BILL ANALYSIS Ó
AB 699
Page 1
Date of Hearing: March 22, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 699 (Wagner) - As Introduced: February 17, 2011
As Proposed to be Amended
SUBJECT : Non-Probate Transfers: ReVOCABLE TRANSFER UPON DEATH
DEEDS
KEY ISSUES :
1)Should owners of real property be PERMITTED to transfer their
property on death outside of probate through a "ReVOCABLE
TRANSFER UPON DEATH DEED"?
2)Might this bill INADVERTENTLY make estate planning more
complicated by creating yet another non-probate device WHICH
could add CONFUSion to THE ESTATE PLANNING PROCESS and make
FINANCIAL abuse easier to commit?
FISCAL EFFECT : As currently in print this bill is keyed
fiscal.
SYNOPSIS
This bill, following recommendations by the California Law
Revision Commission (CLRC), allows owners of real property,
until January 1, 2017, to transfer their property upon death,
outside the normal probate procedure, through a written
instrument known as a "revocable transfer upon death deed"
(RTDD). Very similar bills - AB 250 (DeVore, 2007) and AB 724
(DeVore, 2009-10) - unanimously passed out of this Committee
and the Assembly, but failed passage in the Senate.
In 2005, legislation 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. In recommending creation of an 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
of possible misuse or abuse raised by opponents of the RTDD.
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In order to address some of opponents' well-founded concerns,
the CLRC recommends that California undertake a comprehensive
review of all non-probate transfers and their consequence.
However, in the interim, the CLRC recommends that California
establish a carefully crafted RTDD.
As recommended by the CLRC, this bill establishes a new,
non-probate method for conveying real property upon death
through an RTDD that is signed and recorded within 60 days of
execution. The RTDD, which requires use of a statutorily
created deed, does not affect any ownership rights during the
transferor's lifetime nor does it convey any rights to the
beneficiary or the beneficiary's creditor during the
transferor's lifetime. It may be revoked at any time by a
subsequently recorded document that disposes of the property.
In support, the author states that this bill is necessary to
"fill a major gap in estate planning instruments available to
ordinary citizens, by providing a straightforward, inexpensive,
and reliable means of passing real property directly to a
beneficiary, to go along with the many options California
citizens currently have to pass personal property to their
loved ones outside of the long, complicated and expensive
probate process. The bill is particularly intended for the
benefit of senior citizens whose estate consists primarily - or
even exclusively - of the family home (there are thousands of
elderly people throughout the state who are barely getting by,
but whose home, purchased long ago and paid off, may be worth
several hundreds of thousands of dollars), and unmarried
homeowners who wish to leave their home to their partner, loved
one, or family member upon death, but do not want to transfer a
present ownership interest in the property ." The bill is
co-sponsored by California Communities United Institute and the
Conference of California Bar Associations, and supported by
AARP and the California Senior Legislature who believe that the
bill provides seniors with a simple, no cost method to transfer
property to their heirs.
The bill is opposed by the California Land Title Association,
the California Escrow Association, and California Advocates for
Nursing Home Reform, who argue that the bill inadvertently
creates "'drive-by' estate planning that puts California's most
vulnerable group - senior citizens - at great risk for personal
fraud."
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SUMMARY : Seeks to establish, until January 1, 2017, a new,
non-probate method for conveying real property upon death
through a "revocable transfer upon death deed." Specifically,
this bill :
1)Allows an interest in real property to be transferred on
death by recording an 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,
2012, regardless of when the RTDD was executed or recorded.
No RTDD may be executed on or after January 1, 2017, but any
RTDD properly executed before that date remains valid and may
be revoked after that date.
2)Requires that to be valid an RTDD must be recorded within 60
days of execution.
3)Provides that an 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. An RTDD is not effective
until the transferor's death.
4)Provides a statutory form RTDD and requires that an RTDD must
be in that form. The statutory deed provides 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 an RTDD.
6)Provides that an 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 an RTDD is revocable at any time by a
transferor with testamentary capacity. If an 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.
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8)Provides that an RTDD must transfer all the transferor's
interest in the property.
9)Provides that property subject to an 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 an 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
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 CLRC to study the effects of the RTDD and make
recommendations to the Legislature by January 1, 2016.
EXISTING LAW :
1)Directs the California Law Revisions Commission to study the
effect of California's non-probate transfer provisions and
statutes in other states that establish beneficiary deeds as
a means of conveying real property through non-probate
transfers, with the objective of determining whether such
legislation should be enacted in California. (AB 12
(DeVore), Chap. 422, Stat. 2005.)
2)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,
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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. (Probate Code
Section 5000.)
3)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. (Civil
Code Section 683.)
