BILL ANALYSIS AB 724 Page 1 ASSEMBLY THIRD READING AB 724 (DeVore) As Introduced February 26, 2009 Majority vote JUDICIARY 9-0 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Feuer, Tran, Brownley, |Ayes:|De Leon, Nielsen, | | |Evans, Jones, Knight, | |Ammiano, | | |Lieu, Monning, Nielsen | |Charles Calderon, Davis, | | | | |Duvall, Fuentes, Hall, | | | | |Harkey, Miller, | | | | |John A. Perez, Price, | | | | |Skinner, Solorio, Audra | | | | |Strickland, Torlakson, | | | | |Krekorian | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- SUMMARY : Seeks to establish, until January 1, 2015, a new, non-probate method for conveying real property upon death through a "revocable transfer upon death deed" (RTDD). Specifically, this bill : 1)Allows an interest in real property to be transferred on death by recording a RTDD signed and acknowledged by the record owner of the property and designating a beneficiary or beneficiaries. The deed transfers ownership of that property interest upon the death of the owner. Is effective for any RTDD made by a transferor who dies on or after January 1, 2010, regardless of when the RTDD was executed or recorded. No RTDD may be executed on or after January 1, 2015, but any RTDD properly executed before that date remains valid and may be revoked after that date. 2)Requires that to be valid a RTDD must be recorded within 60 days of execution. 3)Provides that a RTDD does not affect any ownership rights during the transferor's lifetime and nor does it convey any rights to the beneficiary or the beneficiary's creditors during the transferor's lifetime. A RTDD is not effective until the transferor's death. AB 724 Page 2 4)Provides two statutory form RTDDs, one of which must be used. One form makes the transfer subject to an intervening life estate by the transferor's designee and the other form does not. Both statutory deeds provide information to the transferor, including explaining how the RTDD works, how it is effectuated and some of its consequences. 5)Provides a statutory form for revocation of a RTDD. 6)Provides that a RTDD may have multiple beneficiaries, who take in equal shares as tenants in common, but does not provide for alternate beneficiaries. The RTDD does not provide for class gifts, e.g., gifts to the transferor's unnamed grandchildren. 7)Provides that a RTDD is revocable at any time by a transferor with testamentary capacity. If a RTDD and another revocable instrument have both been recorded and both purport to dispose of the same property, the instrument that has been executed later prevails. If two deeds - one revocable and one irrevocable - are both recorded, the irrevocable deed prevails, even if recorded earlier. 8)Provides that a RTDD must transfer all the transferor's interest in the property. 9)Provides that property subject to a RTDD is still part of the transferor's estate for purposes of Medi-Cal eligibility and will be subject to Medi-Cal reimbursement claims. Property subject to a RTDD is subject to claims from the transferor's secured and unsecured creditors. Allows the beneficiary to avoid unsecured claims by returning the property to the transferor's estate. 10)Requires the beneficiary to effectuate transfer of the property by recording an affidavit of the transferor's death. 11)Provides that, if property is held in joint tenancy or as community property with right of survivorship when the transferor dies, the transfer is void and the property passes pursuant to the right of survivorship. Provides, in the information accompanying the statutory deed, that if a transferor wants to sever the joint tenancy and not have the AB 724 Page 3 property pass through right of survivorship rules, the transferor cannot use the RTDD. 12)Permits contest of the RTDD for, among other things, lack of capacity to transfer, transfer to disqualified person, fraud, duress, and undue influence. 13)Requires the California Law Revision Commission (CLRC) to study the effects of the RTDD and make recommendations to the Legislature by January 1, 2014. EXISTING LAW : 1)Permits the non-probate transfer on death of non-real property instruments including an insurance policy, contract of employment, bond, mortgage, promissory note, certified or uncertified security, account agreement, custodial agreement, deposit agreement, compensation plan, pension plan, individual retirement plan, employee benefit plan, trust, conveyance, deed of gift, marital property agreement, or other written instrument of a similar nature. 2)Provides that upon death of one joint tenant, real property held in joint tenancy with right of survivorship vests immediately in the surviving joint tenant or tenants. 3)Provides for the non-probate transfer of real property insofar as persons may execute a revocable deed to a beneficiary while reserving a life estate. FISCAL EFFECT : According to the Assembly Appropriations Committee: 1)Providing an additional non-probate mechanism to transfer real property could to some extent reduce the amount of Medi-Cal claims reimbursements received by the Department of Health Care Services because the department currently receives notification of probate actions. Because the department currently receives notification of the death of any Medi-Cal recipient, however, these revenue losses should not be major. According to the department, in 2005-06 probate actions represented 40% of its recovery cases, but 60% of recovered revenues ($44.4 million). Based on this annual total, every 1% decline in these recoveries would result in a revenue loss AB 724 Page 4 to the state of $444,000 ($222,000 General Fund and $222,000 federal funds). 2)Absorbable costs for the CLRC's study and report. COMMENTS : AB 12 (DeVore), Chapter 422, Statutes of 2005, directed the CLRC to study California's non-probate transfer provisions and determine whether California should enact a beneficiary deed - a deed which transfers real property outside of probate upon death of the transferor. In October 2006, the CLRC issued its recommendation that California adopt a revocable transfer on death deed, noting that while the deed has advantages and disadvantages, creation of such a deed would, on the whole, be beneficial in California. AB 250 (DeVore) of 2007 sought to implement the recommendations of the CLRC and create a RTDD in California. That bill passed out of the Assembly without a "no" vote, but failed passage in the Senate Judiciary Committee. This bill is nearly identical to AB 250. As directed by the Legislature, the CLRC conducted a study and determined that a beneficiary deed should be statutorily created in California. In recommending creation of a RTDD in California, the CLRC balanced the generally positive, although quite limited, experience of other states, the need for a simple, low-cost method of conveying real property with the very real concerns raised by opponents of the RTDD. In order to address some of the concerns, the CLRC recommended that California undertake a comprehensive review of all non-probate transfers and their consequences. However, in the interim, the CLRC recommended that California establish a carefully crafted RTDD. The bill establishes mandatory form RTDDs that must be used when executing a RTDD. There are two RTDD forms, one for a simple transfer on death and the other for a transfer with a life estate. A life estate permits the holder to occupy the property exclusively during his or her lifetime. The property is then transferred automatically to the remainder beneficiaries on the death of the life tenant. Life estates can serve very useful estate planning purposes. For example, a homeowner, who has children from a prior marriage, can leave his house to his children, while still ensuring his second wife has a home to live for the remainder of her life. AB 724 Page 5 The RTDD provides for transfer to multiple beneficiaries who take their interest equally as tenants in common. The bill requires that the beneficiaries must be specifically named and cannot include a class of people, such as transfers to "my children and grandchildren." In recognition of the risk of financial abuse associated with an RTDD, the bill directs the CLRC to study the effect of the RTDD in California and report back to the Legislature by January 1, 2014. The bill also, by its own terms sunsets on January 1, 2015. RTDDs executed before that time would remain valid, but RTDDs executed after that date would not be valid. This sunset, together with the study by CLRC, should help minimize risks of abuse or misuse associated with the RTDD, but would not prevent such risks during the five years that RTDDs would be valid in California. Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334 FN: 0001086