps to transfer the property, including notifying any possible heirs, allowing them to challenge the TOD deed. If not done correctly, this could expose the beneficiaries to later liability.
History of the Transfer on Death Deed
Since 2016, California property owners have a new tool to simplify their estate planning, the Transfer on Death Deed. As of 2022, there are a host of new requirements in the drafting and filing of the Transfer on Death Dead, as well as the actual subsequent transfer upon death. Some of these new requirements ‘chip away’ at the desired and proposed ‘ease’ of the Transfer on Death Deed. Nevertheless, it still may be ideal for many situations, such as a temporary stopgap pending obtaining a formal trust and/or for those with a simple desired outcome of their real estate and to save the cost of a formal estate plan. But the same is not a replacement for a trust and formal estate plan as discussed herein.
California established the Transfer on Death Deed in 2016 and originally set the law allowing the same to expire in 2021. However, given the popularity of the device, the powers that be have extended the ability to use a Transfer on Death Deed through January 1, 2032, though with a host of new requirements for 2022 and beyond.
What About My ‘old’ Transfer on Death Deed and/or What Happens After The Law Sunsets in 2032?
Don’t worry, any valid Transfer on Death Deed completed before January 1, 2032 will remain valid even after the law’s expiration, even if not extended.
Likewise, any valid Transfer on Death deed that complied with the ‘old’ requirements at the time will remain valid despite the new requirements.
How Do I Complete and File a Transfer on Death Deed?
Use of an attorney might be warranted, but it can be done on your own. Simply complete the deed which can be found on many county recorder, law library or title company websites (but caution should be used with any free download). The text of the form can be found as a Statutory Forms, at California Probate Code § 5642(a).
The deed requires the formal property legal description as well as the APN number.
The beneficiaries must be named, i.e. “my children” will not suffice, you must name them out. While seemingly not required, it would be good practice to also include their relationship to you, i.e. “Jane Doe, my daughter.”
It must be notarized, signed by two witnesses.
It must be recorded within a certain timeframe (see additional information below).
The deed has no effect until you die. You can revoke it at any time (prior to your death).
Upon your death, the beneficiary(ies) then file paperwork with the county recorder, along with notices to heirs, discussed below, to finalize the transfer into their name(s).
New Requirements For 2022 and Beyond
The Transfer on Death Deed is designed to be simple, but always had a few formalities and now has even more. Failure to comply can void the deed and/or open the beneficiaries up to potential liability.
NEW: Notary + Two Witnesses:
Before, you could simply notarize the Transfer on Death Deed.
Now, you still must notarize the deed, but ALSO are required to obtain two “witnesses” who must sign the deed.
Essentially anyone can be a witness, even a beneficiary. However, warning, if a beneficiary is a witness and the deed is later contested, there is an automatic presumption in the law that the beneficiary obtained the deed “by duress, menace, fraud, or undue influence.” This presumption does not apply where the witness is named as beneficiary solely in a fiduciary capacity. Thus, it is clearly best to have witnesses who are not also beneficiaries.
NEW: Definition of “Beneficiary”:
Now the same includes a natural person, as well as a trust, or legal entity may be named as a beneficiary. I.e. you could name your child’s Trust as a beneficiary, or an LLC, or a charity, etc.
NEW: Filing Deadline:
You must record the Transfer on Death Deed “before 60 days after the date it was acknowledged before a notary.” Vs. the old timeline ran from the date of execution.
Practically, this should not matter as the signature date and the notary date are presumably the same. This seems like more of a technical issue with the prior definition than a substantive change.
NEW: Definition Of “Real Property” That Is Eligible For A Transfer On Death Deed:
The new law expands the definition to include “a separate interest in a stock cooperative.” Most California residents may ask, “what is a stock cooperative?”, but some do exist in California – specifically some retirement communities such as Leisure World and Laguna Woods Village.
Revisions also include some clarification to agricultural land.
Both the old and the new definitions limit this to residential properties with one to four units (i.e. a house, condo, duplex or 4-plex is fine, but an 8-unit apartment complex cannot be transferred in this fashion).
NEW: Post-Death Notice Requirements To All Potential Heirs:
The most onerous of all new requirements is that the beneficiary under the TOD must now notify all other heirs of the deceased about the death, the TOD and the fact that the beneficiary will be taking title to the property. Specific, statutory, language is required. Section 5681 of the California Probate Code sets forth the requirements:
(a) After the death of the transferor, the beneficiary of a revocable transfer on death deed shall serve notice on the transferor’s heirs, along with a copy of the revocable transfer on death deed and a copy of the transferor’s death certificate.
