BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 724
Assemblymember DeVore
As Introduced
Hearing Date: July 14, 2009
Family Code; Probate Code
GMO:jd
SUBJECT
Nonprobate Transfers: Revocable Transfer On Death (TOD) Deed
DESCRIPTION
The bill would create two new nonprobate property transfer
instruments, 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.
The bill would:
establish rules for the making and revocation of these deeds,
and provide mandatory statutory form deeds and one form
revocation for use by transferors of either deed;
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;
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;
require the California Law Revision Commission 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.
The bill contains a sunset date of January 1, 2015.
BACKGROUND
AB 12 (DeVore), Chapter 422, Statutes of 2005, was introduced as
a bill to create the instrument that AB 724 now calls "revocable
(more)
AB 724 (DeVore)
Page 2 of ?
transfer on death deed," but was subsequently amended to instead
direct the California Law Revision Commission (CLRC) to study
this type of deed and determine whether California should create
it as a new nonprobate transfer instrument that becomes
effective only upon the death of the transferor. 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 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 and failure to
address unintended consequences; and (3) 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 2007, the author introduced AB 250, that incorporated
recommendations of the CLRC, and had a sunset date of January 1,
2014. AB 250 failed passage in this committee. AB 724 is
nearly identical to AB 250, except that the date for submission
of the CLRC report is moved to January 1, 2014 and the sunset
date is moved to January 1, 2015.
CHANGES TO EXISTING LAW
Existing law provides various methods by which a person may
transfer his or her real property interests to another person
upon death, such as through a will, a trust, a joint tenancy
with right of survivorship, community property with right of
survivorship, an intervivos transfer with reserved life estate,
AB 724 (DeVore)
Page 3 of ?
and a nonprobate transfer.
Existing law permits the nonprobate transfer of property on
death, including an insurance policy, contract of employment,
bond, mortgage, promissory note, certified or 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. (Prob. Code Sec. 5000. All references are
to the Probate Code.)
Existing law provides for the nonprobate 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) Cal. 570.)
Existing law provides that upon the death of one joint tenant,
real property held in joint tenancy with right of survivorship
vests immediately in the surviving joint tenant or tenants.
(Civ. Code Sec. 683.)
Existing law provides that, if a transferee under a will, trust,
deed, or other instrument fails to survive the transferor or is
treated as if the transferee predeceased the transferor, or
fails to survive a future time, the transfer does not lapse but
instead passes to the issue of the deceased transferee, except
as otherwise provided. (Sec. 21110.)
This bill would establish two versions of a new nonprobate
transfer instrument, the revocable transfer on death (TOD) deed,
for use as specified to transfer real property upon a
transferor's death. Specifically, this bill would:
(1)define the instrument, the simple revocable TOD deed, which
would transfer real property to a named beneficiary upon the
death of the transferor outside of probate, and establish the
rules for the making and the revocation of the instrument;
(2)define the instrument, the revocable TOD deed with life
estate, which would create a life estate in a named life
tenant, with a remainder interest in the named beneficiaries;
( This bill would treat both instruments the same in all other
respects.)
(3)provide two versions of a mandatory statutory form of a
revocable TOD deed, each containing the required information,
instructions, and answers to a long list of "commonly asked
questions" about the instrument;
AB 724 (DeVore)
Page 4 of ?
(4)establish rules regarding the effect of the execution and
recordation of a revocable TOD deed, and their interaction
with other types of instruments;
(5)establish rules for a revocable TOD deed beneficiary's
liability for the debts of a transferor, including rules for
when an action is filed based on the debts, rules for the
beneficiary's liability for restitution under specified
circumstances, who may bring an action to enforce the
beneficiary's liability, and payment of costs for a proceeding
to enforce the beneficiary's liability;
(6)establish rules regarding the effectuation of the property
transfer, and a beneficiary's standing vis ? vis a distributee
under a final order of distribution if the property was
probated;
(7)establish rules for a contest involving the revocable TOD
deed;
(8)allow only a personal representative to enforce liability of
a beneficiary of a revocable TOD deed or any other beneficiary
of a decedent with a small estate, to the extent necessary to
protect heirs, devisees, and creditors of the
transferor-decedent, and, as to creditors, provide for
recovery of the reasonable cost of a proceeding under this
provision as an extraordinary service by the personal
representative or the attorney of the decedent's estate; and
(9)make other conforming changes where appropriate.
This bill would direct the California Law Revision Commission to
study the effect of the revocable TOD deed as established by
this bill and to report to the Legislature on or before January
1, 2014, with specific instructions to study:
(1)whether the revocable TOD deed is working effectively;
(2)whether the revocable TOD deed should be continued;
(3)whether the revocable TOD deed is subject to misuse or
misunderstanding;
(4)what changes should be made to the revocable TOD deed or the
law associated with the deed to improve its effectiveness and
to avoid misuse or misunderstanding; and
(5)whether the revocable 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 contains a sunset provision, making it inoperative on
January 1, 2015, unless extended or made permanent by another
statute.
AB 724 (DeVore)
Page 5 of ?
COMMENT
1. Stated need for the bill
The author states that the purpose of the bill is "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 [revocable TOD deed], some seniors will use
other means to transfer the property, often with undesirable
results. ? The revocable TOD deed would avoid all of these
problems."
2. The CLRC Report
Proponents of AB 12 (DeVore, Ch. 422, Stats. 2005), as
originally drafted, argued that a beneficiary deed (or something
similar) would be very helpful to small estates, and to
lower-income people who cannot afford to engage the services of
an attorney for estate planning or other professionals who
practice financial and estate planning. Indeed, the CLRC report
and recommendation on which this bill is based states that the
argument made for a beneficiary deed (another name for a TOD
deed) is that "it is cheaper and quicker than probate, less
expensive than a lawyer-prepared trust, and preferable to a
joint tenancy." (CLRC Recommendation, Revocable Transfer On
Death (TOD) Deed, October 2006, page 200) (hereinafter "CLRC
Report"). The same report admits, however, that "the revocable
TOD deed may appear deceptively simple, yet cause problems not
anticipated by a transferor who uses it." (CLRC Report, page
201.)
