BILL ANALYSIS
AB 724
Page 1
Date of Hearing: April 14, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 724 (DeVore) - As Introduced: February 26, 2009
SUBJECT : Non-Probate Transfers: ReVOCABLE TRANSFER UPON DEATH
DEEDS
KEY ISSUES :
1)Should owners of real property be permited to transfer their
property on death outside of probate through a "ReVOCABLE
TRANSFER UPON DEATH DEED"?
2)Might this bill inadvertantly make estate planning more
complicated by creating yet another non-probate device WHICH
could add CONFUSion to THE ESTATE PLANNING PROCESS and make
FINANCIAL abuse easier to commit?
FISCAL EFFECT : As currently in print this bill is keyed
fiscal.
SYNOPSIS
This bill, following recommendations by the California Law
Revision Commission (CLRC), allows owners of real property,
until January 1, 2015, to transfer their property upon death,
outside the normal probate procedure, through a written
instrument known as a "revocable transfer upon death deed"
(RTDD). In 2007, the author carried a nearly identical bill to
this one - AB 250 - which passed out of this Committee
unanimously, but failed passage in the Senate Judiciary
Committee.
In 2005, the author carried legislation directing the CLRC to
study California's non-probate transfer provisions, as well as
beneficiary deeds in other states, in order to determine
whether California should enact legislation statutorily
creating a beneficiary deed.
In recommending creation of a RTDD in California, the CLRC
balanced the generally positive, although quite limited,
experience of other states, the need for a simple, low-cost
method of conveying real property with the very real concerns
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of possible misuse or abuse raised by opponents of the RTDD.
In order to address some of opponents' well-founded concerns,
the CLRC recommends that California undertake a comprehensive
review of all non-probate transfers and their consequence.
However, in the interim, the CLRC recommends that California
establish a carefully crafted RTDD.
As recommended by the CLRC, this bill establishes a new,
non-probate method for conveying real property upon death
through a RTDD that is signed and recorded within 60 days of
execution. The RTDD, which requires use of a statutorily
created 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 creditor during the
transferor's lifetime. It may be revoked at anytime by a
subsequently recorded document that disposes of the property.
In 2007, the author carried a nearly identical bill to this one
- AB 250 - which passed out of this Committee unanimously, but
failed passage in the Senate Judiciary Committee.
In support, the author states that this bill is necessary to
"provide a simple and inexpensive way for a person to transfer
real property on death. . . . Many senior citizens are
house-rich, but cash-poor. They want to transfer their home to
their heirs without probate, but cannot afford a trust.
Without the availability of a [transfer on death] deed, some
seniors will use other means to transfer the property, often
with undesirable results . . . ." The bill is supported by
the California Alliance for Retired Americans, the California
Church IMPACT and the Congress of California Seniors who
believe that the bill provides seniors with a simple, no cost
method to transfer property to their heirs, while still leaving
a life estate for a partner.
The bill is opposed by the California Land Title Association,
which believes that the RTDD "is likely to increase the chance
for fraud, will result in confusion for many users, and would
not be a positive step for seniors and those likely to use the
[RTDD]." The Trusts and Estates Section of the State Bar
opposes the bill unless it is amended to delete the form RTDD
that permits a transfer with a life estate, believing that such
a transfer instrument should be professional drafted to address
specific issues in individual cases.
SUMMARY : Seeks to establish, until January 1, 2015, a new,
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non-probate method for conveying real property upon death
through a "revocable transfer upon death deed." Specifically,
this bill :
1)Allows an interest in real property to be transferred on
death by recording a RTDD signed and acknowledged by the
record owner of the property and designating a beneficiary or
beneficiaries. The deed transfers ownership of that property
interest upon the death of the owner. Is effective for any
RTDD made by a transferor who dies on or after January 1,
2010, regardless of when the RTDD was executed or recorded.
No RTDD may be executed on or after January 1, 2015, but any
RTDD properly executed before that date remains valid and may
be revoked after that date.
2)Requires that to be valid a RTDD must be recorded within 60
days of execution.
3)Provides that a RTDD does not affect any ownership rights
during the transferor's lifetime and nor does it convey any
rights to the beneficiary or the beneficiary's creditors
during the transferor's lifetime. A RTDD is not effective
until the transferor's death.