(b) The notice required by subdivision (a) shall be in substantially the following form:
“NOTICE OF REVOCABLE TRANSFER ON DEATH DEED
The enclosed revocable transfer on death deed was created by: [name of deceased transferor].
It affects the following property: [description of property used on revocable transfer on death deed].
It names the following beneficiaries: [beneficiary(ies) named on the revocable transfer on death deed].
As a result of the death of [name of deceased transferor], the deed will transfer the described property to the named beneficiaries, without probate administration.
If you believe that the revocable transfer on death deed is invalid and you wish to stop it from taking effect, you have only 120 days from the date of this notice to file a fully effective challenge. You should act promptly and may wish to consult an attorney.”
How do you know who to send the notice and where to send the notice? Well, if you have actual knowledge, you must of course follow through accordingly. Otherwise, the beneficiary shall have discretion to make “a good faith determination, by any reasonable means, of the heirs of the transferor.” Moreover, the law specifically states that if you cannot locate the beneficiary “after reasonable diligence” you are excused from sending the notice. If you have a last address actually known, you must send it there, at a minimum.
Of course, what is “a good faith determination, by any reasonable means” and “after reasonable diligence” are potentially subjective terms that are likely to be the subject of future litigation.
The notice must be personally served or mailed to the heirs (and certainly certified, registered or express mail, with tracking confirmation is highly recommended).
Beneficiaries beware, you could be personally liable to an heir for failure to provide the required notice if you know of an heir and neglect to inform them (or fail to inform them deliberately).
NEW: Specific Language Required in the Post-Death Affidavit of Death:
The subsequent affidavit of death (which actually transfers the property to the named beneficiary) must include language confirming compliance with the notice requirements above. It must state, “I, [name of beneficiary], served the notice required by Probate Code Section 5681.”
Some Additional Technicalities and Considerations
If you name more than one beneficiary, they will be equal owners as tenants in common. If you desire another result (such as to more firmly direct what happens to property, set rules for usage, establish what heirs can live there, give disproportionate ownership distributions, etc.), or have a more complex estate, a Trust is likely more appropriate.
If you own the property as a tenant in common, the Transfer on Death Deed only transfers your interest in the property. If you own property as joint tenants or as community property with right of survivorship and you die first, the Transfer on Death Deed does nothing, it is void; the original right of survivorship will supersede. If, however, you are the sole remaining owner of property once held as joint tenants or as community property with right of survivorship, the Transfer on Death Deed will be effective.
The Transfer on Death Deed does nothing to the property during your life; it only takes effect after death. Any existing liens, mortgages, etc., will remain. Creditors may still pursue. This document merely transfers your interest (if any) in the property to your named beneficiary(ies).
The named beneficiary(ies) must be alive when you die; if the beneficiary(ies) dies before you do, the Transfer on Death Deed is void as to that beneficiary(ies). For example, if you leave the property to Bob and Jane, but Bob passes away before you do, then Jane will get 100 percent of the property (regardless if Bob has any living heirs). Another example, if you leave the property to just Bob, but Bob passes away before you do, then the entire deed is void.
The Transfer on Death Deed is not a change in ownership of the property and does not require payment of a transfer tax or filing of a preliminary change of ownership report at the time of its filing (the later beneficiary(ies) will officially change ownership after your death).
While not technically required, it is good practice to ensure your beneficiary(ies) knows of the Transfer on Death Deed; your beneficiary(ies)’s knowledge of the document and the process will help ensure the intended smooth transfer.
If you received Medi-Cal benefits, your beneficiary must notify the State Department of Health Care Services of your death and provide a copy of your death certificate (Prob. Code § 215).
If there is a loan on the property, the beneficiary(ies) should contact the lender(s) and determine what options the lender may propose such as assumption of the loan, continuation of payments, or other alternatives. Otherwise, the beneficiary(ies) may seek other arrangements such as a new loan (refinancing) or sale of the property.
Statutory “Common Questions About the Use of This Form”, Found at California Probate Code § 5642(b)
WHAT DOES THE TOD DEED DO? When you die, the identified property will transfer to your named beneficiary without probate. The TOD deed has no effect until you die. You can revoke it at any time.
CAN I USE THIS DEED TO TRANSFER NONRESIDENTIAL PROPERTY? No. This deed can only be used to transfer residential property. Also, the deed cannot be used to transfer a unit in a stock cooperative or a parcel of agricultural land that is over 40 acres in size.
CAN I USE THIS DEED TO TRANSFER A MOBILEHOME? The deed can only be used to transfer a mobilehome if it is a “fixture” or improvement under Section 18551 of the Health and Safety Code. If you are unsure whether your mobilehome is a fixture, you may wish to consult an attorney. An error on this point could cause the transfer of your mobilehome to fail.
