BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 699 (Wagner)
As Amended June 21, 2011
Hearing Date: July 5, 2011
Fiscal: Yes
Urgency: No
TW
SUBJECT
Nonprobate Transfers: Revocable Transfer Upon Death Deed
DESCRIPTION
This bill would create a new nonprobate property transfer
instrument, the "Simple Revocable Transfer on Death (TOD) Deed,"
which would be effective upon death of the transferor.
Specifically, this bill would:
establish rules for the making and revocation of a revocable
TOD deed, and provide a mandatory statutory form deed and form
revocation;
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;
establish the procedure for contesting a revocable TOD deed
and for a creditor to collect payment for the transferor's
debts;
require the California Law Revision Commission to report back
to the Legislature on or before January 1, 2016, on specified
data concerning the use, misuse, or misunderstanding of the
revocable TOD deed and recommendations for change; and
make other conforming changes.
This bill would sunset on January 1, 2017.
BACKGROUND
In 2005, AB 12 (DeVore, Chapter 422, Statutes of 2005), was
introduced as a bill to create the instrument that AB 699 now
calls "revocable transfer on death deed," but was subsequently
amended to instead direct the California Law Revision Commission
(more)
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(CLRC) to study this type of deed and determine whether
California should create it as a new nonprobate transfer
instrument that becomes effective only upon the death of the
transferor. The study was recommended for the following
reasons: (1) there is a 1914 California case that already allows
for the use of beneficiary deeds (another name for the revocable
TOD deed) that has never been overturned (Tennant v. John
Tennant Memorial Home (1914) 167 Cal. 570); (2) various parties,
including the California Land Title Company, the California
Judges Association, and the Trusts and Estates Section of the
State Bar, expressed strong opposition to the bill for lack of
clarity and failure to address unintended consequences; and (3)
there existed the possibility of countless litigation because of
the potential impact of a beneficiary deed on the transferor's
property ownership and of fraudulent transfers.
The CLRC was directed to address a non-exclusive list of issues
in its study, including, for example, whether and when a
beneficiary deed would be the most appropriate nonprobate
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 and what effect the recordation of a beneficiary deed
would have on the transferor's property rights after
recordation.
The CLRC issued its recommendation in October 2006, noting that
while the deed has advantages and disadvantages, "creation of a
TOD deed would be beneficial in California."
This bill is substantially similar to AB 250 (DeVore, 2007),
which incorporated recommendations of the CLRC, and had a sunset
date of January 1, 2014. AB 250 failed passage in this
committee. This bill is also substantially similar to AB 724
(DeVore, 2010), which failed passage in the Senate
Appropriations Committee.
This bill, co-sponsored by the California Communities United
Institute and the Conference of California Bar Associations,
would create a method and mandatory form for the transfer of
real property upon the death of the transferor.
CHANGES TO EXISTING LAW
Existing law provides various methods by which a person may
transfer his or her real property interests to another person
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upon death, such as through a will (Prob. Code Sec. 6100 et
seq.), a trust (Prob. Code Sec. 15000 et seq.), a joint tenancy
with right of survivorship (Civ. Code Sec. 683), community
property with right of survivorship (Civ. Code Sec. 682.1), an
intervivos transfer with reserved life estate (Tennant v. John
Tennant Memorial Home (1914) Cal. 570.), and a nonprobate
transfer (Prob. Code Secs. 13000 and 13500).
Existing law provides that, unless otherwise provided, when one
spouse dies intestate leaving property that passes to the other
spouse, or dies testate and by will leaves the property to the
surviving spouse, the property passes to the surviving spouse,
as specified, and no probate administration is necessary.
(Prob. Code Sec. 13500.)
Existing law provides that a surviving registered domestic
partner, following the death of the other partner, shall have
the same rights, protections, and benefits, as are granted to
and imposed upon a widow or a widower. (Fam. Code Sec. 297.5.)
Existing law provides an affidavit procedure by which a
successor to a decedent's estate that does not exceed $100,000
of the gross value of personal and real property, unless
otherwise excluded, may collect, receive, or have transferred to
the successor any particular item of property that belongs to or
is due to the decedent. (Prob. Code Secs. 13100 and 13101.)
Existing law provides that if, unless otherwise excluded, a
decedent owned real property in the state and the gross value of
both real and personal property of the decedent in this state is
not greater than $100,000, the successor of the decedent to a
particular interest in real property may seek a court
determination of his or her succession to the real property
interest without obtaining letters of administration or waiting
for probate of the decedent's will. (Prob. Code Secs. 13151,
13152, and 13154.)
Existing law provides a procedure by which a successor to a
decedent's real property in California valued at no greater than
$20,000 may, under specified conditions, petition the court to
transfer the real property to the successor of the decedent.