4)Provides two statutory form RTDDs, one of which must be used.
One form makes the transfer subject to an intervening life
estate by the transferor's designee and the other form does
not. Both statutory deeds provide information to the
transferor, including explaining how the RTDD works, how it
is effectuated and some of its consequences.
5)Provides a statutory form for revocation of a RTDD.
6)Provides that a RTDD may have multiple beneficiaries, who
take in equal shares as tenants in common, but does not
provide for alternate beneficiaries. The RTDD does not
provide for class gifts, e.g., gifts to the transferor's
unnamed grandchildren.
7)Provides that a RTDD is revocable at any time by a transferor
with testamentary capacity. If a RTDD and another revocable
instrument have both been recorded and both purport to
dispose of the same property, the instrument that has been
executed later prevails. If two deeds - one revocable and
one irrevocable - are both recorded, the irrevocable deed
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prevails, even if recorded earlier.
8)Provides that a RTDD must transfer all the transferor's
interest in the property.
9)Provides that property subject to a 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 a 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.
10)Requires the beneficiary to effectuate transfer of the
property by recording an affidavit of the transferor's death.
11)Provides that, if property is held in joint tenancy or as
community property with right of survivorship when the
transferor dies, the transfer is void and the property passes
pursuant to the right of survivorship. Provides, in the
information accompanying the statutory deed, that if a
transferor wants to sever the joint tenancy and not have the
property pass through right of survivorship rules, the
transferor cannot use the RTDD.
12)Permits contest of the RTDD for, among other things, lack of
capacity to transfer, transfer to disqualified person, fraud,
duress, and undue influence.
13)Requires the CLRC to study the effects of the RTDD and make
recommendations to the Legislature by January 1, 2014.
EXISTING LAW :
1)Directs the California Law Revisions Commission to study the
effect of California's non-probate transfer provisions and
statutes in other states that establish beneficiary deeds as
a means of conveying real property through non-probate
transfers, with the objective of determining whether such
legislation should be enacted in California. (AB 12
(DeVore), Chap. 422, Stat. 2005.)
2)Permits the non-probate transfer on death of non-real
property instruments including an insurance policy, contract
of employment, bond, mortgage, promissory note, certified or
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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. (Probate Code
Section 5000.)
3)Provides that upon death of one joint tenant, real property
held in joint tenancy with right of survivorship vests
immediately in the surviving joint tenant or tenants. (Civil
Code Section 683.)
4)Provides for the non-probate 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) 167 Cal. 570.)
5)Provides that, if a transferee under a will, trust, deed or
other instrument fails to survive the transferor, transfer
does not lapse but passes to the issue (decedents) of the
transferee if the transferee is related to the transferor or
the transferor's spouse. (Probate Code Section 21110.)
COMMENTS : In 2005, the Legislature passed AB 12 (DeVore),
Chap. 422, Stat. 2005, which directed the CLRC to study
California's non-probate transfer provisions and determine
whether California should enact a beneficiary deed - a deed
which transfers real property outside of probate upon death of
the transferor. In October 2006, the CLRC issued its
recommendation that California adopt a revocable transfer on
death deed, noting that while the deed has advantages and
disadvantages, creation of such a deed would, on the whole, be
beneficial in California. AB 250 (DeVore, 2007) sought to
implement the recommendations of the CLRC and create a RTDD in
California. That bill passed out of the Assembly without a
"no" vote, but failed passage in the Senate Judiciary
Committee. This bill is nearly identical to AB 250.
According to the author, the RTDD is necessary to "provide a
simple and inexpensive way for a person to transfer real
property on death. . . . Many senior citizens are house-rich,
but cash-poor. They want to transfer their home to their heirs
without probate, but cannot afford a trust. Without the
availability of a [RTDD], some seniors will use other means to
transfer the property, often with undesirable results . . . ."
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California Law Revision Commission Study . As directed by the
Legislature, the CLRC conducted a study to determine whether a
beneficiary deed should be statutorily created in California.
In particular, the Legislature asked the CLRC to address the
following specific issues:
(1) Whether and when a beneficiary deed would be the
most appropriate non-probate 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.
(2) What effect the recordation of a beneficiary deed
would have on the transferor's property rights after
recordation.
