BILL ANALYSIS Ó
AB 1779
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Date of Hearing: May 3, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 1779
(Gatto) - As Introduced February 3, 2016
PROPOSED CONSENT (As Proposed to be Amended)
SUBJECT: Nonprobate revocable transfer on death deed: Law
Revision Commission study
KEY ISSUE: Should aN EXISTING CALIFORNIA LAW REVISION STUDY OF
THE five-year PILOT of the "REVOCABLE TRANSFER ON DEATH DEED"
(rtdd) - WHICH ALLOWS AN OWNER of real property to transfer THAT
property on death outside of probate through an RTDD - be
expanded TO ALSO STUDY WHETHER IT IS APPROPRIATE TO INCLUDE
OTHER TYPES OF PROPERTY AND OTHER TYPES OF OWNERSHIP IN rtdd
transfers?
SYNOPSIS
For the last 10 years, an assortment of legislators have tried
to create a simplified process to transfer real property outside
of probate and without use of a trust. (AB 250 (DeVore, 2007),
AB 724 (DeVore, 2009-10), AB 699 (Wagner, 2011).) All of those
efforts were unsuccessful until last year's AB 139 (Gatto, Chap.
293, Stats. 2015), which finally established a five-year pilot
program allowing owners of real property, until January 1, 2021,
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to transfer their property upon death, outside the normal
probate procedure, through a written instrument known as a
"revocable transfer upon death deed" (RTDD). Given concerns
about misuse of the RTDD, the Legislature directed the
California Law Revision Commission (CLRC) to study the RTDD
pilot program and report to the Legislature by January 1, 2020
on how it is operating.
The current RTDD process is relatively limited in both what
types of property can be transferred and what entity can take
ownership of the property. This bill seeks to expand the CLRC
study to consider other types of property to be transferred and
other types of entities that may take ownership of the property.
There is no known opposition to the bill as proposed to be
amended.
SUMMARY: Expands the California Law Revision Study of the
revocable transfer on death deed (RTDD) pilot program.
Specifically, this bill requires the California Law Revision
Commission, as part of its study of the RTDD, to address whether
it is feasible and appropriate to expand the RTDD to include (1)
transfers of stock cooperatives or other common interest
developments and (2) transfers to a trust or other legal entity.
EXISTING LAW:
1)Allows an interest in certain residential real property to be
transferred on death by recording an RTDD signed and
acknowledged by the record owner of the property, with the
capacity to contract, and designating a beneficiary or
beneficiaries. The deed transfers ownership of that property
interest upon the death of the owner. The pilot program is
effective for any RTDD made by a transferor who dies on or
after January 1, 2016, regardless of when the RTDD was
executed or recorded. No RTDD may be executed on or after
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January 1, 2021, but any RTDD properly executed before that
date remains valid and may be revoked after that date.
(Probate Code Section 5600 et seq. Unless stated otherwise,
all further statutory references are to that code.)
2)Provides that an RTDD does not affect any ownership rights
during the transferor's lifetime, 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. (Section 5650.)
3)Provides a statutory form RTDD and requires that an RTDD must
be in a substantially similar form. The statutory deed
provides information to the transferor, including explaining
how the RTDD works, how it is effectuated and some of its
consequences. (Section 5642.)
4)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. (Sections 5670-76.)
5)Permits contest of the RTDD for, among other things, lack of
capacity to transfer, transfer to a disqualified person,
fraud, duress, and undue influence. (Sections 5690-96.)
6)Requires the CLRC to study the effects of the RTDD and make
recommendations to the Legislature by January 1, 2020. (AB
139 (Gatto), Chap. 293, Stats. 2015, Section 21.)
7)Defines "person" for purposes of the Probate Code to be an
individual, corporation, government or governmental
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subdivision or agency, business trust, estate, trust,
partnership, limited liability company, association or other
entity. (Section 56.)
FISCAL EFFECT: Unknown.
COMMENTS: For the last 10 years, an assortment of legislators
have tried to create a simplified process to transfer real
property outside of probate and without use of a trust. (AB 250
(DeVore, 2007), AB 724 (DeVore, 2009-10), AB 699 (Wagner,
2011).) All of those efforts were unsuccessful until last
year's AB 139 (Gatto, Chap. 293, Stats. 2015), which finally
established a five-year pilot program allowing owners of real
property, until January 1, 2021, to transfer their property upon
death, outside the normal probate procedure, through a written
instrument known as a "revocable transfer upon death deed."
