BILL ANALYSIS                                                                                                                                                                                                    



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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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