4)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. (Tennant v. John
Tennant Memorial Home (1914) 167 Cal. 570.)
5)Provides that, if a transferee under a will, trust, deed or
other instrument fails to survive the transferor, transfer
does not lapse but passes to the issue (decedents) of the
transferee if the transferee is related to the transferor or
the transferor's spouse. (Probate Code Section 21110.)
COMMENTS : In 2005, the Legislature passed AB 12 (DeVore),
Chap. 422, Stat. 2005, which 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, 2007) and AB 724
(DeVore, 2009-10) sought to implement the recommendations of
the CLRC and create an RTDD in California. Both bills passed
out of the Assembly without a "no" vote, but failed passage in
the Senate. This bill is nearly identical to those bills,
except that it does not allow for a life estate as part of an
RTDD.
According to the author:
Enactment of AB 699 will fill a major gap in estate
planning instruments available to ordinary citizens, by
providing a straightforward, inexpensive, and reliable
means of passing real property directly to a beneficiary,
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to go along with the many options California citizens
currently have to pass personal property to their loved
ones outside of the long, complicated and expensive
probate process. The bill is particularly intended for
the benefit of senior citizens whose estate consists
primarily - or even exclusively - of the family home
(there are thousands of elderly people throughout the
state who are barely getting by, but whose home, purchased
long ago and paid off, may be worth several hundreds of
thousands of dollars), and unmarried homeowners who wish
to leave their home to their partner, loved one, or family
member upon death, but do not want to transfer a present
ownership interest in the property. Existing law offers
these individuals no good options. Transfer by will (even
a statutory or holographic will) makes the property
subject to statutory probate fees of thousands of dollars.
Establishing a revocable trust can cost well over $1,000
if done by a reputable attorney, and can place the
prospective trustor at the mercy of scam artists and
charlatans if it is not. Other alternatives generally
suffer from problems of cost, complexity, tax
implications, irrevocability, or a combination of all
these issues. (Footnote omitted.)
California Law Revision Commission Study : As directed by the
Legislature, the CLRC conducted a study to determine whether a
beneficiary deed should be statutorily created in California.
In particular, the Legislature asked the CLRC to address the
following specific issues:
(1) Whether and when a beneficiary deed would be the
most appropriate non-probate transfer mechanism to
use, if a beneficiary deed should be recorded or held
by the grantor or grantee until the time of death,
and, if not recorded, whether a potential for fraud is
created.
(2) What effect the recordation of a beneficiary deed
would have on the transferor's property rights after
recordation.
(3) How a transferor may exert his or her property
rights in the event of a dispute with the beneficiary.
(4) Whether it would be more difficult for a person
who has transferred a potential interest in the
property by beneficiary deed to change his or her mind
than if the property were devised by will to the
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transferee or transferred through a trust or other
instrument.
(5) The tax implications of a beneficiary deed for the
transferor, the transferee, and the general public as
a result of the non-probate transfer, including
whether the property would be reassessed and if tax
burdens would shift or decrease.
The CLRC began its study by reviewing existing options for
transferring real property at death. These methods include
transfer by will or intestate succession, trust, survivorship
rights created by joint tenancy or community property, transfer
with a reserved life estate, and a revocable transfer deed as
recognized by Tennant v. John Tennant Memorial Home (1914) 167
Cal. 570. Each of the methods of transfer has its advantages
and disadvantages. For example, a will generally requires
probate, which is a time consuming and costly way to transfer
property. A trust is expensive to set up, particularly if the
sole purpose is to convey one piece of property. Joint tenancy
with right of survivorship creates immediate property interests
in all the joint tenants. A current transfer, with a reserved
life estate for the transferor, is nonrevocable, preventing the
transferor from later changing his or her mind. A revocable
deed under Tennant has been used rarely and its legal
consequences are not fully understood.
At the time of the CLRC study, nine other states, including
Colorado, New Mexico, Ohio and Wisconsin, statutorily
recognized an RTDD. (Today four additional states have
statutorily authorized RTDDs.) The CLRC's investigation
revealed minor difference between the states' RTDDs and found
that practitioners generally liked having the option of the
RTDD. However, most of the statutes were too new to provide
evidence of their effectiveness or of their susceptibility to
misuse or abuse.
The CLRC then focused on the operational issues of how an RTDD
should work. The result is the very detailed statutory rules
set out in this bill. They govern how an RTDD is established,
revoked and challenged, rights of creditors, including Medi-Cal
reimbursement rights, and how the transfer works for property
held jointly. Detailed provisions are set out above.
Finally, the CLRC considered public comments. Generally groups
that provide legal assistance to seniors favor creation of the
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RTDD. These groups argue that seniors on a limited income
needed a low-cost, simple method of transferring real property.