Because of significant concerns about the effect of the RTDD and
its likelihood of creating confusion, impact on Medi-Cal
reimbursement and, most importantly, creating new opportunity
for fraud and elder abuse, the bill was limited to transfers of
only certain small amounts of property and the beneficiaries and
how they take the property was similarly limited to keep the
program as uncomplicated as possible to truly help those who are
likely house-rich, but otherwise have no need for estate
planning. In addition, the bill limited the impact to just a
five-year pilot with directions for the California Law Revision
Commission to study the impact of the RTDD and report its
findings and recommendations back to the Legislature by January
1, 2020.
This bill seeks to expand the CLRC study to include analysis
about whether it is feasible and appropriate to expand the RTDD
to include (1) transfers of stock cooperatives or other common
interest developments and (2) transfers to a trust or other
legal entity. The author believes that expanding the RTDDs this
way could help more people avoid probate, "a lengthy legal
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process that involves proving in court that a deceased person's
will is valid, inventorying and appraising property, and paying
debts and taxes. The process is often grueling and can take up
to a year."
Initial California Law Revision Commission Study: As directed
by the Legislature, the CLRC conducted an initial study to
determine whether an RTDD should be statutorily created in
California. (CLRC, Recommendation: Revocable Transfer On Death
(TOD) Deed (Oct. 2006).) At the time of that initial study,
nine other states, including Colorado, New Mexico, Ohio and
Wisconsin, statutorily recognized 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. In recommending creation of
an RTDD in California, the CLRC balanced the generally positive,
although quite limited, experience of other states and the need
for a simple, low-cost method of conveying real property with
the very real concerns that a RTDD could be abused and could
help facilitate fraud on the transferor or his or her intended
beneficiaries and, because it is so simple to use, it could be
used inappropriately, without advice of counsel. In order to
address some of these well-founded 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.
Last year's AB 139 allowed for use of RTDDs and created a
statutory form with instructions for easy use without an
attorney. After a decade of attempts, last year's AB 139
established a pilot, five-year pilot program allowing owners of
certain real property, until January 1, 2021, to transfer their
property upon death, outside the normal probate procedure,
through a written RTDD. That bill also created a statutory RTDD
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form to help ensure that property owners who do not seek legal
counsel may be able to successfully transfer property through
use of an RTDD. The statutory form 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.
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.
When last year's pilot was passed, there was concern that the
RTDD might have the unintended consequence of steering persons
away from legal assistance that they may need, and therefore
last year's bill was appropriately limited and a CLRC study
required. It is unclear what role lawyers will play in the
execution and recording of these RTDDs. On the one hand, one
author of a previous version of the bill 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. A simplified RTDD can
also make it easier to commit financial abuse. Seniors could
sign without realizing what they were signing or its
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consequences.
In recognition of the risks associated with an RTDD, AB 139
directed the CLRC to study the effect of the RTDD in California
and report back to the Legislature by January 1, 2020. 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.
AB 139 also contained a January 1, 2021 sunset. RTDDs executed
before that time would remain valid, but RTDDs executed after
that date will not be valid. This sunset, together with the
study by CLRC, help minimize risks of abuse or misuse associated
with the RTDD, but may not prevent such risks during the five
years that RTDDs would be valid in California.
This bill expands the CLRC study. This bill expands the CLRC
study to address whether it is feasible and appropriate to
expand RTDDs to include (1) transfers of stock cooperatives or
other common interest developments and (2) transfers to a trust
or other legal entity. Certain common interest development
property may not be owed as real property but may in fact be
owned in some other fashion, such as stock in the housing
cooperative. This bill directs CLRC to study whether the pilot
program should be expanded to include transfer of these types of
property.
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This bill also directs CLRC to study whether the law should be
explicitly expanded to include transfer to someone other than an
individual. Currently, an RTDD may be used to transfer property
to a beneficiary, defined as a person named in a RTDD as the
transferor of the property. (Section 5608.) However, the
Probate Code more generally defines person as "an individual,
corporation, government or governmental subdivision or agency,
business trust, estate, trust, partnership, limited liability
company, association, or other entity." (Section 56.) Thus it
is arguable that the existing pilot RTDD already permits
transfer of property to trusts or other legal entities. This
bill ensures that whether it is indeed appropriate to be so
inclusive is fully studied.
REGISTERED SUPPORT / OPPOSITION:
Support (as proposed to be amended)
None on file
Opposition (as proposed to be amended)
None on file
Analysis Prepared by:Leora Gershenzon / JUD. / (916) 319-2334
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