BILL ANALYSIS
AB 724
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Date of Hearing: April 29, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 724 (DeVore) - As Introduced: February 26, 2009
Policy Committee: JudiciaryVote:9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill, until January 1, 2015, establishes a new, non-probate
method for conveying real property upon death through a
"revocable transfer upon death deed" (RTDD). 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.
2)Provides two RTDD forms in statute, one of which must be used,
and provides a statutory form for revocation of an RTDD. Both
RTDD forms are to provide information to the transferor,
including explaining how the RTDD works, how it is effectuated
and some of its consequences.
3)Includes information on the RTDD form for the transferor to
establish an "optional life estate," in which the transferor
may name a person to own their property until that person's
death, at which time ownership would change to the transferor
beneficiary.
4)Provides that property subject to RTDD is still part of
transferor's estate for purposes of Medi-Cal eligibility and
will be subject to Medi-Cal reimbursement claims.
5)Requires the California Law Revision Commission (CLRC) to
study the impacts of RTDDs, as set forth above, and report its
findings and recommendations to the Legislature by January
2014.
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FISCAL EFFECT
1)Providing an additional non-probate mechanism to transfer real
property could to some extent reduce the amount of Medi-Cal
claims reimbursements received by the Department of Health
Care Services because the department currently receives
notification of probate actions. Because the department
currently receives notification of the death of any Medi-Cal
recipient, however, these revenue losses should not be major.
According to the department, in 2005-06 probate actions
represented 40% of its recovery cases, but 60% of recovered
revenues ($44.4 million). Based on this annual total, every
one percent decline in these recoveries would result in a
revenue loss to the state of $444,000 ($222,000 GF and
$222,000 federal funds).
2)Absorbable costs for the CLRC's study and report.
COMMENTS
1)Background and Purpose . In 2005, the Legislature passed AB 12
(DeVore)/Chapter 422, 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.
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 TOD (time of death) deed, some seniors will
use other means to make transfer the property, often with
undesirable results . . . ."
The methods of transferring real property at death 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
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deed as recognized by Tennant v. John Tennant Memorial Home
(1914) 167 Cal. 570. Each method has its advantages and
disadvantages. For example, a will generally requires probate,
which is a time consuming and costly. A trust is expensive to
create, 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 deed under Tennant
v. John Tennant Memorial Home (1914) 167 Cal. 570 has been
used rarely and its legal consequences are not fully
understood.
Twelve other states, including Colorado, New Mexico, Ohio and
Wisconsin, statutorily recognize a RTDD. In addition, the
National Conference of Commissioners on Uniform State Laws is
now considering a uniform act on RTDDs. The CLRC's
investigation revealed minor differences between 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. For this reason, the bill
requires the CLRC to perform a follow-up study, by January
2014, on the use of RTDDs and any recommendations for changes.
2)Opposition . The Trusts and Estate Section of the State Bar is
opposed unless the bill is amended to change the statutory
RTDD form so that it does not provide for an optional life
estate. 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,
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. The
Section is not convinced that the warnings on the form are
sufficient for the typical property owner to understand the
difficulties of a life estate and suggest that such an option
only be permissible if an attorney separately drafts the life
estate provisions.
The California Land Title Association (CTLA) argues that RTDDs
increase the opportunity for fraud and "will become the new
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form of easy, convenient, and cheap elder absuse." CTLA also
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.
3)Prior Legislation . This bill is substantially to AB 250
(DeVore) of 2007, which failed passage in the Senate Judiciary
Committee.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081