This procedure involves the simple filing of a Judicial Council
form and an affidavit stating specified facts and attaching an
inventory and appraisal of the decedent's real property in
California, excluding property that is excludable by statute.
(Prob. Code Sec. 13200.)
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Existing law permits the nonprobate transfer of property on
death, 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. (Prob. Code Sec. 5000.)
Existing law provides for the nonprobate 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) Cal. 570.)
Existing law provides that upon the death of one joint tenant,
real property held in joint tenancy with right of survivorship
vests immediately in the surviving joint tenant or tenants.
(Civ. Code Sec. 683.)
Existing law provides that, if a transferee under a will, trust,
deed, or other instrument fails to survive the transferor or is
treated as if the transferee predeceased the transferor, or
fails to survive a future time, the transfer does not lapse but
instead passes to the issue of the deceased transferee, except
as otherwise provided. (Prob. Code Sec. 21110.)
This bill would establish a new nonprobate transfer instrument,
the revocable transfer on death (TOD) deed, for use as specified
to transfer real property upon a transferor's death.
Specifically, this bill would:
(1)define the instrument, the simple revocable TOD deed, which
would transfer real property to a named beneficiary upon the
death of the transferor outside of probate, and establish the
rules for the making and the revocation of the instrument;
(2)provide a mandatory statutory form of a revocable TOD deed
containing the required information, instructions, and answers
to a long list of "commonly asked questions" about the
instrument;
(3)establish rules regarding the effect of the execution and
recordation of a revocable TOD deed, and their interaction
with other types of instruments;
(4)establish rules for a revocable TOD deed beneficiary's
liability for the debts of a transferor, including rules for
when an action is filed based on the debts, rules for the
beneficiary's liability for restitution under specified
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circumstances, who may bring an action to enforce the
beneficiary's liability, and payment of costs for a proceeding
to enforce the beneficiary's liability;
(5)establish rules regarding the effectuation of the property
transfer, and a beneficiary's standing vis á vis a distributee
under a final order of distribution if the property was
probated;
(6)establish rules for a contest involving the revocable TOD
deed;
(7)allow only a personal representative to enforce liability of
a beneficiary of a revocable TOD deed or any other beneficiary
of a decedent with a small estate, to the extent necessary to
protect heirs, devisees, and creditors of the
transferor-decedent, and, as to creditors, provide for
recovery of the reasonable cost of a proceeding under this
provision as an extraordinary service by the personal
representative or the attorney of the decedent's estate; and
(8)make other conforming changes.
This bill would direct the California Law Revision Commission to
study the effect of the revocable TOD deed as established by
this bill and to report to the Legislature on or before January
1, 2016, with specific instructions to study:
(1)whether the revocable TOD deed is working effectively;
(2)whether the revocable TOD deed should be continued;
(3)whether the revocable TOD deed is subject to misuse or
misunderstanding;
(4)what changes should be made to the revocable TOD deed or the
law associated with the deed to improve its effectiveness and
to avoid misuse or misunderstanding; and
(5)whether the revocable TOD deed has been used to perpetuate
financial abuse on property owners and, if so, how the law
should be changed to minimize this abuse.
This bill would sunset on January 1, 2017.
COMMENT
1. Stated need for the bill
The author writes:
Transfer by will . . . makes a 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
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the mercy of scam artists and charlatans if it is not. Other
alternatives generally suffer from problems of costs,
complexity, tax implications, irrevocability, or a combination
of all these issues.
The Conference of California Bar Associations, a co-sponsor of
this bill, writes:
AB 699 will be of particular benefit to 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 to 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.
2. Existing law already recognizes domestic partners' rights
to real property in the same way as spouses
Proponents of this bill argue that same sex couples have no
ability to transfer real property to their significant other,
and this bill would provide this ability. Existing law provides
that, unless otherwise provided, when one spouse dies intestate
leaving property that passes to the other spouse, or dies
testate and by will leaves the property to the surviving spouse,
the property passes to the surviving spouse, as specified, and
no probate administration is necessary. (Prob. Code Sec.
13500.) Existing law provides that a surviving registered
domestic partner, following the death of the other partner,
shall have the same rights, protections, and benefits, as are
granted to and imposed upon a widow or a widower. (Fam. Code
Sec. 297.5.)
California Communities United Institute (CCUI), a co-sponsor of
this bill, touts the utility of the revocable TOD deed created
under this bill for same sex couples. CCUI argues "Ýh]ere is
how AB 699 would help same sex couples - Many such couples are
on their second or third relationship. Who knows if this is the
one that will last? If one of them owns the home they live in,
he or she could make the other person the beneficiary on a
Revocable Transfer on Death Deed. That would assure that the
homeowner's loved one would have a place to live if the
homeowner died first. But, if they break up, it would be easy
to revoke the deed. By contrast, if the owner completed a deed
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making the other person a joint owner of the home, and the
relationship went bad, it would be much more difficult to get
that person off the deed." CCUI has a separate section on how
this bill would be beneficial to "younger couples who choose not
to marry," which, by process of elimination, presumably means
heterosexual couples who have not married. For "younger couples
who choose not to marry," CCUI argues that this bill will help
them in the same way it helps senior citizens when the homeowner
transfers the property through a revocable TOD deed prior to the
homeowner's death so that the surviving friend can continue
living in the home. It is uncertain why there should be a
distinction between same sex couples and other unmarried couples
since all people face the same relationship challenges.
