BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 1779 (Gatto)
Version: May 4, 2016
Hearing Date: June 21, 2016
Fiscal: Yes
Urgency: No
ME
SUBJECT
Nonprobate transfers: revocable transfer on death deed
DESCRIPTION
Existing law directs the California Law Revision Commission
(CLRC) to study the effect of California's revocable transfer on
death deed (TOD), a nonprobate residential real property
transfer instrument, and make recommendations to the Legislature
by January 1, 2020. The CLRC was directed to study specific
issues, including whether the TOD is working effectively and
should be continued. This bill would additionally instruct the
CLRC to study whether it is feasible and appropriate to expand
the TOD to include:
the transfer of stock cooperatives or other common
interest developments; and
transfers to a trust or other legal entity.
BACKGROUND
AB 139 (Gatto, Ch. 293, Stats. 2015) created the "revocable
transfer on death deed," a new nonprobate transfer instrument
that becomes effective only upon the death of the transferor.
In 2005, the legislature directed the California Law Revision
Commission to study whether California should create a new
nonprobate transfer instrument that becomes effective only upon
the death of the transferor. AB 12 (DeVore, Ch. 422, Stats.
2005) 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
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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."
In 2009, the National Conference of Commissioners on Uniform
State Laws finalized a Uniform Real Property Transfer on Death
Act, which provides a simple procedure for the transfer of real
property outside of probate. That Act has been enacted in eight
states, and 19 other states have enacted various acts for the
same purpose. Ultimately, the California Legislature did not
follow the National Conference of Commissioners on Uniform State
Laws recommendations. After numerous failed legislative
attempts by legislators, the author of the bill before this
committee has successfully created a method and mandatory form
for the transfer of real property upon the death of the
transferor.<1>
AB 139 created a new nonprobate residential real property
transfer instrument, the "Simple Revocable Transfer on Death
(TOD) Deed," which is effective upon death of the transferor.
AB 139 sunsets on January 1, 2021. The CLRC was directed to
study the effect of the TOD deed and to report to the
Legislature on or before January 1, 2020, with specific
instructions to study:
whether the TOD deed is working effectively;
-------------------------
<1> AB 250 (DeVore, 2007), which incorporated recommendations of
the CLRC failed passage in this Committee. AB 724 (DeVore,
2010) failed passage in the Senate Appropriations Committee. AB
699 (Wagner, 2011) failed passage in this Committee.
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whether the TOD deed should be continued;
whether the TOD deed is subject to misuse or
misunderstanding;
what changes should be made to the TOD deed or the law
associated with the deed to improve its effectiveness and
to avoid misuse or misunderstanding; and
whether the 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 include additional instructions for the CLRC to
study whether it is feasible and appropriate to expand the TOD
deed to include:
the transfer of stock cooperatives or other common
interest developments; and
transfers to a trust or other legal entity.
CHANGES TO EXISTING LAW
Existing law allows an interest in certain residential real
property to be transferred on death by recording a transfer on
death (TOD) deed 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 TOD deed made by a transferor who
dies on or after January 1, 2016, regardless of when the TOD
deed was executed or recorded. No TOD deed may be executed on
or after January 1, 2021, but any TOD deed properly executed
before that date remains valid and may be revoked after that
date. (Prob. Code Sec. 5600 et seq.)
Existing law provides that a TOD 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
creditors during the transferor's lifetime. A TOD deed is not
effective until the transferor's death. (Prob. Code Sec. 5650.)
Existing law provides a statutory form TOD deed and requires
that a TOD deed must be in a substantially similar form. The
statutory deed provides information to the transferor, including
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explaining how the TOD deed works, how it is effectuated and
some of its consequences. (Prob. Code Sec. 5642.)
Existing law provides that property subject to a TOD deed 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 a TOD deed 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. (Prob. Code Secs.
5670-76.)
Existing law permits contest of the TOD deed for, among other
things, lack of capacity to transfer, transfer to a disqualified
person, fraud, duress, and undue influence. (Prob. Code Secs.