(3) How a transferor may exert his or her property
rights in the event of a dispute with the beneficiary.
(4) Whether it would be more difficult for a person
who has transferred a potential interest in the
property by beneficiary deed to change his or her mind
than if the property were devised by will to the
transferee or transferred through a trust or other
instrument.
(5) The tax implications of a beneficiary deed for the
transferor, the transferee, and the general public as
a result of the non-probate transfer, including
whether the property would be reassessed and if tax
burdens would shift or decrease.
The CLRC began its study by reviewing existing options for
transferring real property at death. These methods include
transfer by will or intestate succession, trust, survivorship
rights created by joint tenancy or community property, transfer
with a reserved life estate, and a revocable transfer deed as
recognized by Tennant v. John Tennant Memorial Home (1914) 167
Cal. 570. Each of the methods of transfer has its advantages
and disadvantages. For example, a will generally requires
probate, which is a time consuming and costly way to transfer
property. A trust is expensive to set up, particularly if the
sole purpose is to convey one piece of property. Joint tenancy
with right of survivorship creates immediate property interests
in all the joint tenants. A current transfer, with a reserved
life estate for the transferor, is nonrevocable, preventing the
transferor from later changing his or her mind. A revocable
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deed under Tennant v. John Tennant Memorial Home (1914) 167
Cal. 570 has been used rarely and its legal consequences are
not fully understood.
At the time of the CLRC study, nine other states, including
Colorado, New Mexico, Ohio and Wisconsin, statutorily recognize
a RTDD. (Today three additional states have statutorily
authorized 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 are too new to provide evidence
of their effectiveness or of their susceptibility to misuse or
abuse.
The CLRC then focused on the operational issues of how a RTDD
should work. The result is the very detailed statutory rules
set out in the bill. They govern how a RTDD is established,
revoked and challenged, rights of creditors, including Medi-Cal
reimbursement rights, and how the transfer works for property
held jointly. Detailed provisions are set out above.
Finally, the CLRC considered public comments. Generally groups
that provide legal assistance to seniors favor creation of the
RTDD. These groups argue that seniors on a limited income
needed a low-cost, simple method of transferring real property.
A RTDD, they contend, will help individuals avoid both probate
and trust mills, which can be costly and inefficient,
especially for a small estate containing only a single family
home. Other professionals, including judges, attorneys,
lenders and title companies had more reservations. They noted
that while a RTDD creates a quick and low-cost way to transfer
property, "it is not necessarily the safest or most reliable
method of accurately ensuring the transferor's wishes are
carried out as the transferor intended." (CLRC Report at 205.)
They argued that, like a quitclaim deed that can be executed
without an attorney, it can be abused and can help facilitate
fraud on the transferor or his intended beneficiaries.
Moreover, because it is so simple to use, it may be used
inappropriately, without advice of counsel. Finally, they
argue that the RTDD is just another device added to the
proliferation of estate planning tools, resulting in further
"confusion, inconsistency, litigation, and frustration for all
involved." (CLRC Report at 206.)
In recommending creation of a RTDD in California, the CLRC
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balanced the generally positive, although quite limited,
experience of other states, the need for a simple, low-cost
method of conveying real property with the very real concerns
raised by opponents of the RTDD. In order to address some of
opponents' well-founded concerns, the CLRC recommends that
California undertake a comprehensive review of all non-probate
transfers and their consequences. However, in the interim, the
CLRC recommends that California establish a carefully crafted
RTDD.
National Conference of Commissioners on Uniform State Laws
considering RTDDs . The National Conference of Commissioners on
Uniform State Laws is now considering a uniform act on RTDDs.
According to their draft report, 12 states, including Arizona,
Nevada and Oklahoma now authorize RTDDs. (National Conference
of Commissioners on Uniform State Laws, Uniform Real Property
Transfer on Death Act (draft dated March 9, 2009).)
The bill establishes mandatory RTDD forms . The bill
establishes mandatory form RTDDs that must be used when
executing a RTDD. There are two RTDD forms, one for a simple
transfer on death and the other for a transfer with a life
estate, discussed below. The mandatory form prevents a
transferor from using the RTDD if he or she wants to transfer
his or her property other than as permitted by one of the
forms. Failure to use the statutory form does not necessarily
invalidate the deed, but the provisions of this bill would not
apply to such a deed. The transfer may still be valid under
the Tenant case. The transferor can also dispose of his or her
property through use of another testamentary instrument, such
as a will or a trust.