A long held basis for entering into a marriage is that married
individuals have the benefits of shared property. These
benefits recognize the commitment of the individuals to each
other. Just like couples who have decided to marry, which
includes the 18,000 same-sex couples who were married in
California in 2008, domestic partners also have the ability
under California law to share property. Accordingly, the
argument that same sex individuals have no other ability to
transfer a home to the other partner fails. In addition, as
discussed further in Comment 6b, when individuals enter into a
relationship and have not yet decided to commit to each other in
a long term fashion, it seems inappropriate to provide a way to
transfer real property upon spur of the moment decisions, which
complicates the title to the property and increases the workload
of county recorders.
3. The CLRC Report
Proponents of AB 12 (DeVore, Ch. 422, Stats. 2005), as
originally drafted, argued that a beneficiary deed (or something
similar) would be very helpful to small estates, and to
lower-income people who cannot afford to engage the services of
an attorney for estate planning or other professionals who
practice financial and estate planning. Indeed, the CLRC report
and recommendation on which this bill is based states that the
argument made for a beneficiary deed (another name for a
revocable TOD deed) is that "it is cheaper and quicker than
probate, less expensive than a lawyer-prepared trust, and
preferable to a joint tenancy." (CLRC Recommendation, Revocable
Transfer On Death (TOD) Deed, October 2006, page 200
(hereinafter "CLRC Report").) The same report admits, however,
that "the revocable TOD deed may appear deceptively simple, yet
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cause problems not anticipated by a transferor who uses it."
(CLRC Report, page 201.)
The CLRC reports that it received numerous communications
emphasizing that a homeowner should be able to deed property
directly to heirs without the expense of probate or a trust
proceeding. Last year, staff received numerous pleas from
groups that state they serve senior citizens and that a
"proposal for a simple, one page state recognized beneficiary
deed that we could use at the Senior centers and elsewhere would
be a real benefit to California seniors."
The sample statutory form created by this bill is printed in
this bill, along with the Commonly Asked Questions form for the
back of the deed. Although one could argue that the TOD deed is
simple enough to fit on one page and the questions list short
enough to fit on the back of the TOD deed, it is still a
daunting document to read, if the user is to understand all of
the nuances and after-effects of the legally binding document
once properly executed. It would still be questionable whether
a potential transferor would actually read and understand the
Commonly Asked Questions on the back of the form. The result
could be fodder for litigation after the transferor's death and
thus frustrate the ultimate wishes of the transferor.
When this committee heard AB 12 (in 2005), the committee
recommended that the CLRC report back to the Legislature by
January 1, 2009 instead of January 1, 2007 (see Senate Judiciary
Committee Analysis of AB 12, dated June 28, 2005, Comment 2).
The rationale for the committee's recommendation was that this
area is very complex and full of pitfalls for the unwary
consumer, and the CLRC should be given the time, given all of
its other work, to study the area thoroughly and, if indeed a
recommendation to create a beneficiary deed is the result, to
draft both the bill and the form deed carefully.
The CLRC completed its work on this subject by October 2006 and
submitted its recommendation which constituted AB 250. Between
the date AB 250 failed passage in this committee in June, 2008,
and the introduction and subsequent public hearings on AB 724 in
2009, neither the CLRC nor any other entity has completely
dispelled the concerns expressed by those who oppose the use of
the simplified revocable TOD deed in California. These concerns
remain and are discussed throughout Comments 4 through 9.
Although this version of the bill deletes the revocable TOD with
life estate and ability of a third-party to execute a revocable
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TOD deed on behalf of the transfer as contained in AB 250 and AB
724, this bill is in substantially the same form.
This bill contains the requirement that the CLRC report to the
Legislature on January 1, 2016 on issues related to potential
misunderstanding and misuse of revocable TOD deeds and potential
cases of fraudulent deeds conveyed under duress or undue
influence.
It should be noted that although the CLRC sponsored AB 250 in
2005, it declined to sponsor the almost identical bills, AB 724
(2010) and AB 699.
