BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2007-2008 Regular Session
AB 250 A
Assemblymember DeVore B
As Amended June 28, 2007
Hearing Date: July 10, 2007 2
Family Code; Probate Code 5
GMO:rm 0
SUBJECT
Nonprobate Transfers: Revocable Transfer On Death (TOD)
Deed
DESCRIPTION
The bill would create a new nonprobate property transfer
instrument, to be called a "Revocable Transfer On Death
(TOD) Deed," which would be effective upon death of the
transferor.
The bill would establish rules for the making and
revocation of such a deed, and provide a mandatory
statutory form deed and form revocation for use by
transferors. The bill would outline the beneficiary's
liability for debts of the transferor and procedure for
restitution to the estate by the beneficiary of the
revocable TOD deed, if appropriate. It would also establish
the procedure for contesting a revocable TOD deed and for a
creditor to collect payment for transferor's debts. It
would make other conforming changes.
Finally, the bill would require the California Law Revision
Commission to report back to the Legislature on or before
January 1, 2012, on specified data concerning the use,
misuse, or misunderstanding of the revocable TOD deed and
recommendations for change.
BACKGROUND
(more)
AB 250 (DeVore)
Page 2 of ?
AB 12 (DeVore), Chapter 422, Statutes of 2005, was
introduced as a bill to create the instrument that AB 250
now calls "revocable 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 the following
non-exclusive list of issues in its study:
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.
What effect the recordation of a beneficiary deed
would have on the transferor's property rights after
recordation.
How a transferor may exert his or her property
rights in the event of a dispute with the beneficiary.
Whether it would be more difficult for a person who
has transferred a potential interest in the property
by beneficiary deed to change his or her mind than if
the property were devised by will to the transferee or
transferred through a trust or other instrument.
The tax implications of a beneficiary deed on the
transferor, the transferee, and the general public as
a result of the nonprobate transfer, including whether
the property would be reassessed and if tax burdens
AB 250 (DeVore)
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would shift or decrease.
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."
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, 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.
(Probate Code 5000. All references are to the Probate
Code, unless otherwise indicated.)
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. (Civil Code 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. (
21110.)
AB 250 (DeVore)
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This bill would establish a new nonprobate transfer
instrument, the revocable transfer on death deed (RTODD),
for use as specified to transfer real property upon
transferor's death. Specifically, this bill would:
(1) define the instrument, 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) provide a mandatory statutory form of a RTODD
containing the required information, instructions, and
answers to a long list of "commonly asked questions"
about the instrument.
(3) establish rules regarding the effect of the execution
and recordation of a RTODD, and its interaction with
other types of instruments.
(4) establish rules for a RTODD 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
beneficiary's liability, and payment of costs for a
proceeding to enforce beneficiary's liability.
(5) establish rules regarding the effectuation of the
property transfer, and beneficiary's standing vis ? vis
a distributee under a final order of distribution if the
property was probated.
(6) establish rules for a contest involving the RTODD.
(7) substitute a personal representative for a court
judgment, to enforce liability of a beneficiary of a
RTODD 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.
(8) make other conforming changes where appropriate.
AB 250 (DeVore)
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This bill would direct the California Law Revision
Commission to study the effect of the RTODD as established
by this bill and to report to the Legislature on or before
January 1, 2012, 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.
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. ?Existing law provides
other ways to transfer real property to intended heirs
without probate, but cannot afford a trust (sic). Without
the availability of the TOD deed, some seniors will use
other means to make transfer (sic) 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
AB 250 (DeVore)
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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. These communications argue that
seniors on a limited income cannot afford legal services.
Many of the attorneys from whom the CLRC received input
emphasized that their clients have limited resources and
"need a simple, understandable, and inexpensive device
such as a revocable TOD deed that will enable them to
pass their family home to their heirs." One attorney's
comment, quoted in the CLRC report, was: "The 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." (CLRC
Report, page 203.)
