BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 724
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          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. 








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          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  








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            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  








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            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.  









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          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  



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