4. The revocable TOD deed should not be categorized as a
"simple" property transfer document
This bill creates a statutory form entitled "Simple Revocable
Transfer on Death (TOD) Deed," but the opponents argue that this
transfer document is not simple and should not be sold to the
public as such. California Advocates for Nursing Home Reform,
an opponent of this bill, argues that "Ýt]he purpose of this
bill is 'to provide a simple and inexpensive way for a person to
transfer real property on death.' With a simple stroke of a pen
on a statutory form seniors transfer away their remainder
interests in their homes. The problem . . . is this 'easy to
use' approach at transferring real property opens up the
possibility for financial abuse. Ownership and transfer of
ownership of property is a matter of utmost importance to the
state. Mistakes and challenges as to the validity of the
rightful ownership of property lead to costly and protracted
legal battles."
Attorneys in other states that have some form of the revocable
TOD deed report that it can be a useful tool when used properly.
An attorney in Colorado, a state that utilizes a beneficiary
deed which is similar to the revocable TOD deed contemplated in
this bill, states that "Ýa] beneficiary deed is one way to
transfer real property at death. It is one tool of many for the
educated estate planner in Colorado. Used properly, it can
avoid probate and the associated expense. Used improperly, it
can cause far more expense than it saves or even cause
unintended results." (Douglas A. Turner, P.C.,
(as of June 27,
2011); emphasis added.)
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A law firm in Minnesota, a transfer on death deed state, states
that "the TODD is not without its shortcomings. Many times it
is not helpful for a mass of individuals to receive property
that is not easily divided, such as naming multiple
beneficiaries on lake cabin property. Imagine the complications
that could arise if mom and dad use a TODD to leave the lake
cabin to their bickering children. Though probate may be
avoided, the parents have perhaps made things worse. A trust is
more likely a better tool for such a situation. . . . . While
the TODD gives estate planning attorneys additional flexibility
and a low-cost option for probate avoidance for many clients, it
is not suitable in all circumstances. Before recommending to
clients that they use a TODD, attorneys should study the
statutes carefully since there are various nuances to this new
law that could cause unintended consequences. As a result, the
TODD is a helpful addition to an attorney's estate planning
toolbox only after appropriate forethought." (A New Tool for
Estate Planners: Minnesota's Transfer On Death Deed, Vest &
Johnson
(as of June 27, 2011.)
The California Judges Association (CJA) argues that "encouraging
people to do more of this disjointed planning by adding another
do-it-yourself device, likely to be utilized without
professional advice, will exacerbate the problems judges see.
No amount of disclosure statements will keep the proposal from
being touted as a cheap, easy, and simple way to avoid lawyers
and probate. Cheap and easy it may be, simple it is not, and in
many cases it will avoid modest estate planning expense while
resulting in later litigation and far greater attorney fees."
As the CLRC itself said, clarity is especially important with
regards to transfers of real property. Relationships between
people change, as people die, become estranged, are
institutionalized, get married, divorced, part ways, rendering
an earlier decision to gift the real property inappropriate or
ill-advised. The one-size-fits all approach of the revocable
TOD deed may be its biggest weakness. "Historically a 'quick
and easy' conveyancing instrument such as a quitclaim deed is
often the instrument of choice of a perpetrator of fraud who
preys on seniors and unsophisticated consumers. Because it is
easy to use, cheap to record and does not require the use of an
attorney or other third party intermediary, it facilitates
fraud. The ease and simplicity of use associated with the
revocable TOD deed suggest that it may lend itself to similar
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abuse."
5. The revocable TOD deed created by this bill can be used to
transfer a home of small value, but also a home of substantial
value, as well as any and all other real property
There is no doubt the CLRC has done substantial background work
on this subject. However, concerns remain that the target users
of this revocable TOD deed, i.e., individuals with small
estates, could be misled as to the efficacy of using the deed
instead of other avenues that may be available to them now.
The bill supposedly targets small estates yet has no limitation
on its use. The Probate Code defines small estates as
consisting of a combined real and personal property valued at
less than $100,000.
Thus, a person with $100,000 equity in his or her home can,
under this bill, execute a revocable TOD deed and so can a
person with equity of $1 million in his or her home. In
addition, the person could also transfer, under this bill, any
and all real property owned by the transferor since this bill
does not limit transfer to homes. However, it is likely that
the beneficiary of the transferor with the smaller estate can
confirm the transfer of the property by affidavit, as envisioned
by this bill, but the beneficiary of the transferor with the
larger estate will be in a probate administration proceeding
anyway, especially if the home or other real property are
substantial assets of the transferor. Further, the transferor
with a small estate can simply execute a deed (not a revocable
TOD deed, but a plain deed to the property) that is not recorded
but delivered to the beneficiary. The beneficiary can record
the deed after death and confirm the transfer by affidavit.
Under this scenario, what is the advantage of a revocable TOD
deed? Another alternative is for the transferor with the small
estate to transfer the property to himself or herself and the
beneficiary in joint tenancy with right of survivorship. The
resulting interest to the beneficiary would not be too different
than if the property were transferred via a revocable TOD deed.