The CLRC reports that it received numerous communications
emphasizing that a homeowner should be able to deed property
directly to heirs without the expense of probate or a trust
proceeding. Indeed staff has received numerous pleas from
groups that state they serve senior citizens and that a
"proposal for a simple, one page state recognized beneficiary
deed that we could use at the Senior centers and elsewhere would
be a real benefit to California seniors."
The sample statutory form created by this bill for each deed is
attached to this analysis, as well as the Commonly Asked
Questions form for the back of the deed. Although one could
argue that each deed is simple enough to fit on one page and the
AB 724 (DeVore)
Page 6 of ?
questions list short enough to fit on the back of the deed, each
deed is still a daunting document to read, if the user is to
understand all of the nuances and after-effects of the legally
binding document once properly executed. It would still be
questionable whether a potential transferor would actually read
and understand the Commonly Asked Questions on the back of the
form. The result could be fodder for litigation after the
transferor's death.
When this committee heard AB 12 (in 2005), the committee
recommended that the CLRC report back to the Legislature by
January 1, 2009 instead of January 1, 2007 (see Senate Judiciary
Committee Analysis of AB 12, dated June 28, 2005, Comment 2).
The rationale for the committee's recommendation was that this
area is very complex and full of pitfalls for the unwary
consumer, and the CLRC should be given the time, given all of
its other work, to study the area thoroughly and, if indeed a
recommendation to create a beneficiary deed is the result, to
draft both the bill and the form deed carefully.
However, in this case the CLRC, known for its deliberative,
paced work on a vast array of subject matters, completed its
work on this subject in less than 10 months, with the
recommendation that constituted AB 250 by October 2006. Between
the date AB 250 failed passage in this committee in June, 2008,
and the introduction and subsequent public hearings on AB 724 in
2009, neither the CLRC nor any other entity has dispelled the
concerns expressed by those who oppose the use of the simplified
revocable TOD deed in California. These concerns remain and are
discussed throughout Comments 3, 4, and 5. In fact, AB 724, as
it has come to the committee, is in exactly the same position,
and in exactly the same form, as AB 250 that was denied passage
in 2008.
AB 724 contains the requirement that the CLRC report to the
Legislature on January 1, 2014 on issues related to potential
misunderstanding and misuse of revocable TOD deeds and potential
cases of fraudulent deeds conveyed under duress or undue
influence. In fact it was the Assembly Committee on Judiciary
that first imposed this requirement when it passed AB 250 in
2007 due to its concerns about these issues. Nothing has
changed between then and now with respect to this potential for
fraud and abuse.
GIVEN THE RECURRING HORROR STORIES OF SENIORS BEING CHEATED OUT
OF THEIR HOMES BY A VARIETY OF FRAUDULENT SCHEMES, WOULD THIS
AB 724 (DeVore)
Page 7 of ?
BILL GIVE SCAM ARTISTS A NEW TOOL WITH WHICH TO DEFRAUD SENIORS?
It should be noted that although the CLRC sponsored AB 250 last
session, it declined to sponsor this almost identical bill, AB
724.
3. Is the revocable TOD deed for small estates only?
There is no doubt the CLRC has done substantial background work
on this subject. However, concerns remain that the target users
of this revocable TOD deed, i.e., individuals with small
estates, could be misled as to the efficacy of using the deed
instead of other avenues that may be available to them now.
The bill supposedly targets small estates yet has no limitation
on its use. The Probate Code defines small estates as
consisting of a combined real and personal property valued at
less than $100,000.
Thus, a person with $100,000 equity in his home can, under this
bill, execute a revocable TOD deed and so can a person with
equity of $1 million in her home. However, it is likely that
the beneficiary of the transferor with the smaller estate can
confirm the transfer of the property by affidavit, as envisioned
by this bill, but the beneficiary of the transferor with the
larger estate will be in a probate administration proceeding
anyway. Further, the transferor with a small estate can simply
execute a deed (not a TOD deed, but a plain deed to the
property) that is not recorded but delivered to the beneficiary.
The beneficiary can record the deed after death and confirm the
transfer by affidavit. Under this scenario, what is the
advantage of a revocable TOD deed? Another alternative is for
the transferor with the small estate to transfer the property to
himself or herself and the beneficiary in joint tenancy with
right of survivorship. The resulting interest to the
beneficiary would not be too different than if the property were
transferred via a revocable TOD deed.
4. Revocable TOD Deed: execution, form, warranty of title
AB 724 would create a new instrument that would allow the
nonprobate transfer of real property. The revocable transfer on
death (TOD) deed must be signed and dated by a transferor with
capacity, and acknowledged before a notary public. The deed
must be recorded within 60 days of the date it is executed; if
it is not recorded within this time period, it is void and
AB 724 (DeVore)
Page 8 of ?
ineffective. If properly executed and recorded, the REVOCABLE
TOD deed would transfer the property to the beneficiary upon the
transferor's death.
a. Neither delivery nor acceptance is required
The bill would provide that the transferor is not required to
deliver a REVOCABLE TOD deed to the beneficiary, and the
beneficiary is not required to accept the deed from the
transferor, during the transferor's life. (Proposed Sec. 5624
(b) and (c).)
Proponents state that the target population of the revocable
TOD deed is senior citizens who are looking for a simple and
inexpensive way to give away their one asset, their home.