An RTDD, they contend, will help individuals avoid both
probate and trust mills, which can be costly and inefficient,
especially for a small estate containing only a single family
home. Other professionals, including judges, attorneys,
lenders and title companies had more reservations. They noted
that while an RTDD creates a quick and low-cost way to transfer
property, "it is not necessarily the safest or most reliable
method of accurately ensuring the transferor's wishes are
carried out as the transferor intended." (CLRC Report at 205.)
They argued that, like a quitclaim deed that can be executed
without an attorney, it can be abused and can help facilitate
fraud on the transferor or his intended beneficiaries.
Moreover, because it is so simple to use, it may be used
inappropriately, without advice of counsel. Finally, they
argue that the RTDD is just another device added to the
proliferation of estate planning tools, resulting in further
"confusion, inconsistency, litigation, and frustration for all
involved." (CLRC Report at 206.)
In recommending creation of an 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
opponents' well-founded concerns, the CLRC recommends that
California undertake a comprehensive review of all non-probate
transfers and their consequences. However, in the interim, the
CLRC recommends that California establish a carefully crafted
RTDD.
National Conference of Commissioners on Uniform State Laws
Approves RTDDs : In 2009, the National Conference of
Commissioners on Uniform State Laws approved a uniform act on
RTDDs. According to their report, 13 states, including
Arizona, Nevada and Oklahoma now authorize RTDDs, and five more
are considering it this year. (National Conference of
Commissioners on Uniform State Laws, Uniform Real Property
Transfer on Death Act (2009).)
This bill establishes a mandatory RTDD form . This bill
establishes a mandatory form RTDD that must be used when
executing an RTDD. The mandatory form prevents a transferor
from using the RTDD if he or she wants to transfer his or her
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property other than as permitted by the form. Failure to use
the statutory form does not necessarily invalidate the deed,
but the provisions of this bill would not apply to such a deed.
The transfer may still be valid under the Tennant case. The
transferor can also dispose of his or her property through use
of another testamentary instrument, such as a will or a trust.
Establishing a mandatory RTDD has several advantages. It
standardizes the form, which will help ensure that property
owners who do not seek legal counsel may be able to
successfully transfer property through use of an RTDD. It also
makes implementation of the RTDD easier for title companies.
In addition, the statutory deed informs transferors of their
rights and the rights of their beneficiaries, and explains some
of the pitfalls of the RTDD.
Some will argue that the RTDD should be designed to be more
flexible, taking into consideration many possible wishes that a
transferor may have and helping to effectuate them,
particularly allowing the transferor to create 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. Previous versions of the
bill allowed for a life estate. However, the Trusts and Estates
Section of the State Bar had opposed the life estate provision,
believing there were too many complicated considerations to
allow a life estate to be accomplished by a form deed, and this
bill does not permit the use of a life estate.
However, the statutory form, with its significant risks of
misuse by those who do not consult with counsel when
appropriate, may not be able to be everything to every
transferor. Instead, the form attempts to help effectuate the
most common wish of transferors with relatively simple property
issues - to transfer the property to their beneficiaries. A
transferor with more complicated needs should rightly consult
with experts and transfer the property through other transfer
options.
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The RTDD provides for multiple beneficiaries, but not alternate
beneficiaries . 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." Most other
states with RTDD also preclude class gifts. Prohibiting class
gifts allows the title company to readily ascertain who the
beneficiaries are, thus preventing delays or other
complications in the transfer of title.
The bill specifically prevents the use of alternate
beneficiaries should any named beneficiary predecease the
transferor. As a result, the general rules of lapse come into
play. Under California's lapse and anti-lapse rules, if a
transferee under a will, trust, deed or other instrument fails
to survive the transferor, the transfer does not lapse but
passes to the transferee's issue (decedents) as long as the
transferee is related to the transferor or the transferor's
spouse. (Probate Code Section 21110.) If the transferee is
not related, the transfer fails and the property comes back
into the transferor's estate for disposition. While several of
the states that have RTDDs have specifically prohibited
application of anti-lapse rules to these deeds, the CLRC
believes that "equity demands application of the anti-lapse
principles" to RTDDs just as they apply to other testamentary
gifts and that application of these principles is precisely
what the majority of transferors would intend. (CLRC Report at
172.)
If, at the transferor's death, property is held jointly with
right of survivorship, the RTDD is void . Under current law,
when property is help by joint tenancy or by community property
with right of survivorship and one of the joint tenants or
spouses dies, the property passes, by operation of law, to the
other joint tenant(s) or the surviving spouse. Absent
severance of the joint tenancy, any attempt to transfer the
property by the first joint tenant to die is ineffective. The
property passes to the surviving joint tenant(s) or spouse.