6. Revocable TOD deed: execution, form, warranty of title
This bill would create a new instrument that would allow the
nonprobate transfer of real property. The revocable TOD deed
must be signed and dated by a transferor with capacity, and
acknowledged before a notary public. The deed must be recorded
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within 60 days of the date it is executed; if it is not recorded
within this time period, it is void and ineffective. If
properly executed and recorded, the revocable TOD deed would
transfer the property to the beneficiary upon the transferor's
death.
a. Neither delivery nor acceptance is required
This bill would provide that the transferor is not required to
deliver a revocable TOD deed to the beneficiary, and the
beneficiary is not required to accept the deed from the
transferor, during the transferor's life. (Proposed Sec. 5624
(b) and (c).)
Proponents state that the target population of the revocable
TOD deed is senior citizens who are looking for a simple and
inexpensive way to give away their one asset, their home.
Here is an example of how the non-delivery and non-acceptance
requirement could create a problem: Grandpa executes a
revocable TOD deed under this bill naming his only grandson as
beneficiary of his home, records it within 60 days as
required, then quietly puts it away in a box; he doesn't tell
anyone about it. Two years later, Grandpa's memory is
beginning to fail, although he is not incompetent and still
has legal capacity. He forgets the prior recorded, valid
revocable TOD deed in the box in the closet, and he executes
another revocable TOD deed naming his granddaughter who had
just spent one week visiting him. He records this second
revocable TOD deed immediately but still does not deliver it
to his granddaughter or tell anyone about it. Grandpa clearly
intended the property to go to his grandson and he clearly had
capacity when he executed the first revocable TOD deed.
Grandpa also clearly intended to give the property to his
granddaughter through a revocable TOD deed but simply forgot
that he had already given the property away. Grandpa dies,
and now there is a contest, which will have to be resolved by
litigation, which is the last thing Grandpa probably would
have wanted. Perhaps if the property had a value less than
$100,000 the grandchildren would be able to resolve the lack
of clarity about Grandpa's intent regarding the property.
However, if this house is worth $1 million, the issue of
testator's intent would undoubtedly be litigated.
Although the rules provided in this bill for deciding which
revocable TOD deed would be the operative instrument (the
later recorded deed, since both are revocable, proposed Sec.
5628(a); Sec. 5660(b).), the rules provided for execution,
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recordation, and delivery (or non-delivery) of the deed are
uncertain. To avoid litigation, bright lines should be drawn,
especially when the testator's capacity and intent could
easily be questioned because of his or her being at a
vulnerable age.
The CJA points out this critical flaw in this bill. The CJA
states that because delivery of the deed is not explicitly
required, this bill leaves the possibility that an executed
deed, pocketed for further reflection, may be recorded without
the knowledge, consent, or intent of the transferor. This
could still be true, even with the 60-day recordation
requirement in the bill.
Under existing law, a transferor may actually create a valid
transfer that is not contingent on the transferor's death,
which is then delivered but not recorded until after death.
Under this bill, a revocable TOD deed of the same property
later executed and recorded would trump the earlier, valid
deed that had been delivered but not recorded. This bill does
not require delivery of the deed to the revocable TOD deed
beneficiary. Once more, this could be fodder for litigation
and frustrate the ultimate wishes of the transferor.
A deed takes effect only when delivered. (Civ. Code Sec.
1054.) Delivery depends on the intention that title will pass
irrevocably even though the right of possession and enjoyment
may be postponed to a future time. It is a question of fact,
and evidence of the circumstances and of the acts and
declarations of the grantor ? Delivery may be actual (physical
delivery) or constructive. A deed may be deemed
constructively delivered to the grantee: (a) when by
agreement of the parties it is understood to be delivered and
the grantee is entitled to immediate delivery; or (b) when it
is delivered by the grantor to a stranger for the benefit of
the grantee and the grantee's assent is shown or may be
presumed. (Witkin, 12 Summary of California Law, 10th Ed.
Sec. 291.)
This bill requires neither delivery of the deed by the
transferor nor acceptance of the deed by the beneficiary. And
as described in previous examples given, an executed revocable
TOD deed (especially one that has been recorded) could be
easily filed away in a filing cabinet by a transferor and then
unintentionally revoked by the recordation of a new revocable
TOD deed, because the transferor simply forgot that he or she
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had already executed one.
b. Property transferred via revocable TOD deed would not
carry warranty of title
Under the bill, property that is transferred via a revocable
TOD deed is transferred without warranty of title, and
therefore probably not insurable. (Proposed Sec. 5652(d).)
This provision raises several questions as a result: Will
this present a problem for the beneficiary? Will title
companies accept the revocable TOD deed as a valid and
insurable title? Will it cost the beneficiary more to obtain
title insurance when the property is to be sold? Will the
beneficiary be able to get title insurance at all, with or
without an exclusion, and at what cost?