Here is an example of how the non-delivery and non-acceptance
requirement could create a problem: Grandpa executes a
revocable TOD deed naming his only grandson as beneficiary of
his home, records it within 60 days as required, then quietly
puts it away in a box; he doesn't tell anyone about it. Two
years later, Grandpa's memory is beginning to fail, although
he is not incompetent and still has legal capacity. He
forgets the prior recorded, valid revocable TOD deed in the
box in the closet, and he executes another revocable TOD deed
naming his granddaughter who had just spent one week visiting
him. He records this second revocable TOD deed immediately
but still does not deliver it to his granddaughter or tell
anyone about it. Grandpa clearly intended the property to go
to his grandson and he clearly had capacity when he executed
the first revocable TOD deed. Grandpa also clearly intended
to give the property to his granddaughter through an REVOCABLE
TOD deed but simply forgot that he had already given the
property away. Grandpa dies, and now there is a contest,
which will have to be resolved by litigation, which is the
last thing Grandpa probably would have wanted. Perhaps if the
property had a value less than $100,000 the grandchildren
would be able to resolve the lack of clarity about Grandpa's
intent regarding the property. However, if this house is
worth $1 million, the issue of testator's intent would
undoubtedly be litigated.
Although the rules provided in AB 724 for deciding which
revocable TOD deed would be the operative instrument (the
later recorded deed, since both are revocable, proposed Secs.
5628(a); Sec. 5660(b).), the rules provided for execution,
recordation, and delivery (or non-delivery) of the deed need
AB 724 (DeVore)
Page 9 of ?
clarity. To avoid litigation, bright lines should be drawn,
especially when the testator's capacity and intent could
easily be questioned because of his or her being at a
vulnerable age.
SHOULD THESE RULES BE REVISITED?
The California Judges Association (CJA) points out this
critical flaw in AB 724 in its letter dated June 30, 2009.
The CJA states that because delivery of the deed is not
explicitly required, AB 724 leaves the possibility that an
executed deed, pocketed for further reflection, may be
recorded without the knowledge, consent, or intent of the
transferor. This could still be true, even with the 60-day
recordation requirement in the bill.
Under existing law, a transferor may actually create a valid
transfer that is not contingent on the transferor's death,
which is then delivered but not recorded until after death.
Under AB 724, a revocable TOD deed of the same property later
executed and recorded would trump the earlier, valid deed that
had been delivered but not recorded. AB 724 does not require
delivery of the deed to the REVOCABLE TOD deed beneficiary.
Once more, this could be fodder for litigation.
A deed takes effect only when delivered. (Civ. Code Sec.
1054.) Delivery depends on the intention that title will pass
irrevocably even though the right of possession and enjoyment
may be postponed to a future time. It is a question of fact,
and evidence of the circumstances and of the acts and
declarations of the grantor ? Delivery may be actual (physical
delivery) or constructive. A deed may be deemed
constructively delivered to the grantee: (a) when by agreement
of the parties it is understood to be delivered and the
grantee is entitled to immediate delivery; or (b) when it is
delivered by the grantor to a stranger for the benefit of the
grantee and the grantee's assent is shown or may be presumed.
(Witkin, 12 Summary of California Law, 10th Ed. Sec. 291.
Citations omitted.)
AB 724 requires neither delivery of the deed by the transferor
nor acceptance of the deed by the beneficiary. And as
described in previous examples given, an executed revocable
TOD deed (especially one that has been recorded) could be
easily filed away in a filing cabinet by a transferor and then
unintentionally revoked by the recordation of a new revocable
TOD deed, because the transferor simply forgot that he or she
AB 724 (DeVore)
Page 10 of ?
had already executed one.
SHOULD DELIVERY OF THE DEED BE REQUIRED?
b. Third party may sign the revocable TOD deed
Proposed Section 5624(b) provides that a revocable TOD deed
may be signed and dated in a transferor's name by a person
other than the transferor at the transferor's direction and in
the transferor's presence, but shall be acknowledged by the
transferor. AB 724 provides a statutory form of the revocable
TOD deed and the revocable TOD deed with life estate. A
sample of each deed is provided in this analysis.
It is not difficult to imagine a scenario where a person may
be persuaded by a friend or caregiver to have the friend fill
out the form and attempt to sign and date it at the
transferor's "direction" in the presence of the transferor and
the notary. This is similar to the attestation of a will by
two witnesses in the presence of the testator. The difference
is that in this case one of the witnesses would be actually
signing and dating the instrument and not just witnessing the
execution of the instrument by the transferor.
There are also problems with use of the statutory form.
First, there is no place on the statutory form for the real
transferor to acknowledge the act. Second, the
acknowledgement of notary language would not permit the friend
to sign the revocable TOD deed, even at the transferor's
direction. Third, even if the notary public were to
acknowledge the friend's signature as having been "authorized"
by the transferor in the presence of the notary, another
beneficiary questioning the validity of the REVOCABLE TOD deed
at transferor's death (such as transferor's husband or heir)
would undoubtedly go to court and litigate the transfer,
especially if the property is a very expensive piece of real
estate.
IS THIS PROVISION FRAUGHT WITH POSSIBILITIES FOR ABUSE?
In fact, for years the courts have been handling thousands of
contest cases involving fraudulent transfers, challenges to
validity of testamentary instruments, voidable and void
instruments, and trust or estate administration questions.
WOULD THE CREATION OF THE REVOCABLE TOD DEED BY THIS BILL
AB 724 (DeVore)
Page 11 of ?
CAUSE MORE LITIGATION RATHER THAN SIMPLIFY THE TRANSFER OF
REAL PROPERTY?
c. Revocable TOD deed with life estate
In AB 12 and AB 250, statutory forms were provided for a
transferor to use to create a revocable TOD deed. Concerns
were raised by opponents of those bills regarding the
likelihood that users of the statutory forms would not be
sophisticated enough to understand what those terms in the
forms mean, and could therefore make mistakes.
The bill before the committee today shows two statutory forms,
one the "Simple Revocable TOD Deed" and the other the
"Revocable TOD Deed With Life Estate." The revocable TOD deed
with life estate form shows a line to be filled in for "Life
Tenant" and several lines for "Remainder Beneficiaries." On
the back of the form, the first question is "What does the TOD
Deed do?" and the answer states: "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).'