HOW DO I USE THE TOD DEED? Complete this form. Have it signed by two persons who are both present at the same time and who witness you either signing the form or acknowledging the form. Then NOTARIZE your signature (witness signatures do not need to be notarized). RECORD the form in the county where the property is located. The form MUST be recorded on or before 60 days after the date you notarize it or the deed has no effect.
IF I AM UNABLE TO SIGN THE DEED, MAY I ASK SOMEONE ELSE TO SIGN MY NAME FOR ME? Yes. However, if the person who signs for you would benefit from the transfer of your property, there is a chance that the transfer under this deed will fail. You may wish to consult an attorney before taking that step.
CAN A PERSON WHO SIGNS THE DEED AS A WITNESS ALSO BE A BENEFICIARY? Yes, but this can cause serious legal problems, including the possible invalidation of the deed. You should avoid using a beneficiary as a witness.
IS THE “LEGAL DESCRIPTION” OF THE PROPERTY NECESSARY? Yes.
HOW DO I FIND THE “LEGAL DESCRIPTION” OF THE PROPERTY? This information may be on the deed you received when you became an owner of the property. This information may also be available in the office of the county recorder for the county where the property is located. If you are not absolutely sure, consult an attorney.
HOW DO I “RECORD” THE FORM? Take the completed and notarized form to the county recorder for the county in which the property is located. Follow the instructions given by the county recorder to make the form part of the official property records.
WHAT IF I SHARE OWNERSHIP OF THE PROPERTY? This form only transfers YOUR share of the property. If a co-owner also wants to name a TOD beneficiary, that co-owner must complete and RECORD a separate form.
CAN I REVOKE THE TOD DEED IF I CHANGE MY MIND? Yes. You may revoke the TOD deed at any time. No one, including your beneficiary, can prevent you from revoking the deed.
HOW DO I REVOKE THE TOD DEED? There are three ways to revoke a recorded TOD deed: (1) Complete, have witnessed and notarized, and RECORD a revocation form. (2) Create, have witnessed and notarized, and RECORD a new TOD deed. (3) Sell or give away the property, or transfer it to a trust, before your death and RECORD the deed. A TOD deed can only affect property that you own when you die. A TOD deed cannot be revoked by will.
CAN I REVOKE A TOD DEED BY CREATING A NEW DOCUMENT THAT DISPOSES OF THE PROPERTY (FOR EXAMPLE, BY CREATING A NEW TOD DEED OR BY ASSIGNING THE PROPERTY TO A TRUST)? Yes, but only if the new document is RECORDED. To avoid any doubt, you may wish to RECORD a TOD deed revocation form before creating the new instrument. A TOD deed cannot be revoked by will, or by purporting to leave the subject property to anyone via will.
IF I SELL OR GIVE AWAY THE PROPERTY DESCRIBED IN A TOD DEED, WHAT HAPPENS WHEN I DIE? If the deed or other document used to transfer your property is RECORDED within 120 days after the TOD deed would otherwise operate, the TOD deed will have no effect. If the transfer document is not RECORDED within that time period, the TOD deed will take effect.
I AM BEING PRESSURED TO COMPLETE THIS FORM. WHAT SHOULD I DO? Do NOT complete this form unless you freely choose to do so. If you are being pressured to dispose of your property in a way that you do not want, you may want to alert a family member, friend, the district attorney, or a senior service agency.
DO I NEED TO TELL MY BENEFICIARY ABOUT THE TOD DEED? No. But secrecy can cause later complications and might make it easier for others to commit fraud.
WHAT DOES MY BENEFICIARY NEED TO DO WHEN I DIE? Your beneficiary must do all of the following: (1) RECORD evidence of your death (Prob. Code § 210). (2) File a change in ownership notice (Rev. & Tax. Code § 480). (3) Provide notice to your heirs that includes a copy of this deed and your death certificate (Prob. Code § 5681). Determining who is an “heir” can be complicated. Your beneficiary should consider seeking professional advice to make that determination. (4) RECORD an affidavit affirming that notice was sent to your heirs (Prob. Code § 5682(c)(c)). (5) If you received Medi-Cal benefits, your beneficiary must notify the State Department of Health Care Services of your death and provide a copy of your death certificate (Prob. Code § 215). Your beneficiary may wish to consult a professional for assistance with these requirements.
WHAT IF I NAME MORE THAN ONE BENEFICIARY? Your beneficiaries will become co-owners in equal shares as tenants in common. If you want a different result, you should not use this form.
