California Partition Law Blog
The purpose of this article is to explain what a Transfer on Death (TOD) Deed is. TOD Deeds are meant to allowing people, especially elderly people, to transfer their residential property. These deeds are meant make it easier and less expensive to transfer that property without needing a will or living trust that would go to probate.
Before January 2016, the only way to transfer property after the death of an owner was through a joint tenancy with right of survivorship, probate, or a trust transfer deed. The laws creating TOD Deeds were meant to sunset in 2021 but have been extended to 2032.
What is a Transfer on Death deed?
To create a TOD Deed the grantor, the owner trying to transfer the property, must fill out a form and have it notarized. The TOD Deed must include the name of the current owner, an exact legal description of the residential property, and it must list the beneficiary by name. The grantor must also sign and date the deed. Amendments to TOD Deed law were made in 2022 and requires witnesses to sign the deed. The witnesses must either have been present to see the grantor sign or hear the property owner acknowledge the signature is their own. The deed must be recorded with the county recorder’s office within 60 days after it was acknowledged by the notary. (Cal. Prob. Code § 5626, 5632.)
This deed is important because it only comes into effect once the grantor dies and then ownership of the property passes to the beneficiary. Because of how binding and minimal a TOD Deed is, it is important that the grantor have the capacity to contract. This means the grantor understands the nature and consequences of creating the deed.
In choosing who the property goes to, the grantor can pick more than one beneficiary, however they should be designated by name and relationship to the grantor. If choosing to give the property to more than one person, the grantor should note how the beneficiaries will take the title. This can mean as joint tenants with rights of survivorship or tenants in common.
TOD Deeds can also be revoked at any time. To revoke the deed whether to invalidate or change it, the grantor needs to record a revocation form or the new deed within 60 days after it is acknowledged by the notary. Because the TOD Deed can be revoked at any time while the grantor is alive this allows the grantor to change up their estate planning. This also means if someone else gets a legally valid and recorded deed to the property the grantor can revoke the TOD Deed so it does not interfere with that other person’s deed on the property.
These deeds can also be created by married couples, not just individuals. This means the beneficiary does not get the property until the second spouse dies, however the surviving spouse can revoke the deed up until that point.
What does this mean for the beneficiary of the deed?
The beneficiary of the TOD Deed will receive the property when the grantor dies. However, it is not quite as simple as it may seem. As part of the amendments in 2022 to TOD Deed law a beneficiary can be more than one person, or a trust or legal entity. (Cal. Prob. Code § 5608.) The grantor can also name an alternate beneficiary in case their first choice of beneficiary is not alive when they die. If there is more than one beneficiary named by the deed the ownership interests must be divided equally, meaning equal percentages or shares. If there is no surviving beneficiary, the property will likely go to probate.
Upon the grantor’s death, the beneficiary must give notice to the grantor’s heirs and file an affidavit confirm that they did so. In this notice, which is often a formal letter, the beneficiary must explain the effect of the TOD Deed and let the heirs know they have a right to contest the property’s transfer. To get the property the new owner must file an affidavit and a copy of the grantor’s death certificate in the recorder’s office.
It is important to note, the beneficiary may be personally liable for the grantor’s debts including debts on credit cards for three years. So, while the TOD Deed seems straightforward and clear cut it has some significant advantages and disadvantages.
What are Advantages to TOD Deeds?
TOD Deeds do have some advantages. They may be less expensive than a living trust and may eliminate the expense of a probate and helps avoid probate taxes.
They also allow the grantor to avoid federal gift tax paperwork, so the giver of the property would not need to file a gift tax return. The ability to revoke the deed at any time during the grantor’s life helps protect the property and lets the grantor keep ownership while they are alive. Even with a will, the property must go through probate and with a TOD deed it does not need to which can be a lengthy and costly process following someone’s death. TOD Deeds also allow a grantor to maintain Medicaid eligibility. If someone has transferred property within five years before applying for benefits, they may not qualify for full benefits. However, transferring property through a TOD Deed is not an instant transfer and will not impact eligibility.
What are Some Drawbacks to TOD Deeds?
TOD Deeds are rigid which means they do have drawbacks. The TOD Deed itself has limits as to the type of residential property that can be transferred. (Cal. Prob. Code § 5624.) Such a deed is not an option for any property falling outside those specific constraints. Because of the specificity required by a TOD Deed while it is meant to reduce the involvement of attorneys. However, because of the specificity required it can lead to a deed being void if there is an error in the form. Additionally, the beneficiary is not protected from the grantor’s debts. This three-year period also means the beneficiary will not be able to get title insurance on the property. This can delay the sale of the property.
The power of a TOD Deed also can subject to undue influence or pressures by family members to sign over property. If there is a conflicting will and TOD Deed as to who a property is supposed to go to, that can delay probate court proceedings. If the grantor received long term care through MediCal, the property may face benefit recovery claims by California. The state can place a claim against the grantor’s estate including the property transferred via the TOD Deed.
What is an Example of What a TOD Deed Might Look Like?
Julie wants to transfer her house to Shawn, one of her four sons, upon her death so she uses a TOD Deed. She fills out the form properly, explaining the property and who Shawn is in relation to her.
If Julie decided to give the house to all four sons, she would need to specify whether it was as joint tenants or tenants in common. The property interest would need to be divided in 25% shares for each of the four brothers. Specifically, Julie could not list “to my four sons” on the deed. She would need to put their names as well.
Assuming Julie does end up just choosing Shawn as the beneficiary, but they have a falling out, Julie could revoke the deed and puts another son on it. She would then need to record that new deed within 60 days. Alternatively, if all four brothers were upset about her having to choose one son to get the house, she could revoke the deed and choose another way to go about her estate planning.
Julie dies with Shawn listed on the TOD Deed as the beneficiary, meaning he gets the house. This means Shawn needs to go to the recorder’s office with an affidavit and Julie’s death certificate to get the house. He also must give notice to his three brothers as they are also Julie’s heirs. If another brother felt entitled to the house, he might sue Shawn.
Otherwise, if Shawn did end up with the house, he is also taking on Julie’s debts. If Julie had no debt, then he is fine. However, if Julie had massive amounts of credit card debt and other loans Shawn should be concerned. If the debt is as great as the value of the property, the creditors will likely go after Shawn, and he will lose the house.
Conclusion
The Underwood Law Firm has a team of experienced lawyers who can help resolve your property interest disputes at trial and help you pursue solutions like partition actions. We are here to help.