BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           724 (DeVore)
          
          Hearing Date:  08/09/2010           Amended: As Introduced
          Consultant:  Jacqueline Wong-HernandezPolicy Vote: Judiciary 3-2
          _________________________________________________________________ 
          ____
          BILL SUMMARY: AB 724 would create two new nonprobate property  
          transfers: the "Simple Revocable Transfer on Death (TOD) Deed"  
          and the "Revocable Transfer on Death (TOD) Deed with Life  
          Estate," which would be effective upon death of the transferor.  
          Specifically, this bill, which would sunset on January 1, 2015,  
          would:

          1)Establish rules for making and revoking these deeds, and  
            provide mandatory statutory form deeds and one form revocation  
            for use by transferors of either;
          2)Outline the beneficiary's liability for debts of the  
            transferor and the procedure for restitution to the estate by  
            the beneficiary of the revocable TOD deed or the revocable TOD  
            deed with life estate, if appropriate;
          3)Provide mandatory statutory forms for the TOD deeds, each  
            containing the required information, instructions, and answers  
            to a long list of "commonly asked questions" about the deeds;
          4)Establish the procedure for contesting a revocable TOD deed or  
            a revocable TOD deed with life estate and for a creditor to  
            collect payment for the transferor's debts;
          5)Require the California Law Revision Commission (CLRC) to  
            report back to the Legislature on or before January 1, 2014,  
            on specified data concerning the use, misuse, or  
            misunderstanding of the revocable TOD deed and recommendations  
            for change; and make other conforming changes.
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
           
          Creates new TOD deeds                  No direct state or local  
          costs                  General

          Court actions                            Likely minor  
          caseload/workload decrease     General*











          CLRC report                    Potentially significant workload;  
          likely absorbable   General

          *Trial Courts Trust Fund
          _________________________________________________________________ 
          ____
          STAFF COMMENTS: 
          
          In 2005, AB 12 (DeVore, Chapter 422, Statutes of 2005) directed  
          the CLRC to study California's non-probate transfer provisions,  
          as well as beneficiary deeds in other states, in order to  
          determine whether California should enact legislation  
          statutorily creating a beneficiary deed. At the time of the CLRC  
          study, Arizona, Arkansas, Colorado, Kansas, Missouri, Nevada,  
          New Mexico, Ohio, and Wisconsin were using revocable TOD deeds.  
          In October 2006, CLRC issued its recommendation that California  
          establish a carefully crafted revocable TOD deed. 

          Page 2
          AB 724 (DeVore)

          Part of the CLRC study focused on the operational issues of how  
          the revocable TOD deeds should work: how a RTDD is established,  
          revoked and challenged, rights of creditors, including Medi-Cal  
          reimbursement rights, and how the transfer works for property  
          held jointly. CLRC considered public comment, and incorporated  
          information into its recommendations for how the process should  
          work, considering the various individuals and governmental  
          entities that might have an interest in some aspect of the TOD  
          deed.

          This bill incorporates the CLRC recommendations in its  
          development of a process to allow owners of real property, to  
          transfer their property upon death, outside the normal probate  
          procedure, as follows: 

          1)Allows an interest in real property to be transferred on death  
            by recording a revocable TOD deed (or TOD deed with life  
            estate) 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. The transfer is not effective until the  
            death of the transferor.

          2)Requires that to be valid, the revocable TOD deed must be  
            recorded within 60 days of execution. Country recorders have  










            existing authority to charge fees for recording documents, and  
            presumably, this would be subject to those same fees.

          3)Provides two statutory forms to be used for these processes.  
            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 revocable TOD deed  
            (and TOD deed with life estate) works (including "Commonly  
            Asked Questions" and answers), how it is effectuated, and some  
            of its consequences. The statutory forms give considerable,  
            detailed guidance to both the transferor and the beneficiary  
            about their respective roles and responsibilities with regard  
            to the property itself, the transferors creditors and  
            outstanding debts (including any financial interest Medi-Cal  
            might have in the estate), how the TOD deed would interact  
            with other such deeds, wills, and multiple beneficiaries, as  
            well as the requirement for the beneficiary to record a  
            transfer of ownership in order to become the legal owner of  
            the property.

          4)Provides further instruction 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 property pass through right of survivorship rules,  
            the transferor cannot use the revocable TOD deed. 

          5)Establishes contest of the revocable TOD deed for, among other  
            things, lack of capacity to transfer, transfer to disqualified  
            person, fraud, duress, and undue influence.


          Page 3
          AB 724 (DeVore)

          The new nonprobate procedures created by this bill, if properly  
          utilized, is unlikely to result in any new state costs. To the  
          extent that TOD deeds result in estates avoiding probate, there  
          will be a decrease in the backlog of probate courts, and  
          existing cases can be settled more quickly. Moreover, to the  
          extent that TOD deeds are utilized by individuals with very  
          little property, and who would have otherwise died without  
          having created a traditional will or living trust, counties may  










          avoid the costs of appointing public administrators to settle  
          the estate. Court workload savings will be offset, to some  
          degree, by any increase in litigation surrounding an individual  
          TOD deed.

          The degree to which state and local savings may result directly  
          from this bill is unclear. 
          According to the American Bar Association, "there are a plethora  
          of probate avoidance techniques, both simple and complex.  
          Typical of probate avoidance techniques is the addition to the  
          deed of the intended beneficiary during the lifetime of the  
          grantor. This technique is commonly seen in the use of joint  
          tenancy deeds. With the continued aging of the American  
          population, attorneys practicing estate planning see more and  
          more aging parents adding their adult children's names to deeds  
          as joint tenants with right of survivorship with the parents, as  
          a method of avoiding probate, for convenience, and because the  
          aging parents or the children incorrectly perceive that adding  
          the adult children to the deed protects the land from Medicaid  
          recovery?" To the extent that individuals would have used joint  
          tenancy, or other methods, to transfer real property in the  
          absence of this bill, this bill would simply result in another  
          option for the individual but with little change to government  
          entities. 

          As with the existing nonprobate transfers, and other existing  
          estate planning strategies, there is the possibility for abuse.  
          Because the revocable TOD deeds provided in this bill would be  
          new instruments in the state of California, some number of  
          enterprising beneficiaries of real property will likely  
          intentionally attempt to avoid paying property taxes and/or the  
          legally-owed debts of the transferor. These problems exist  
          currently, and it does not appear that there would be unique  
          ability to defraud the government presented by the TOD deeds;  
          during the time that the CLRC is studying the effect of the  
          deeds (until 2014, as required by this bill), there will likely  
          be more scrutiny of TOD deeds than any other property transfer  
          process. 

          The CLRC would be required to study this issue during its  
          initial implementation, and make new recommendations about its  
          continued use (and any proposed changes) to the Legislature by  
          January 1, 2014. Presumably, if the findings were not positive,  
          the Legislature would allow the provisions of this bill to  
          sunset on January 1, 2015.