Revocable Transfer of Death Deed (RTDD)
Revocable Transfer of Death Deed (RTDD) By Regina Van Hecke CALDA Legislative Chair Assembly Bill 139 has been signed by the Governor and will take effect January 1, 2016. This bill amends Family and Probate codes to include a ‘Revocable Transfer on Death Deed’ (RTDD) as a method of transferring title of real property to named beneficiaries. The use of this type of deed may be beneficial for certain people, but it also has its drawbacks. How does this deed work? A Revocable Transfer on Death Deed (RTDD) can be executed by people who wish to transfer title of ownership for real property upon death. This new RTDD would effectively name a “transfer on death” beneficiary who would be able to easily obtain title after the grantor’s death. This document works similarly to “payable on death” beneficiaries named on financial accounts. Until this bill was passed, no such deed allowing a person to name a beneficiary for real property has existed. An RTDD creates a new option for people who wish to designate beneficiaries for their home before they die, but to be effective after they die. What are the advantages of using a RTDD deed? For people who are looking for a very simple solution to passing title/ownership upon death, this deed may be a viable option. Though it has its drawbacks, this deed may be appropriate for a person who cannot afford to create a revocable living trust and who wishes to name a beneficiary for a home in a document other than a will. If an RTDD is created, the transfer on death beneficiaries can avoid probate for this transfer, regardless of the property’s value. This creates a much simpler process for anyone seeking to spare their beneficiaries the probate process. The RTDD is also a much safer option than creating a joint tenancy and sharing ownership during the lifetime of the grantor because the grantor retains full ownership of the home until he or she dies. What are the disadvantages of using a RTDD? Unfortunately, an RTDD does not allow for a beneficiary’s share of a home to be distributed to his or her “issue” if a named beneficiary pre-deceases the grantor. An RTDD may have multiple beneficiaries, who take in equal shares as tenants in common, but does not provide for alternate beneficiaries. In other words, if a beneficiary pre-deceases the grantor and the RTDD is not updated before the grantor passes away, then the named beneficiary’s estate or children do not receive any portion of the deceased beneficiary’s share, as is otherwise common in estate planning. The deceased beneficiary’s share is subsequently divided amongst any other then-living beneficiaries named on the RTDD. This may not pose a problem for a person, who, for example, may want to create an RTDD that grants ownership of a home to multiple children and does not wish for a beneficiary’s share to go to his or her “issue” if a beneficiary pre-deceases the grantor. However, in my research for this story, I have found that most clients who do wills and trusts do not usually exclude their grandchildren as alternate beneficiaries in the fashion that this new instrument will require. Other issues arising from the lack of alternate beneficiaries include that, when a grantor only has one child and that child predeceases the grantor, then this type of deed will create a problem and probate will be necessary because at that point there are no other named recipients. Furthermore, an RTDD does not allow for class gifts (ex. unnamed grandchildren) as wills and trusts do. Something to also note is that a property subject to an RTDD is still considered part of a transferor’s estate for purposes of Medi-Cal eligibility and will be subject to Medi-Cal reimbursement claims. Revocable Transfer on Death Deed (RTDD) vs. Trust Transfer Deed (Living Trust)? Galen Hammond, a long-time CALDA member and LDA who offers estate planning document preparation services to both attorneys and self-represented individuals, states that “an RTDD (in combination with a Will) could be appropriate for individuals who do not wish to create a living trust for their estate. While a revocable living trust is far more comprehensive in terms of beneficiary designations, and covers multiple categories of assets, an RTDD would only affect the real property covered in that deed. Some people may prefer the simplicity of an RTDD and Will combination, especially if the only major asset is that person’s home. However, it is very important that clients fully understand the pros and cons of both an RTDD and living trust, and I would strongly encourage an attorney referral for legal advice if a client asks for an RTDD. Generally speaking, living trusts offer a lot more flexibility for the client, and there is a lot more published legal information on them.” How might LDA’s incorporate an RTDD into the estate planning options that are offered to clients? As suggested, LDA’s could offer a simple Will/RTDD package for clients who may not otherwise choose to create a living trust. However, it is extremely important that clients clearly understand the differences, pros, and cons of each of these estate planning documents. Clients need to be aware of their options and make an educated decision based on their specific needs.