The California Land Title Association (CLTA) fears that the
revocable TOD deed will become a new form of fraud to be used
against the elderly and unwary real property owners. They
cite one instance in Monterey Park, where a caregiver,
assisted by an attorney from New Mexico (where revocable TOD
deeds are allowed), convinced an elderly man to execute a
revocable TOD deed. Once the deed was executed, the caregiver
soon withdrew quality care and the elderly man's life was put
at risk as his health rapidly declined. Eventually the
daughter and son-in-law intervened, eliminated the revocable
TOD deed, and obtained a conservator to protect the elderly
man. CLTA is convinced that if this bill is signed into law,
the use of these forms will become commonplace and that this
type of fraud will become the new form of easy, convenient,
and cheap elder abuse.
CLTA states that they participated in several meetings of the
CLRC on the subject of the revocable TOD deed over the course
of a year. The CLTA, while extolling CLRC's hard work in
analyzing the subject in depth and in trying to address all
possible problems associated with the transfer of real
property in a way that effectuates the transferor's intent and
avoids litigation, nevertheless concluded that the revocable
TOD deed "has developed into a complex and convoluted process
that will result in unwary consumers being confused and caught
up in unnecessary litigation."
The CLTA explains their opposition thus:
Title companies rely upon the documents recorded in the
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county recorder's office to determine the status of
title for real property. All title defects, liens and
encumbrances excluded from coverage are listed in the
preliminary report, usually triggering the seller,
buyer, and lender to address these title problems
through the escrow process in order for the financial
transaction to proceed.
CLTA fully expects that if this bill is enacted, some
transferors will execute more than one revocable TOD deed over
the course of their life as their circumstances change.
Divorces, the death of spouses, estranged children or addition
of children through marriage, etc., are just a few of the
examples that come to mind. Each of these changes could
trigger the execution and recordation of a new revocable TOD
deed to effectuate a different transfer.
CLTA's concern is borne out in the arguments in support of
this bill submitted by the CCUI. CCUI argues that same sex
couples and younger couples who choose not to marry should
have the ability to execute a revocable TOD deed to transfer
title of a home to the other partner so that the surviving
partner is not "out on the street unless the owner had
completed a will . . . or an expensive trust to pass ownership
to the survivor." As discussed in Comment 2, CCUI argues that
a same sex or unmarried homeowner may have multiple live-in
relationships and may want to transfer interest in the home to
the person with whom they are currently living. As imagined
by CCUI, a homeowner could execute multiple revocable TOD
deeds during their lifetime depending upon the success or
failure of their immediate relationship.
Thus, a "stacking" of these deeds in the public records (or in
file cabinets and recorded later) would create ambiguity and
uncertainty as to the status of title and intent of the
original transferor. If there is ambiguity, out of an
abundance of caution the title company involved in a
transaction would likely resort to the use of quitclaim deeds
to resolve ambiguities, thus rendering many - if not all - of
the revocable TOD deeds essentially useless.
c. Revocable TOD deed is not a change in ownership
Under this bill, execution and recordation of a revocable TOD
deed is not a change in ownership that would trigger a
documentary transfer tax or filing of a preliminary change of
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ownership report. However, on the death of a transferor, the
transfer would be considered a change in ownership. Many
people may think that by transferring their property through a
revocable TOD deed, they would be able to escape capital gains
taxes, gift taxes, and estate taxes. This is not the case.
7. Revocable TOD deed: revocation
Under this bill, a transferor who has testamentary capacity may
revoke a revocable transfer on death deed at any time.
(Proposed Sec. 5630.) The bill also provides that a revocable
TOD deed remains revocable until death. (Proposed Sec.
5614(a)(3).)
It is not clear if the revocable TOD deed becomes irrevocable
when the transferor becomes incapacitated. How can a revocable
TOD deed remain revocable until death when it can no longer be
revoked due to incapacity?
The CLRC in fact recognized that of the nine revocable deed
jurisdictions it studied, none addresses the capacity issue.
The CLRC states that the legal capacity to make a will is a
lower standard than the legal capacity to make a real property
transfer (or to revoke one). The CLRC stated that "Ýp]resumably
in those Ýnine] jurisdictions the standard will be the higher
standard of contractual capacity, not the less demanding
standard of testamentary capacity, that prevails." Yet, the CLRC
used "testamentary capacity" as the standard in drafting AB 250
(and this has been incorporated in this bill).