Probate is not required for a transfer under this deed. The
deed has no effect until you die. You can revoke it at any
time."
Even though the bill now treats the two deeds separately,
still there is little explanation to a layperson of the terms
"life tenant" and "remainder beneficiary" in the statutory
forms such that a person who wishes to go with "simple and
inexpensive" and thus uses the form will likely still have to
consult with a lawyer for advice.
The Trusts and Estates Section of the State Bar of California
is also concerned about misunderstandings that potential
transferors may have about the terms used in the statutory
form. They point out that most users of the form will not
understand the legal consequences of a revocable TOD deed with
life estate, and the potential conflict between the life and
remainder interests which could result in a lawsuit between
the life tenant and the remainder person. They insist that an
individual who desires to create a life estate in a revocable
TOD deed instead of a trust should have it professionally
drafted to address the issues that could arise under it.
IF A PERSON IS TO AVOID LITIGATION, SHOULD HE OR SHE AVOID
USING A REVOCABLE TOD DEED, ESPECIALLY THE STATUTORY FORM?
AB 724 (DeVore)
Page 12 of ?
d. Property transferred via revocable TOD deed would not
carry warranty of title
Under the bill, property that is transferred via a revocable
TOD deed is transferred without warranty of title, and
therefore probably not insurable. (Proposed Sec. 5652(d).)
Will this present a problem for the beneficiary? Will title
companies accept the revocable TOD deed as a valid and
insurable title? Will it cost the beneficiary more to obtain
title insurance when the property is to be sold? Will the
beneficiary be able to get title insurance at all, with or
without an exclusion, and at what cost?
The California Land Title Association (CLTA) fears that the
revocable TOD deed will become a new form of fraud to be used
against the elderly and unwary real property owners. They
cite one instance in Monterey Park, where a caregiver,
assisted by an attorney from New Mexico (where TOD deeds are
allowed), convinced an elderly man to execute a TOD deed.
Once the deed was executed, the caregiver soon withdrew
quality care and the elderly man's life was put at risk as his
health rapidly declined. Eventually the daughter and
son-in-law intervened, eliminated the TOD deed, and obtained a
conservator to protect the elderly man. CLTA is convinced
that if AB 724 is signed into law, the use of these forms will
become commonplace and that this type of fraud will become the
new form of easy, convenient, and cheap elder abuse.
The California Land Title Association (CLTA) states that they
participated in several meetings of the CLRC on the subject of
the revocable TOD deed over the course of a year. The CLTA,
while extolling CLRC's hard work in analyzing the subject in
depth and in trying to address all possible problems
associated with the transfer of real property in a way that
effectuates the transferor's intent and avoids litigation,
nevertheless concluded that the TOD deed "has developed into a
complex and convoluted process that will result in unwary
consumers being confused and caught up in unnecessary
litigation." (Letter dated June 29, 2009).
The CLTA explains their opposition thus:
Title companies rely upon the documents recorded in the
county recorder's office to determine the status of
title for real property. All title defects, liens and
encumbrances excluded from coverage are listed in the
AB 724 (DeVore)
Page 13 of ?
preliminary report, usually triggering the seller,
buyer, and lender to address these title problems
through the escrow process.
CLTA fully expects that if AB 724 is enacted, some transferors
will execute more than one TOD deed over the course of their
life as their circumstances change. Divorces, the death of
spouses, estranged children or addition of children through
marriage, etc., are just a few of the examples that come to
mind. Each of these changes could trigger the execution and
recordation of a new TOD deed to effectuate a different
transfer.
Thus, a "stacking" of these deeds in the public records (or in
file cabinets and recorded later) would create ambiguity and
uncertainty as to the status of title and intent of the
original transferor. If there is ambiguity, out of an
abundance of caution the title company involved in a
transaction would likely resort to the use of quitclaim deeds
to resolve ambiguities, thus rendering many - if not all - of
the TOD deeds essentially useless.
Echoing CLTA's remarks is the California Escrow Association
(CEA). The CEA believes that the TOD process contemplated in
AB 724 would lead to confusion rather than clarity in the
title transfer process. "Escrow officers are on the front
lines in terms of closing real estate transactions. They are
in constant contact with the title officers who must be
confident that property ownership is sufficiently certain to
issue title policies in these transactions. Simply put, we
are concerned that unsophisticated parties will record
multiple transfer on death deeds, without understanding the
legal significance of what they are doing, resulting in great
confusion when they subsequently die."
e. Revocable TOD deed is not a change in ownership
Under this bill, execution and recordation of a revocable TOD
deed is not a change in ownership that would trigger a
documentary transfer tax or filing of a preliminary change of
ownership report. However, on the death of a transferor, the
transfer would be considered a change in ownership. Many
people may think that by transferring their property through a
revocable TOD deed, they would be able to escape capital gains
taxes, gift taxes, and estate taxes.
AB 724 (DeVore)
Page 14 of ?
SHOULD THESE ISSUES BE ADDRESSED BY THE BILL?
5. Revocable TOD deed: Revocation
Under AB 724, a transferor who has testamentary capacity may
revoke a revocable transfer on death deed at any time (Proposed
Sec. 5630.). The bill also provides that a revocable TOD deed
remains revocable until death. (Proposed Sec. 5614(a)(3).)
It is not clear if the revocable TOD deed becomes irrevocable
when the transferor becomes incapacitated. How can a revocable
TOD deed remain revocable until death when it can no longer be
revoked due to incapacity?
SHOULD THIS BE CLARIFIED?
The CLRC in fact recognized that of the nine revocable deed
jurisdictions it studied, none addresses the capacity issue.
The CLRC states that the legal capacity to make a will is a
lower standard than the legal capacity to make a real property
transfer (or to revoke one?). "Presumably in those [nine]
jurisdictions the standard will be the higher standard of
contractual capacity, not the less demanding standard of
testamentary capacity, that prevails." Yet, the CLRC used
"testamentary capacity" as the standard in drafting AB 250 (and
this is now incorporated in AB 724).