Estabslishing a mandatory RTDD has several advantages. It
standardizes the form, which will help ensure that property
owners who do not seek legal counsel may be able to
successfully transfer property through use of a RTDD. It 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.
Some will argue that the RTDD should be designed to be more
flexible, taking into consideration many possible wishes that a
transferor may have and helping to effectuate them. However,
the statutory form, with its significant risks of misuse by
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those who do not consult with counsel when appropriate, cannot
be everything to every transferor. Instead, the form attempts
to help effectuate the most common wishes of transferors with
relatively simple property issues. A transferor with more
complicated needs should rightly consult with experts and
transfer the property through other transfer options.
The RTDD provides for multiple beneficiaries, but not alternate
beneficiaries . The RTDD provides for transfer to multiple
beneficiaries who take their interest equally as tenants in
common. The bill requires that the beneficiaries must be
specifically named and cannot include a class of people, such
as transfers to "my children and grandchildren." Most other
states with RTDD also preclude class gifts. Prohibiting class
gifts allows the title company to readily ascertain who the
beneficiaries are, thus preventing delays or other
complications in the transfer of title.
The bill specifically prevents the use of alternate
beneficiaries should any named beneficiary predecease the
transferor. As a result, the general rules of lapse come into
play. Under California's lapse and anti-lapse rules, if a
transferee under a will, trust, deed or other instrument fails
to survive the transferor, the transfer does not lapse but
passes to the transferee's issue (decedents) as long as the
transferee is related to the transferor or the transferor's
spouse. (Probate Code Section 21110.) If the transferee is
not related, the transfer fails and the property comes back
into the transferor's estate for disposition. While several of
the states that have RTDDs have specifically prohibited
application of anti-lapse rules to these deeds, the CLRC
believes that "equity demands application of the anti-lapse
principles" to RTDDs just as they apply to other testamentary
gifts and that application of these principles is precisely
what the majority of transferors would intend. (CLRC Report at
172.)
One of the form RTDDs provides for a life estate . The bill
permits a transferor to pass the property to his or her
beneficiaries, subject to a life estate by any person
designated by the transferor. A life estate permits the holder
to occupy the property exclusively during his or her lifetime.
The property is then transferred automatically to the remainder
beneficiaries on the death of the life tenant. Life estates
can serve very useful estate planning purposes. For example,
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a homeowner, who has children from a prior marriage, can leave
his house to his children, while still ensuring his second wife
has a home to live for the remainder of her life.
There are various restrictions on the life tenant. He or she
must use the property in the same manner as the transferor,
keep it in good repair and pay the taxes. During the life
estate, the beneficiaries hold a remainder interest in the
property. They may complicate the life tenant's interests by
going to court to prevent the life tenant from wasting or
damaging the property. They may also make it difficult for the
life tenant to sell or mortgage the property. As a result of
these concerns, the statutory deed contains the following
warning:
Use this deed to create a life estate in a named life
tenant, with a remainder interest in the named
remainder beneficiaries. When you die, the identified
property will transfer to the "life tenant" for the
duration of that person's life. After that person's
death, the property will transfer to your "remainder
beneficiary(ies)."
This is a complex arrangement that may cause disputes
between the life tenant and remainder beneficiaries.
You should consult an attorney before choosing to use
this form.
The Trusts and Estates Section of the State Bar opposes the
bill unless amended to remove the form deed creating a life
estate option for the RTDD. The Trusts and Estates Section
believes that, even with the above warning, "most users of the
form will not understand the legal consequences of checking a
box to create a life estate, and the potential conflict between
life and remainder interest which could result in a lawsuit
between the life tenant and the remainder person. Thus, while
the statute need not prohibit the creation of a life estate, it
should not encourage it by providing a box to check on the
statutory form that would create such life estate. An
individual who desires to create a life estate in a [RTDD]
instead of a trust should have it professionally drafted to
address the issues that could arise under it."