HOW DO I NAME BENEFICIARIES? (1) If the beneficiary is a person, you MUST state the person’s FULL name. You MAY NOT use general terms to describe beneficiaries, such as “my children.” You may also briefly state that person’s relationship to you (for example, my spouse, my son, my daughter, my friend, etc.), but this is not required. (2) If the beneficiary is a trust, you MUST name the trust, name the trustee(s), and state the date shown on the trust’s signature page. (3) If the beneficiary is a public or private entity, name the entity as precisely as you can.
WHAT IF A BENEFICIARY DIES BEFORE I DO? If all beneficiaries die before you, the TOD deed has no effect. If a beneficiary dies before you, but other beneficiaries survive you, the share of the deceased beneficiary will be divided equally between the surviving beneficiaries. If that is not the result you want, you should not use the TOD deed.
WHAT IS THE EFFECT OF A TOD DEED ON PROPERTY THAT I OWN AS JOINT TENANCY OR COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP? If you are the first joint tenant or spouse to die, the deed is VOID and has no effect. The property transfers to your joint tenant or surviving spouse and not according to this deed. If you are the last joint tenant or spouse to die, the deed takes effect and controls the ownership of your property when you die. If you do not want these results, do not use this form. The deed does NOT transfer the share of a co-owner of the property. Any co-owner who wants to name a TOD beneficiary must complete and RECORD a SEPARATE deed.
CAN I ADD OTHER CONDITIONS ON THE FORM? No. If you do, your beneficiary may need to go to court to clear title.
IS PROPERTY TRANSFERRED BY THE TOD DEED SUBJECT TO MY DEBTS? Yes.
DOES THE TOD DEED HELP ME TO AVOID GIFT AND ESTATE TAXES? No.
HOW DOES THE TOD DEED AFFECT PROPERTY TAXES? The TOD deed has no effect on your property taxes until your death. At that time, property tax law applies as it would to any other change of ownership.
DOES THE TOD DEED AFFECT MY ELIGIBILITY FOR MEDI-CAL? No.
Conclusion – Is a Transfer on Death Deed Right For You?
A Transfer on Death Deed allows for a simplified process of transferring your property upon your death. If you have nothing else, this is a good first step. However, as noted, the limitations are clear and a proper trust is likely better for long term planning to ensure, for example, a succession path if your chosen beneficiaries die before you do and to generally allow much more flexible and creative estate planning options.
Sources:
- California Government Code § 27281
- California Probate Code § 5681
- California Probate Code § 1215
- CA Legislative Information SB-315 Revocable transfer on death deeds.
- California Probate Code § 210
- California Probate Code § 5600 et. seq.
- Statutory Forms, at California Probate Code § 5642(a)
- Statutory “Common Questions About the Use of This Form”, at California Probate Code § 5642(b)
– Devin Lucas
Author Devin R. Lucas is a REALTOR®, Real Estate Attorney, and Real Estate Broker , specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individual and investors in residential real estate.
Lucas Real Estate – REALTOR® and Attorney Devin Lucas and REALTOR® and CPA Courtney Lucas – are experts in California intra family transfers using all aspects of Propositions 13, 58, 193, 60, 90 and new Proposition 19. Learn more about how Lucas Real Estate may help your family transfer by clicking here.
Questions? – Paid one-hour confidential legal consultations are conducted daily via Zoom and address virtually all questions, options, tax implications and strategies. (Book a consultation here.). Thinking of selling your home – reach out anytime.
Lucas Real Estate
REALTORS® and related Real Estate Law & Tax Considerations
lucas-real-estate.com | devin@lucas-real-estate.com | BRE No. 01912302
949.478.1623 office | 888.667.6038 fax
2901 West Coast Highway Suite 200
Newport Beach | California | 92663-4023
Check out our countless 5-star reviews and follow us on social media:
| Google Reviews | Yelp | LinkedIn | Zillow | Avvo | Facebook | Twitter | Instagram | YouTube | Official Site | Blog | Newsletter |
—-Disclaimer —-
The content on this blog is for informational purposes only. Nothing on this blog should be construed to be legal advice, and you should not act or refrain from acting on the basis of any content on this blog without seeking appropriate legal advice regarding your particular situation, from an attorney licensed to practice law in your state. The content on this blog is not guaranteed to be correct, complete, or up to date. Devin R. Lucas’ office is in Newport Beach, California and is only licensed to practice law in California. Please be advised that Devin R. Lucas only provides legal services or advice pursuant to a written legal services agreement. The content on this blog is not intended to, and does not, create an attorney-client relationship between you and Devin R. Lucas, nor does our receipt of an email or other communication from you. Some jurisdictions may consider this site to constitute attorney advertising; accordingly, please be advised this is an advertisement.
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that, to the extent this communication (or any attachment) addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein (or in any such attachment).