According to the CLRC, the rationale for using testamentary
capacity rather than contractual capacity is this: "if a will is
challenged for lack of testamentary capacity, that issue is
resolved in a probate proceeding, before transfer actually
happens. A TOD deed passes directly to the beneficiary, hence
any challenge to the transfer could only be retroactive, in a
post-death challenge. The revocable TOD deed is like a will,
because it is a donative transfer that takes effect on death and
is revocable until then. For that reason, testamentary capacity
should be sufficient to enable execution of a revocable TOD
deed. The possibility of fraud, duress, or undue influence is
controlled by execution formalities and the availability of a
post-death challenge."
Proposed Section 5632 (a) requires that an instrument revoking a
revocable TOD deed be executed and recorded before the
transferor's death "in the same manner as execution and
recordation of a revocable transfer on death deed."
AB 724 (DeVore)
Page 15 of ?
An executed REVOCABLE TOD deed is not effective until the deed
is recorded, within 60 days of the execution of the deed. This
is expressly provided in proposed Section 5626(a). In this
context, the instrument of revocation should be notarized and
recorded within 60 days also, otherwise it should not be
effective.
IS THIS THE AUTHOR'S INTENT? IF SO, SHOULD THE BILL EXPRESSLY
SO PROVIDE?
If a transferor executed and recorded a revocable TOD deed, then
later, while still with capacity, executed a valid will that
contained a provision revoking that revocable TOD deed and then
disposed of the same property, but the will was not recorded
(wills are not usually recorded; they are lodged with the court
at transferor's death and then probated), would the revocable
TOD deed be deemed revoked or would it be the operative
instrument as to that property?
SHOULD THESE REVOCATION PROVISIONS BE FURTHER REVISED?
The CJA contends that AB 724 does not sufficiently address the
process of revocation of a revocable TOD deed. They point out
that a will is ineffective upon revocation, and a revocation
must be notarized and recorded, presumably in the county where
the property lies, not the one in which the transferor resides.
"Revocation then becomes dependent on time, distance, office
hours, and the precise memory of the transferor. AB 724 ignores
these revocation factors and leaves unclear whether a revocation
may be filed outside the chain of title, or if it is, then
whether it is effective."
The vague revocation rules will likely provide fertile ground
for litigation. Here is yet another example: Grandpa executes
and records a revocable TOD deed, giving the property to
grandson. A year later, he revokes the first revocable TOD deed
and executes and delivers a deed to his granddaughter, making
her a joint tenant with right of survivorship. The
granddaughter immediately records the new deed, but Grandpa has
failed to record a revocation of the revocable TOD deed.
Following Grandpa's intent, the granddaughter should prevail but
her deed is likely without legal effect because Grandpa failed
to record the revocation in a timely manner. Even if the
revocation is recorded later, the granddaughter 's deed may
still be invalid unless the recording of the revocation relates
back to the execution.
AB 724 (DeVore)
Page 16 of ?
6. Creditors: beneficiary is personally liable for
transferor's debts
Under AB 724 a creditor of the transferor who has an encumbrance
or lien of record against the property transferred by a
revocable TOD deed has priority over a creditor of the
beneficiary, regardless of whether the beneficiary incurred the
obligation before or after the transferor's death and regardless
of whether the obligation is secured or unsecured, voluntary or
involuntary, recorded or unrecorded.
A beneficiary is personally liable to a creditor for the
unsecured debts of the transferor, to the extent provided under
the bill. Because the goal of the REVOCABLE TOD deed is to
transfer property directly and thus avoid probate, the only
mechanism for collecting on outstanding liabilities of the
estate of transferor would be a civil action against the
REVOCABLE TOD deed beneficiary to restore or return the property
so it may be liquidated and distributed to creditors.
This sets up a scenario where instead of having one court
proceeding to administer the entire estate of transferor,
including liquidation of assets if necessary to pay the
transferor's liabilities prior to distribution of remaining
assets, there could be several civil actions against different
revocable TOD deed beneficiaries, which would disadvantage
transferor's creditors. Thus, a revocable TOD deed could be
used as a fraudulent transfer vehicle to the detriment of
legitimate creditors of the transferor.
SHOULD NOT THIS BILL BE HELD UNTIL THE RISK OF FRAUDULENT
TRANSFERS IS ELIMINATED OR SUFFICIENTLY DIMISHED?
7. The statutory forms
AB 250 would require a revocable TOD deed to be in a
standardized, uniform form in the state. Thus, in the bill are
three forms: a revocable TOD deed, a revocable TOD deed with
life estate, and a revocation form that is usable for revoking
either of the two deeds. Sample forms are attached to this
analysis.
8. Sunset date in 2015, CLRC report in 2014
AB 724 (DeVore)
Page 17 of ?
This bill would sunset on January 1, 2015, unless another act
extends the statute or makes it permanent. The CLRC would be
required to report to the Legislature on or before January 1,
2014, on various items, including whether the revocable TOD deed
is subject to misuse or misunderstanding and whether it should
be continued.
9. Arguments from supporters
The author states that all of the concerns about potential
abusers of senior citizens using a revocable TOD deed to
perpetrate fraud are equally applicable to the other forms of
real property transfer under current law. Because the deed
would be recorded, he states, the fraudulent deed would be in
the public record and would be subject to discovery by others
way before the transferor's death.
An attorney who works for Area Agency on Aging I states that he
strongly believes that when enacted, AB 724 will help avoid some
of the most prevalent elder financial abuse (trust mills). In
addition, he states, "it will help countless seniors and other
low-income California residents leave their modest estates
(often consisting only of a home) to heirs without the expense
of probate or living trust."
Finally, a letter from a member of the Board of Equalization
states the bill would make it easier for property to transfer
from the decedent to their designee. Current law adds unneeded
expense to what should be a simpler process, she stated.