If, at the transferor's death, property is held jointly with
right of survivorship, the RTDD is void . Under current law,
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when property is help by joint tenancy or by community property
with right of survivorship and one of the joint tenants or
spouses dies, the property passes, by operation of law, to the
other joint tenant(s) or the surviving spouse. Absent
severance of the joint tenancy, any attempt to transfer the
property by the first joint tenant to die is ineffective. The
property passes to the surviving joint tenant(s) or spouse.
The bill proposes to follow that general rule for the RTDD.
All joint tenants or spouses can execute a separate RTDD. Only
the RTDD of the last joint tenant or spouse to die will be
effective. That last joint tenant or surviving spouse can
always change his or her mind and revoke the RTDD since he or
she owns the property free and clear. The bill and the
statutory deed make clear that if property is held jointly with
right of survivorship, a RTDD executed by the first to die will
have no effect.
Will the bill have the unintended consequence of steering
persons away from legal assistance that they may need ? It is
unclear what role lawyers will play in the execution and
recording of these RTDDs. On the one hand, the author 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 Bar's Conference of
Delegates passed a resolution in response to the author's
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 RTDD could increase the risk of financial abuse . A
simplified RTDD could make it easier to commit financial abuse.
Seniors could sign without realizing what they were signing or
its consequences. Proponents of the bill counter that far
simpler tools - such as a quitclaim deed which transfer all of
a person's interest in real property to the beneficiary at
execution - already exist that can cause far more harm.
However, just because there are other tools to transfer
property that are also subject to abuse, does not mitigate the
fact that this new transfer tool could cause significant harm
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to unwary seniors and other property owners: There is a very
real possibility that a RTDD could be used as a tool for
financial abuse or could simply be misused by those who do not
understand the transfer deed and all its implications.
This concern is highlighted by an opponent's story about his
father whose live-in caregiver not only had him execute a new
will making the caregiver his beneficiary but also made the
caregiver his beneficiary on all pay on death accounts and
executed a New Mexico RTDD in favor of the caregiver. While
this case does indeed demonstrate how the RTDD can be misused
and abused in the wrong hands, it also makes clear that
existing methods of conveying property at death can be abused
and why significant transfers to caregivers are particularly
suspect.
In recognition of the risks associated with an RTDD, the bill
directs the CLRC to study the effect of the RTDD in California
and report back to the Legislature by January 1, 2014. 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.
The bill also, by its own terms sunsets on January 1, 2015.
RTDDs executed before that time would remain valid, but RTDDs
executed after that date would not be valid. This sunset,
together with the study by CLRC, should help minimize risks of
abuse or misuse associated with the RTDD, but would not prevent
such risks during the five years that RTDDs would be valid in
California.
ARGUMENTS IN SUPPORT : The bill is supported by the California
Alliance for Retired Americans, the California Church IMPACT
and the Congress of California Seniors who believe that the
bill provides seniors with a simple, no cost method to transfer
property to their heirs, while still leaving a life estate for
a partner. They write:
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Many seniors struggle to meet the most basic living
expenses. In these difficult economic times, some
seniors have merged their households to support one
another both emotionally, socially and economically.
For many, the death of the home-owning friend or
partner in these relationships can cause heartache,
grief, and potential homelessness for the friends and
loved ones. . . . AB 724 will provide peace of mind
to thousands of Californians - both seniors and non
seniors alike.
ARGUMENTS IN OPPOSITION : The California Land Title Association
(CLTA) opposes the bill, arguing that, in its current form, the
RTDD "is likely to increase the chance for fraud, will result
in confusion for many users, and would not be a positive step
for seniors and those likely to use the [RTDD]." CLTA believes
that if this bill becomes law, RTDDs "will become the new form
of easy, convenient, and cheap elder abuse." In addition, CLTA
believes the RTDD is "complex and convoluted" and, when used by
transferors without advice from legal counsel, could well
create confusion and ambiguity that could cloud the property's
title.
Other concerns have been expressed about the mechanics of the
RTDD, including concerns regarding how to revoke a RTDD,
creditor claims and property tax issues. It is not clear that
refining the provisions of the RTDD can solve many of these
concerns, since many of them are simply inherent in the RTDD
instrument itself.
REGISTERED SUPPORT / OPPOSITION :
Support
California Alliance for Retired Americans
California Church IMPACT
Congress of California Seniors
One individual
Opposition
California Land Title Association
Trust and Estates Section of the State Bar (unless amended)
One individual
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Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334