According to the CLRC, the rationale for using testamentary
capacity rather than contractual capacity is this: "if a will is
challenged for lack of testamentary capacity, that issue is
resolved in a probate proceeding, before transfer actually
happens. A revocable TOD deed passes directly to the
beneficiary; hence any challenge to the transfer could only be
retroactive, in a post-death challenge. The revocable TOD deed
is like a will, because it is a donative transfer that takes
effect on death and is revocable until then. For that reason,
testamentary capacity should be sufficient to enable execution
of a revocable TOD deed. The possibility of fraud, duress, or
undue influence is controlled by execution formalities and the
availability of a post-death challenge."
Proposed Section 5632 (a) requires that an instrument revoking a
revocable TOD deed be executed and recorded before the
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transferor's death "in the same manner as execution and
recordation of a revocable transfer on death deed."
An executed revocable TOD deed is not effective until the deed
is recorded, within 60 days of the execution of the deed. This
is expressly provided in proposed Section 5626(a). In this
context, the instrument of revocation also should be notarized
and recorded within 60 days; otherwise it should not be
effective.
If a transferor executed and recorded a revocable TOD deed, then
later, while still with capacity, executed a valid will that
contained a provision revoking that revocable TOD deed and then
disposed of the same property, but the will was not recorded
(wills are not usually recorded; they are lodged with the court
at transferor's death and then probated), would the revocable
TOD deed be deemed revoked or would it be the operative
instrument as to that property?
The CJA contends that this bill does not sufficiently address
the process of revocation of a revocable TOD deed. They point
out that a will is ineffective upon revocation, and a revocation
must be notarized and recorded, presumably in the county where
the property lies, not the one in which the transferor resides.
The vague revocation rules will likely provide fertile ground
for litigation and frustrate the wishes of the transferor. Here
is yet another example: Grandpa executes and records a
revocable TOD deed, giving the property to grandson. A year
later, he revokes the first revocable TOD deed and executes and
delivers a deed to his granddaughter, making her a joint tenant
with right of survivorship. Grandpa has failed to record a
revocation of the revocable TOD deed, but the granddaughter
immediately records the new deed. Following Grandpa's intent,
the granddaughter should prevail but her deed is likely without
legal effect because Grandpa failed to record the revocation in
a timely manner. Even if the revocation is recorded later, the
granddaughter's deed may still be invalid unless the recording
of the revocation relates back to the execution.
8. Recovery from an invalid revocable TOD deed
This bill would provide that, in the event a transfer under a
revocable TOD deed is contested and determined by a court to be
invalid, the court must order the following relief:
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If the transfer contest was commenced and a lis pendens was
recorded within 120 days after the transferor's death, the
court must void the deed and order transfer of the property to
the person entitled to it; or
If the transfer contest was not commenced within 120 days
after the transferor's death, the court will grant appropriate
relief but the court cannot affect the rights in the property
of a good faith purchaser or encumbrancer who acquired the
property or interest in the property before commencement of
the contest. (Proposed Prob. Code Sec. 5694.)
For the families that do not find out about the transfer of real
property within four months of the transferor's death, this
could mean the loss of valuable real property that had been in
the family name for generations. For instance, a son may
influence his ailing mother to execute a revocable TOD deed to
transfer the family home or family lake cabin to himself.
Proponents believe that the mother at some point will have a
conversation with one of the other children about having
transferred the property to the son, so the other children can
contest this transfer prior to death. In the event this
conversation never takes place, the son could advise his
siblings that he has taken care of their mother's estate. The
son subsequently sells the family home or lake cabin to a good
faith purchaser, and if the other children do not discover this
sale and contest it prior to 120 days, the family home or lake
cabin will be lost.
This scenario could be true for the caretaker or family friend
who helped the mother during the last years of her life. The
caretaker could influence the mother, potentially by withholding
care from the mother and warning her not to tell anyone about
the executed revocable TOD deed, and the caretaker could sell
the home or any other real property owned by the mother, tell
the children that the estate is being handled, and the caretaker
could walk away with the proceeds from the sale leaving the
children without the family home or lake cabin. This bill would
provide a quick and easy way to transfer property to someone,
and under the contest provisions of this bill, it could also
completely alienate the rightful beneficiaries from valued
family property.
9. Public and private creditors: beneficiary is personally
liable for transferor's debts
Under this bill, a creditor of the transferor who has an
encumbrance or lien of record against the property transferred
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by a revocable TOD deed has priority over a creditor of the
beneficiary, regardless of whether the beneficiary incurred the
obligation before or after the transferor's death and regardless
of whether the obligation is secured or unsecured, voluntary or
involuntary, recorded or unrecorded.
A beneficiary is personally liable to a creditor for the
unsecured debts of the transferor, to the extent provided under
the bill. Because the goal of the revocable TOD deed is to
transfer property directly and thus avoid probate, the only
mechanism for collecting on outstanding liabilities of the
estate of the transferor would be a civil action against the
revocable TOD deed beneficiary to restore or return the property
so it may be liquidated and distributed to creditors.