10. Final comments
In fairness, prior to last year's hearing on AB 250, several
amendments were made (these are in AB 724) to accommodate some
of the concerns expressed by opponents of AB 250. In addition,
a sunset date was added to ensure the statute would become
inoperative automatically should a spate of abuses occur over
the next several years. Still, the opponents came back with
unabated concerns that the rules for the execution and
revocation of a revocable TOD deed under AB 250 are not ready
for release to the unwary, the unsophisticated, vulnerable
population it is supposed to serve. The same concerns have been
expressed with respect to this almost identical bill, AB 724.
As the CLRC itself said, clarity is especially important with
regards to transfers of real property. Relationships between
AB 724 (DeVore)
Page 18 of ?
people change, as people die, become estranged, are
institutionalized, get married, divorced, part ways, rendering
an earlier decision to gift the real property inappropriate or
ill-advised. The one-size-fits all approach of the revocable
transfer on death deed may be its biggest weakness.
"Historically a 'quick and easy' conveyancing instrument such as
a quitclaim deed is often the instrument of choice of a
perpetrator of fraud who preys on seniors and unsophisticated
consumers. Because it is easy to use, cheap to record and does
not require the use of an attorney or other third party
intermediary, it facilitates fraud. The ease and simplicity of
use associated with the revocable TOD deed suggest that it may
lend itself to similar abuse."
11. Attachments :
Sample forms of the Revocable TOD Deeds and Revocation (see
pages 16-24 of this analysis).
Support: American Association of Retired Persons, California
(AARP); California Commission on Aging; Fresno Stonewall
Democrats; California Senior Legislature; Orange County
Association of Realtors; AFSCME Retirees Chapter 36;California
State Retirees; Mary Pat Toups; California Communities United
Institute; California Church Impact; Congress of California
Seniors; California Alliance for Retired Americans; Anne Rudin,
former Mayor of Sacramento; Howard Jarvis Taxpayers Association
Oppose: California Land Title Association; California Escrow
Association; California Judges Association; Trusts and Estates
Section of the State Bar of California
HISTORY
Source: Author, based on the California Law Revision
Commission, October 2006
Pending related legislation: None Known
Previous Legislation:
AB 724 (DeVore)
Page 19 of ?
AB 12 (DeVore) Ch. 422, Stats. 2005. See Background.
AB 250 (DeVore, 2007) See Background.
Prior Vote:
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Floor (Ayes 79, Noes 0)
**************
AB 724 (DeVore)
Page 20 of ?
Recording Requested By:
When Recorded Mail This Deed To
Name:
Address:
Assessor's Parcel Number:
_________________________________________________________________
_________
Space Above For Recorder's Use
SIMPLE REVOCABLE TRANSFER ON DEATH (TOD) DEED
(California Probate Code Section 5642)
This document is exempt from documentary transfer tax under Rev.
& Tax. Code 11930. This document is exempt from preliminary
change of ownership report under Rev. & Tax. Code 480.3.
IMPORTANT NOTICE: THIS DEED MUST BE RECORDED
ON OR BEFORE 60 DAYS AFTER THE DATE IT IS SIGNED
Use this deed to transfer the property described below directly
to your named beneficiaries when you die.
YOU SHOULD CAREFULLY READ ALL OF THE INFORMATION ON THE OTHER
SIDE OF THIS FORM. You may wish to consult an attorney before
using this deed. It may have results that you do not want.
Provide only the information asked for in the form. DO NOT
INSERT ANY OTHER INFORMATION OR INSTRUCTIONS. This form MUST BE
RECORDED on or before 60 days after the date it is signed or it
will not be effective.
PROPERTY DESCRIPTION: Print the address or other legal
description of the property affected by this deed:
_________________________________________________________________
_________________________
BENEFICIARY(IES): Print the NAME(S) of the person(s) who will
receive the property on your death.
(DO NOT use general terms like "my children"):
_________________________________________________________________
_________________________
_________________________________________________________________
_________________________
TRANSFER ON DEATH
I transfer all of my interest in the described property to the
named beneficiary(ies) on my death. I may revoke this deed. When
AB 724 (DeVore)
Page 21 of ?
recorded, this deed revokes any TOD deed that I made before
signing this deed.
Sign and print your name below:
Date
_____________
NOTE: This deed only transfers MY ownership share of the
property. The deed does NOT transfer the share of any co-owner
of the property. Any co-owner who wants to name a TOD
beneficiary must complete and RECORD a SEPARATE deed.
ACKNOWLEDGMENT OF NOTARY
State of California )
County of ____________________)
On ( date ) before me, (here insert name and title of the
officer), personally appeared _____________________, who proved
to me on the basis of satisfactory evidence to be the person
whose name is subscribed to the within instrument and
acknowledged to me that he/she/ executed the same in his/her/
authorized capacity, and that by his/her/ signature on the
instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State
of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ___________________________ (Seal)
COMMON QUESTIONS ABOUT THE USE OF THIS FORM
WHAT DOES THE TOD DEED DO?
When you die, your beneficiary will become owner of the property
described in the TOD deed. Probate is not required. The TOD deed has
no effect until you die. You can revoke it at any time.
HOW DO I USE THE TOD DEED?
Complete this form. Have it notarized. RECORD the form in the county
where the property is located. The form MUST be recorded before your
death or it has no effect.
HOW DO I "RECORD'' THE FORM?
AB 724 (DeVore)
Page 22 of ?
Take the completed and notarized form to the County Recorder for the
county in which the property is located. Follow the instructions given
by the County Recorder to make the form part of the official property
records.
WHAT IF I SHARE OWNERSHIP OF THE PROPERTY?
This form only affects YOUR share of the property. If a co-owner also
wants to name a TOD beneficiary, that co-owner must complete and
RECORD a separate form.
CAN I REVOKE THE TOD DEED IF I CHANGE MY MIND?