The bill proposes to follow that general rule for the RTDD.
All joint tenants or spouses can execute a separate RTDD. Only
the RTDD of the last joint tenant or spouse to die will be
effective. That last joint tenant or surviving spouse can
always change his or her mind and revoke the RTDD since he or
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she owns the property free and clear. The bill and the
statutory deed make clear that if property is held jointly with
right of survivorship, an RTDD executed by the first to die
will have no effect.
Will the bill have the unintended consequence of steering
persons away from legal assistance that they may need ? It is
unclear what role lawyers will play in the execution and
recording of these RTDDs. On the one hand, the author suggests
that the reform might allow real property owners to avoid
lawyers altogether through the simple recording of a
beneficiary deed. On the other hand, the primary criticism of
the "trust mills" is that they minimize the role of lawyers,
through the use of prefabricated trusts, when the input of a
lawyer's expertise is often necessary. The State Bar's
Conference of Delegates passed a resolution in response to the
original RTDD bill expressing concern that, in creating yet
another "probate avoidance" device, the bill may have the
unintended consequence of steering people away from needed
legal assistance that can avoid unforeseen problems in estate
planning.
An RTDD could increase the risk of financial abuse . A
simplified RTDD could make it easier to commit financial abuse.
Seniors could sign without realizing what they were signing or
its consequences. Proponents of the bill counter that far
simpler tools - such as a quitclaim deed which transfer all of
a person's interest in real property to the beneficiary at
execution - already exist that can cause far more harm.
However, just because there are other tools to transfer
property that are also subject to abuse, does not mitigate the
fact that this new transfer tool could cause significant harm
to unwary seniors and other property owners: There is a very
real possibility that an RTDD could be used as a tool for
financial abuse or could simply be misused by those who do not
understand the transfer deed and all its implications.
This concern is highlighted by a story from an opponent of a
previous version of the bill about his father whose live-in
caregiver not only had him execute a new will making the
caregiver his beneficiary but also made the caregiver his
beneficiary on all pay on death accounts and executed a New
Mexico RTDD in favor of the caregiver. While this case does
indeed demonstrate how the RTDD can be misused and abused in
the wrong hands, it also makes clear that existing methods of
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conveying property at death can be abused and why significant
transfers to caregivers are particularly suspect.
In recognition of the risks 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, 2016. The
report must address the following issues: (1) whether the
revocable transfer on death deed is working effectively; (2)
whether the revocable transfer on death deed should be
continued; (3) whether the revocable transfer on death deed is
subject to misuse or misunderstanding; (4) what changes should
be made to the revocable transfer on death deed or the law
associated with the deed to improve its effectiveness and to
avoid misuse or misunderstanding; and (5) whether the revocable
transfer on death deed has been used to perpetuate financial
abuse on property owners and, if so, how the law associated
with the deed should be changed to minimize this abuse.
The bill also, by its own terms sunsets on January 1, 2017.
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.
Author's Amendment : This bill establishes a pilot program,
with a required study by CLRC. However, as currently drafted,
the pilot terminates on the same dated that the required study
is due to the Legislature. Thus, the Legislature may not have
the important evaluative information available to consider, if
it elects to extend the pilot before termination. In order to
ensure that the Legislature has the required evaluation timely,
the author rightly agrees to amend the bill so that the
required evaluation is due a year before the pilot terminates.
This can be accomplished with the following amendment:
On page 33, line 20, delete "2017" and insert: "2016"
ARGUMENTS IN SUPPORT : The bill is supported by AARP and the
California Senior Legislature who believe that the bill
provides seniors with a simple, low- cost method to transfer
property to their heirs without the time and expense of a
probate proceeding.
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ARGUMENTS IN OPPOSITION : Opponents, argue that the bill
inadvertently creates "'drive-by' estate planning that puts
California's most vulnerable group - senior citizens - at great
risk for personal fraud." California Escrow Association and
California Land Title Association believe that if this bill
becomes law, RTDDs "will become the new form of easy,
convenient, and cheap elder abuse." In addition, they believe
the RTDD is "complex and convoluted" and, when used by
transferors without advice from legal counsel, could well
create confusion and ambiguity that could cloud the property's
title. California Advocates for Nursing Home Reform
adds that the bill "may result in seniors inadvertently leaving
their estates to individuals whom they might not otherwise want
to succeed them."
REGISTERED SUPPORT / OPPOSITION :
Support
California Communities United Institute (co-sponsor)
Conference of California Bar Associations (co-sponsor)
AARP
Congress Senior Legislature
Opposition
California Advocates for Nursing Home Reform
California Escrow Association
California Land Title Association
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334