BILL ANALYSIS                                                                                                                                                                                                    



                             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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