Yes. You may revoke the TOD deed at any time. No one, including your
beneficiary, can prevent you from revoking the deed.
HOW DO I REVOKE THE TOD DEED?
There are three ways to revoke a recorded TOD deed: (1) Complete,
notarize, and RECORD a revocation form. (2) Create and RECORD a new
TOD deed, trust, or other estate planning document that disposes of
the same property. (3) Sell or give away the property before your
death and RECORD the deed. A TOD deed can only affect property that
you own when you die.
IF I CREATE A NEW TOD DEED, TRUST, OR OTHER ESTATE PLANNING
DOCUMENT THAT DISPOSES OF THE SAME PROPERTY, DOES THAT
AUTOMATICALLY REVOKE A
RECORDED TOD DEED?
No. If you want the new document to revoke a recorded TOD deed, the
new document MUST be signed and dated after the deed you wish to
revoke and it must be RECORDED. To avoid any doubt about whether the
deed is revoked, you can also complete and RECORD a revocation form.
I AM BEING PRESSURED TO COMPLETE THIS FORM. WHAT SHOULD I DO?
Do NOT complete this form unless you freely choose to do so. If you
are being pressured to dispose of your property in a way that you do
not want, you may want to alert a family member, friend, a district
attorney, or a senior service agency.
DO I NEED TO TELL MY BENEFICIARY ABOUT THE TOD DEED?
No. But, secrecy can cause later complications and might make it
easier for others to commit fraud.
WHAT DOES MY BENEFICIARY NEED TO DO WHEN I DIE?
Your beneficiary must RECORD evidence of your death (Prob. Code
210), and file a change in ownership notice (Rev. & Tax. Code 480).
If you received Medi-Cal benefits, your beneficiary must notify the
State Department of Health Care Services of your death and provide a
copy of your death certificate (Prob. Code 215).
WHAT IF I NAME MORE THAN ONE BENEFICIARY?
Your beneficiaries will become co-owners in equal shares. If you want
a different result, you should not use this form. You MUST name your
beneficiaries individually. You MAY NOT use general terms to describe
beneficiaries, such as "my children.''
WHAT IF A BENEFICIARY DIES BEFORE I DO?
AB 724 (DeVore)
Page 23 of ?
You should probably create and RECORD a new deed. Otherwise, the
property will transfer according to the general rules on failed gifts,
which may not meet your needs. See Prob. Code 21110-21111.
WHAT IS THE EFFECT OF A TOD DEED ON PROPERTY THAT I OWN AS JOINT
TENANCY OR COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP?
If you are the first joint tenant or spouse to die, the deed is VOID
and has no effect. The property transfers to your joint tenant or
surviving spouse and not according to this deed. If you are the last
joint tenant or spouse to die, the deed takes effect and controls the
ownership of your property when you die. If you do not want these
results, do not use this form. The deed does NOT transfer the share of
a co-owner of the property. Any co-owner who wants to name a TOD
beneficiary must complete and RECORD a SEPARATE deed.
CAN I ADD OTHER CONDITIONS ON THE FORM?
No. If you do, your beneficiary may need to go to court to clear
title.
IS PROPERTY TRANSFERRED BY THE TOD DEED SUBJECT TO MY DEBTS? Yes.
DOES THE TOD DEED HELP ME TO AVOID GIFT AND ESTATE TAXES?
No. If you wish to avoid gift and estate taxes you should consult a
tax professional for advice.
HOW DOES THE TOD DEED AFFECT PROPERTY TAXES?
The TOD deed has no effect on your property taxes until your death. At
that time, property tax law applies as it would to any other change of
ownership.
DOES THE TOD DEED AFFECT MY ELIGIBILITY FOR MEDI-CAL? No.
AFTER MY DEATH, WILL MY HOME BE LIABLE FOR REIMBURSEMENT OF THE
STATE FOR MEDI-CAL EXPENDITURES?
If your estate is subject to reimbursement, any property
transferred by a TOD deed will also be subject to reimbursement.
AB 724 (DeVore)
Page 24 of ?
Recording Requested By:
When Recorded Mail This Deed To
Name:
Address:
Assessor's Parcel
Number:________________________________________________________________
__________
Space Above For Recorder's Use
REVOCABLE TRANSFER ON DEATH (TOD) DEED WITH LIFE ESTATE
(California Probate Code Section 5643)
This document is exempt from documentary transfer tax under Rev. &
Tax. Code 11930. This document is exempt from preliminary change of
ownership report under Rev. & Tax. Code 480.3.
IMPORTANT NOTICE: THIS DEED MUST BE RECORDED
ON OR BEFORE 60 DAYS AFTER THE DATE IT IS SIGNED
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.
YOU SHOULD CAREFULLY READ ALL OF THE INFORMATION ON THE OTHER SIDE OF
THIS FORM. You may wish to consult an attorney before using this deed.
It may have results that you do not want. Provide only the information
asked for in the form. DO NOT INSERT ANY OTHER INFORMATION OR
INSTRUCTIONS. This form MUST BE RECORDED on or before 60 days after
the date it is signed or it will not be effective.
PROPERTY DESCRIPTION: Print the address or other legal description of
the property affected by this deed: _____________
_______________________________________________________________________
_______________________________
LIFE TENANT: Print the NAME of the life tenant:
____________________________________________________________
REMAINDER BENEFICIARY(IES): Print the NAME(S) of the person(s) who
will receive the property on your death (DO NOT use general terms like
"my children").
_______________________________________________________________________
AB 724 (DeVore)
Page 25 of ?
______________________________
_______________________________________________________________________
______________________________
TRANSFER ON DEATH
I transfer all of my interest in the described property on my death,
as follows: a life estate to the person named as life tenant, with a
remainder to the person(s) named as remainder beneficiary(ies). I may
revoke this deed. When recorded, this deed revokes any TOD deed that I
made before signing this deed.