5690-96.)
Existing law defines "person" for purposes of the Probate Code
to be an individual, corporation, government or governmental
subdivision or agency, business trust, estate, trust,
partnership, limited liability company, association or other
entity. (Prob. Code Sec. 56.)
Existing uncodified language directs the California Law Revision
Commission (CLRC) to study the effect of the TOD deed and to
report to the Legislature on or before January 1, 2020, with
specific instructions to study:
whether the TOD deed is working effectively;
whether the TOD deed should be continued;
whether the TOD deed is subject to misuse or
misunderstanding;
what changes should be made to the TOD deed or the law
associated with the deed to improve its effectiveness and
to avoid misuse or misunderstanding; and
whether the 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. (AB 139
(Gatto), Ch. 293, Stats. 2015, Sec. 21.)
This bill would include additional instructions for the CLRC to
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study whether it is feasible and appropriate to expand the TOD
to include: the transfer of stock cooperatives or other common
interest developments; and transfers to a trust or other legal
entity.
COMMENT
1. Stated need for the bill
According to the author:
Before AB 139 (Gatto) passed last year, Californians could
name a beneficiary to receive just about every asset upon
passing but could not use the process to transfer real
property, such as a home, to a loved one. Californians
were forced to hire attorneys to write elaborate trusts at
costs averaging in the low thousands of dollars.
If a family could not afford a trust, they would instead
resort to writing a will, which forced their estates into
probate, a very lengthy process that also costs thousands
of dollars in fees and other expenses. AB 139 created the
Revocable Transfer on Death Deed, an important tool to
help seniors and middle-class Californians transfer
property to loved ones upon death without the hassle or
expenses of hiring an attorney or going through probate.
AB 1779 will ensure that the RTODD process is successful
in its implementation and effectively provides
Californians a straightforward, inexpensive, non-probate
option for transferring assets upon death.
2. Expanding California Law Revision Commission (CLRC) study to
better prepare the Legislature when California's revocable
transfer on death deed (TOD) is up for sunset review
AB 139 contained a sunset date of January 1, 2021, and as of
that date will be repealed unless another bill extends or
removes the sunset. Importantly, AB 139 also requires the CLRC,
by January 1, 2020, to study the utility and potential problems
with the revocable TOD deed after it has been enacted, and
report its findings to the Legislature for its consideration in
extending or removing the sunset. These provisions will help
the Legislature determine whether the concerns regarding elder
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and dependent adult financial abuse raised during policy
discussions surrounding AB 139 have been realized or whether the
TOD deed is working as intended. This bill also additionally
requires the CLRC to study whether it is feasible and
appropriate to expand the TOD deed to include the transfer of
stock cooperatives or other common interest developments.
Lastly, the bill requires the CLRC to study whether it is
feasible and appropriate to expand the TOD deed to include
transfers to a trust or other legal entity.
This bill merely expands the scope of a CLRC study that was
authorized this year. The study is in the beginning stages and
arguably will not be negatively impacted by the Legislature
adding a couple of additional items for the CLRC to consider.
Expanding the study to include information about whether it is
feasible and appropriate to expand the use of this new
instrument to the transfer of stock cooperatives or other common
interest developments or to include transfers to a trust or
other legal entity will arguably lead to an informed future
analysis of whether or not to expand the provisions of AB 139
instead of rushing into legislation without a proper analysis.
Support : Howard Jarvis Taxpayers Association; Conference of
California Bar Associations
Opposition : None Known
HISTORY
Related Pending Legislation : None Known
Prior Legislation :
AB 139 (Gatto, Ch. 293, Stats. 2015) See Background.
AB 699 (Wagner, 2011) See Background.
AB 724 (DeVore, 2010) See Background.
AB 250 (DeVore, 2007) See Background.
AB 12 (DeVore, Ch. 422, Stats. 2005) See Background.
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Prior Vote :
Assembly Floor (Ayes 80, Noes 0)
Assembly Appropriations Committee (Ayes 20, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
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