This sets up a scenario where instead of having one court
proceeding to administer the entire estate of transferor,
including liquidation of assets if necessary to pay the
transferor's liabilities prior to distribution of remaining
assets, there could be several civil actions against different
revocable TOD deed beneficiaries, which would disadvantage
transferor's creditors. Thus, a revocable TOD deed could be
used as a fraudulent transfer vehicle to the detriment of
legitimate creditors of the transferor.
The California Association of Public Administrators (PA), Public
Guardians, and Public Conservators, an opponent of this bill,
argues that it would have substantial state and county revenue
consequences. Public administrators provide administration of
estates of decedents who die without a will or without an
appropriate person willing or able to act as administrator.
Such decedents oftentimes have received MediCal services for
several years prior to death. Typically, the Department of
Health Care Services (DHCS) collects the costs of medical
services from the decedent's estate, which in many instances
consists only of the decedent's home. This bill would allow the
decedent's home to pass to a beneficiary, subject to a MediCal
claim, which may result in costly litigation by DHCS to collect
from an uncooperative TOD deed beneficiary. The PA argues
"Ýw]hile AB 699 dictates that the beneficiary of a TOD is still
responsible for any debts associated with the estate, there is
no mechanism, outside of civil action, for collecting
outstanding debt. PA offices, nor counties, can afford to pay
for a civil proceeding to collect debt that would have otherwise
been awarded in the probate process." The PA raises the concern
that the state and counties will incur litigation costs to
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collect on the debt from the beneficiary, or they will lose
revenue if the state or county is unable to afford such
litigation. The same scenario could play out for private
creditors of the decedent.
10. The statutory form
This bill would require a revocable TOD deed to be in a
standardized, uniform form in the state. The author recently
amended this bill to remove the ability of a transferor to
utilize the revocable transfer on death deed with life estate
that was contained in AB 250 and AB 724.
11. Sunset date in 2017, CLRC report in 2016
This bill would sunset on January 1, 2017, unless another act
extends the statute or makes it permanent. The CLRC would be
required to report to the Legislature on or before January 1,
2016, on various items, including whether the revocable TOD deed
is subject to misuse or misunderstanding and whether it should
be continued.
12. Arguments from supporters
The author states that all of the concerns about potential
abusers of senior citizens using a revocable TOD deed to
perpetrate fraud are equally applicable to the other forms of
real property transfer under current law. Because the deed
would be recorded, he states, the fraudulent deed would be in
the public record and would be subject to discovery by others
way before the transferor's death.
The Howard Jarvis Taxpayers Association states that this bill
would save both the homeowner and beneficiary time and money by
establishing a simple way to transfer real property.
Finally, the Contra Costa County Advisory Council on Aging
states the bill would make it easier for property to transfer
from the decedent to a beneficiary without subjecting the
transfer to the costly probate procedure and attorney's fees for
simply passing a single family house to heirs.
13. Final comments
Several amendments were made to this bill recently to
accommodate some of the concerns expressed by opponents.
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Specifically, this bill was amended to remove the creation of
the revocable transfer on death deed with life estate and
deletes the ability of a third-party to execute the revocable
TOD on a transferor's behalf. The amendments also attempt to
clarify the circumstances under which the revocable TOD deed can
be challenged. The opponents came back with unabated concerns
that the rules for the execution and revocation of a revocable
TOD deed under this bill are not ready for release to the
unwary, the unsophisticated, vulnerable population it is
supposed to serve.
Support : American Association of Retired Persons, California;
California Alliance for Retired Americans; California Commission
on the Status of Women; California Senior Legislature; Congress
of California Seniors; Contra Costa County Advisory Council on
Aging; Equality California; Howard Jarvis Taxpayers Association;
National Association of Lesbian Rights; two individuals
Opposition : California Advocates for Nursing Home Reform;
California Association of Public Administrators, Public
Guardians, and Public Conservators; California Judges
Association; California Escrow Association; California Land
Title Association; O'Donnell & Associates
HISTORY
Source : California Communities United Institute; Conference of
California Bar Associations
Related Pending Legislation : AB 1305 (Huber, 2011) would
increase the value of real property that can be transferred out
of probate from $20,000 to $50,000 and increase the value of
real and personal property that can be transferred out of
probate from $100,000 to $150,000. AB 1305 is currently on the
Senate Floor and has been ordered to special consent.
Prior Legislation :
AB 724 (DeVore, 2010) See Background; Comment 3; and Comment 10.
AB 250 (DeVore, 2007) See Background; Comment 3; Comment 6; and
Comment 10.
AB 12 (DeVore, Ch. 422, Stats. 2005) See Background.
AB 699 (Wagner)
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Prior Vote :
Assembly Floor (Ayes 67, Noes 1)
Assembly Appropriations Committee (Ayes 15, Noes 0)
Assembly Judiciary Committee (Ayes 9, Noes 1)
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