Sign and print your name below:
Date
_____________
NOTE: This deed only transfers MY ownership share of the property. The
deed does NOT transfer the share of any co-owner of the property. Any
co-owner who wants to name a TOD beneficiary must complete and RECORD
a SEPARATE deed.
ACKNOWLEDGMENT OF NOTARY
State of California )
County of ____________________)
On ( date ) before me, (here insert name and title of the
officer), personally appeared ______________________________, who
proved to me on the basis of satisfactory evidence to be the person
whose name is subscribed to the within instrument and acknowledged to
me that he/she/ executed the same in his/her/ authorized capacity, and
that by his/her/ signature on the instrument the person, or the entity
upon behalf of which the person acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of
California that the foregoing is true and correct.
WITNESS my hand and official seal.
Signature ___________________________ (Seal)
COMMON QUESTIONS ABOUT THE USE OF THIS FORM
WHAT DOES THE TOD DEED DO?
When you die, the identified property will transfer to the "life tenant"
AB 724 (DeVore)
Page 26 of ?
for the duration of that person's life. After that person's death, the
property will transfer to your "remainder beneficiary(ies)." Probate is
not required for a transfer under this deed. The deed has no effect
until you die. You can revoke it at any time.
HOW DO I USE THE TOD DEED?
Complete this form. Have it notarized. RECORD the form in the county
where the property is located. The form MUST be recorded before your
death or it has no effect.
HOW DO I "RECORD'' THE FORM?
Take the completed and notarized form to the County Recorder for the
county in which the property is located. Follow the instructions given
by the County Recorder to make the form part of the official property
records.
WHAT IF I SHARE OWNERSHIP OF THE PROPERTY?
This form only affects YOUR share of the property. If a co-owner also
wants to name a TOD beneficiary, that co-owner must complete and RECORD
a separate form.
CAN I REVOKE THE TOD DEED IF I CHANGE MY MIND?
Yes. You may revoke the TOD deed at any time. No one, including your
beneficiary, can prevent you from revoking the deed.
HOW DO I REVOKE THE TOD DEED?
There are three ways to revoke a recorded TOD deed: (1) Complete,
notarize, and RECORD a revocation form. (2) Create and RECORD a new TOD
deed, trust, or other estate planning document that disposes of the same
property. (3) Sell or give away the property before your death and
RECORD the deed. A TOD deed can only affect property that you own when
you die.
IF I CREATE A NEW TOD DEED, TRUST, OR OTHER ESTATE PLANNING DOCUMENT
THAT DISPOSES OF THE SAME PROPERTY, DOES THAT AUTOMATICALLY REVOKE A
RECORDED TOD DEED?
No. If you want the new document to revoke a recorded TOD deed, the new
document MUST be signed and dated after the deed you wish to revoke and
it must be RECORDED. To avoid any doubt about whether the deed is
revoked, you can also complete and RECORD a revocation form.
I AM BEING PRESSURED TO COMPLETE THIS FORM. WHAT SHOULD I DO?
Do NOT complete this form unless you freely choose to do so. If you are
being pressured to dispose of your property in a way that you do not
want, you may want to alert a family member, friend, a district
attorney, or a senior service agency.
DO I NEED TO TELL MY BENEFICIARY ABOUT THE TOD DEED?
No. But, secrecy can cause later complications and might make it easier
for others to commit fraud.
WHAT DOES MY BENEFICIARY NEED TO DO WHEN I DIE?
Your beneficiary must RECORD evidence of your death (Prob. Code 210),
and file a change in ownership notice (Rev. & Tax. Code 480). If you
received Medi-Cal benefits, your beneficiary must notify the State
AB 724 (DeVore)
Page 27 of ?
Department of Health Care Services of your death and provide a copy of
your death certificate (Prob. Code 215).
WHAT IF I NAME MORE THAN ONE REMAINDER BENEFICIARY?
Your remainder beneficiaries will become co-owners in equal shares. If
you want a different result, you should not use this form. You MUST name
your beneficiaries individually. You MAY NOT use general terms to
describe beneficiaries, such as "my children.'' You MAY NOT name more
than one life tenant.
WHAT IF A BENEFICIARY DIES BEFORE I DO?
You should probably create and RECORD a new deed. Otherwise, the
property will transfer according
to the general rules on failed gifts, which may not meet your needs. See
Prob. Code 21110-21111.
WHAT IS THE EFFECT OF A TOD DEED ON PROPERTY THAT I OWN AS JOINT TENANCY
OR COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP?
If you are the first joint tenant or spouse to die, the deed is VOID and
has no effect. The property transfers to your joint tenant or surviving
spouse and not according to this deed. If you are the last joint tenant
or spouse to die, the deed takes effect and controls the ownership of
your property when you die. If you do not want these results, do not use
this form. The deed does NOT transfer the share of a co-owner of the
property. Any co-owner who wants to name a TOD beneficiary must complete
and RECORD a SEPARATE deed.
CAN I ADD OTHER CONDITIONS ON THE FORM? No. If you do, your beneficiary
may need to go to court to clear title.
IS PROPERTY TRANSFERRED BY THE TOD DEED SUBJECT TO MY DEBTS? Yes.
DOES THE TOD DEED HELP ME TO AVOID GIFT AND ESTATE TAXES?
No. If you wish to avoid gift and estate taxes you should consult a tax
professional for advice.
HOW DOES THE TOD DEED AFFECT PROPERTY TAXES?
The TOD deed has no effect on your property taxes until your death. At
that time, property tax law applies as it would to any other change of
ownership.
DOES THE TOD DEED AFFECT MY ELIGIBILITY FOR MEDI-CAL? No.
AFTER MY DEATH, WILL MY HOME BE LIABLE FOR REIMBURSEMENT OF THE STATE
FOR MEDI-CAL EXPENDITURES?
If your estate is subject to reimbursement, any property transferred by
a TOD deed will also be subject to reimbursement.