BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
724 (DeVore)
Hearing Date: 08/09/2010 Amended: As Introduced
Consultant: Jacqueline Wong-HernandezPolicy Vote: Judiciary 3-2
_________________________________________________________________
____
BILL SUMMARY: AB 724 would create two new nonprobate property
transfers: the "Simple Revocable Transfer on Death (TOD) Deed"
and the "Revocable Transfer on Death (TOD) Deed with Life
Estate," which would be effective upon death of the transferor.
Specifically, this bill, which would sunset on January 1, 2015,
would:
1)Establish rules for making and revoking these deeds, and
provide mandatory statutory form deeds and one form revocation
for use by transferors of either;
2)Outline the beneficiary's liability for debts of the
transferor and the procedure for restitution to the estate by
the beneficiary of the revocable TOD deed or the revocable TOD
deed with life estate, if appropriate;
3)Provide mandatory statutory forms for the TOD deeds, each
containing the required information, instructions, and answers
to a long list of "commonly asked questions" about the deeds;
4)Establish the procedure for contesting a revocable TOD deed or
a revocable TOD deed with life estate and for a creditor to
collect payment for the transferor's debts;
5)Require the California Law Revision Commission (CLRC) to
report back to the Legislature on or before January 1, 2014,
on specified data concerning the use, misuse, or
misunderstanding of the revocable TOD deed and recommendations
for change; and make other conforming changes.
_________________________________________________________________
____
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Creates new TOD deeds No direct state or local
costs General
Court actions Likely minor
caseload/workload decrease General*
CLRC report Potentially significant workload;
likely absorbable General
*Trial Courts Trust Fund
_________________________________________________________________
____
STAFF COMMENTS:
In 2005, AB 12 (DeVore, Chapter 422, Statutes of 2005) directed
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. At the time of the CLRC
study, Arizona, Arkansas, Colorado, Kansas, Missouri, Nevada,
New Mexico, Ohio, and Wisconsin were using revocable TOD deeds.
In October 2006, CLRC issued its recommendation that California
establish a carefully crafted revocable TOD deed.
Page 2
AB 724 (DeVore)
Part of the CLRC study focused on the operational issues of how
the revocable TOD deeds should work: 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. CLRC considered public comment, and incorporated
information into its recommendations for how the process should
work, considering the various individuals and governmental
entities that might have an interest in some aspect of the TOD
deed.
This bill incorporates the CLRC recommendations in its
development of a process to allow owners of real property, to
transfer their property upon death, outside the normal probate
procedure, as follows:
1)Allows an interest in real property to be transferred on death
by recording a revocable TOD deed (or TOD deed with life
estate) 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. The transfer is not effective until the
death of the transferor.
2)Requires that to be valid, the revocable TOD deed must be
recorded within 60 days of execution. Country recorders have
existing authority to charge fees for recording documents, and
presumably, this would be subject to those same fees.
3)Provides two statutory forms to be used for these processes.
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 revocable TOD deed
(and TOD deed with life estate) works (including "Commonly
Asked Questions" and answers), how it is effectuated, and some
of its consequences. The statutory forms give considerable,
detailed guidance to both the transferor and the beneficiary
about their respective roles and responsibilities with regard
to the property itself, the transferors creditors and
outstanding debts (including any financial interest Medi-Cal
might have in the estate), how the TOD deed would interact
with other such deeds, wills, and multiple beneficiaries, as
well as the requirement for the beneficiary to record a
transfer of ownership in order to become the legal owner of
the property.
4)Provides further instruction 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 revocable TOD deed.
5)Establishes contest of the revocable TOD deed for, among other
things, lack of capacity to transfer, transfer to disqualified
person, fraud, duress, and undue influence.
Page 3
AB 724 (DeVore)
The new nonprobate procedures created by this bill, if properly
utilized, is unlikely to result in any new state costs. To the
extent that TOD deeds result in estates avoiding probate, there
will be a decrease in the backlog of probate courts, and
existing cases can be settled more quickly. Moreover, to the
extent that TOD deeds are utilized by individuals with very
little property, and who would have otherwise died without
having created a traditional will or living trust, counties may
avoid the costs of appointing public administrators to settle
the estate. Court workload savings will be offset, to some
degree, by any increase in litigation surrounding an individual
TOD deed.
The degree to which state and local savings may result directly
from this bill is unclear.
According to the American Bar Association, "there are a plethora
of probate avoidance techniques, both simple and complex.
Typical of probate avoidance techniques is the addition to the
deed of the intended beneficiary during the lifetime of the
grantor. This technique is commonly seen in the use of joint
tenancy deeds. With the continued aging of the American
population, attorneys practicing estate planning see more and
more aging parents adding their adult children's names to deeds
as joint tenants with right of survivorship with the parents, as
a method of avoiding probate, for convenience, and because the
aging parents or the children incorrectly perceive that adding
the adult children to the deed protects the land from Medicaid
recovery?" To the extent that individuals would have used joint
tenancy, or other methods, to transfer real property in the
absence of this bill, this bill would simply result in another
option for the individual but with little change to government
entities.
As with the existing nonprobate transfers, and other existing
estate planning strategies, there is the possibility for abuse.
Because the revocable TOD deeds provided in this bill would be
new instruments in the state of California, some number of
enterprising beneficiaries of real property will likely
intentionally attempt to avoid paying property taxes and/or the
legally-owed debts of the transferor. These problems exist
currently, and it does not appear that there would be unique
ability to defraud the government presented by the TOD deeds;
during the time that the CLRC is studying the effect of the
deeds (until 2014, as required by this bill), there will likely
be more scrutiny of TOD deeds than any other property transfer
process.
The CLRC would be required to study this issue during its
initial implementation, and make new recommendations about its
continued use (and any proposed changes) to the Legislature by
January 1, 2014. Presumably, if the findings were not positive,
the Legislature would allow the provisions of this bill to
sunset on January 1, 2015.