Transfer on Death Deed: Streamlining Succession Planning

We’ve been getting a lot of questions lately about the new Transfer on Death Deed (TOD). This statute went into effect in early 2016. The TOD Deed allows Californians to sign a deed transferring real property to another individual upon their death. The deed is revocable until the transferor’s death. Eligible property includes:

• Condominiums.
• One to four residential dwelling units.
• A single tract of agricultural land consisting of 40 acres or fewer that is improved with a single-family house.

Upon the death of the transferor, the TOD Deed transfers all of the transferor’s interest in the real property to the beneficiary. If there are multiple beneficiaries, the beneficiaries take the property as tenants in common (TIC), in equal shares.

What’s to like about the TOD

Many people are creating a TOD Deed for their homes or other real property and circumventing having to create a Living Trust. In these cases, their home represents the biggest share of their assets, so by creating a relatively simple TOD Deed, they’ve circumvented the time and expense of creating and updating a Living Trust.

Cautionary tale: The following situation illustrates the shortcomings of the TOD statute

Imagine a common estate situation such as this one: An elderly California husband and father, suffering with dementia, did not have a Will or Estate Plan in place. He had reached the point where his much-younger wife could no longer care for him at home, so she moved him into an assisted-living facility. His adult children regularly visited their father, avoiding those times when their stepmother was visiting, as the relationship among these family members was strained. The stepmother had no children of her own, and she was just ten years older than her husband’s oldest child.

The children knew their share of their father’s estate would be limited because of the stepmother, so they conspired to use California’s new TOD Deed, whereby their father would transfer his interest in the couple’s San Francisco home to them. It was a simple matter of their father’s signing a TOD Deed.

Children’s plan well may backfire

In this case, the children, as beneficiaries of their father’s TOD Deed, might find themselves in court for a number of reasons, including their father’s capacity; their undue influence on their father; his dementia vulnerability; the secrecy surrounding the TOD Deed; and the lack of the spouse’s consent.

This is a situation where it may be a little too easy for these adult children to collude to transfer property to themselves. They well may find that their scheme won’t work, as it’s imperative that a legal document requires a signature from someone who shows full capacity. Their father’s dementia puts that in question.

There are situations where a TOD Deed is an excellent solution

However, we always recommend creating a Living Trust. As part of our Trust package, we include a Power of Attorney and Advance Healthcare Directive. People need to give serious consideration to the people they will name to care for them and manage their affairs in the event they are no longer able to care for themselves.

If you have questions about the role of a Living Trust and whether a TOD Deed is right for you, contactDP Legal Solutions.