The statutory form created by this bill is anything but a
simple, one page deed. (See pages 16 to 20 of the bill.)
And, as sometimes happens to good ideas, the simple
concept of a beneficiary deed, through this bill, has in
fact morphed into a complex, sometimes convoluted web of
rules and procedures that would no doubt capture many
unwary consumers and expose them to unnecessary
litigation. The potential users of this beneficiary
deed, if they are somehow able to follow the instructions
on the statutory form deed itself, will probably not even
read the bells and whistles (i.e., the long list of
"commonly asked questions" that will certainly be in
small print to fit into a page) and thus not understand
the import of what they are signing or the after-effects
of executing a beneficiary deed.
When this committee heard AB 12, 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
AB 250 (DeVore)
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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. It is interesting
to note that 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.
Based on the concerns listed in Comment 3 below, it is
suggested that this bill be amended to direct the CLRC to
continue working on this subject, with an eye toward
simpler forms and report back to the Legislature on March
1, 2009.
SHOULD THE BILL REDIRECT THE CALIFORNIA LAW REVISION
COMMISSION TO CONTINUE WORK ON THIS SUBJECT AND RETURN
WITH A RECOMMENDATION ON MARCH 1, 2009?
Concerns about the potential havoc this bill could wreak
because of misunderstanding and misuse of the revocable
TOD deed (RTODD) by transferors, and the potential cases
of fraudulent deeds conveyed under duress or undue
influence compelled the amendments made in the Assembly
Judiciary Committee to direct the CLRC to return with a
study of the deed's effectiveness and recommendations for
improvement even before the bill is enacted. This should
have been a warning signal that AB 250 is still a work in
progress, not a finished product.
IS IT WISE TO PLACE A BRAND NEW INSTRUMENT FOR TRANSFERS
OF PROPERTY IN THE HANDS OF UNSOPHISTICATED TRANSFERORS
BEFORE IT IS FULLY VETTED?
3. Short list of concerns
There is no doubt the CLRC has done substantial
background work on this subject. However, the bill
before the committee is almost too complicated for such a
simple idea. This leads to the concern that the target
users of this revocable TOD deed, i.e., individuals with
small estates and low-income persons, could be misled as
to the efficacy of using the deed instead of other
avenues that may be available to them now. Below is a
list of concerns that need to be addressed before a bill
of this impact on property transfers should be allowed to
move forward.
AB 250 (DeVore)
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a. 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. This
value would be raised to $200,000 by SB 553
(Aanestad), which is scheduled to be heard in the
Assembly Judiciary Committee on July 10. Under SB
553, the value of an item of real property owned by a
decedent that can be transferred without probate would
increase to $100,000.
Thus, a person with $100,000 equity in his home can,
under this bill and SB 553, execute a revocable TOD
deed (RTODD) and so can a person with a $1 million
equity 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 RTODD?
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 RTODD.
b. The statutory form should make potential users go
through a checklist first to determine if a RTODD is
what they need, especially if the RTODD is targeted to
small estates.
c. This bill would create a mandatory statutory form
for an RTODD that is supposed to be simple and in
plain language. The form itself and the "commonly
asked questions" are full of legal terms such as
"community property with right of survivorship
(CPWROS)," "joint tenancy," and "life estate option."
AB 250 (DeVore)
Page 9 of ?
The interplay between a RTODD as drafted and a CPWROS
transfer is very complicated, not as simple as the
bill sets up. Because interspousal transfers,
including a CPWROS, have been treated differently
under the Probate Code than other transfers, it seems
inevitable that a married or divorcing person who
wants to execute an RTODD will have to consult with an
attorney anyway.
The Trusts and Estates Section of the State Bar 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
checking a box to create a 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 RTODD instead of a trust should have it
professionally drafted to address the issues that
could arise under it.
d. Under the bill, property that is transferred via a
revocable TOD deed is transferred without warranty of
title, and therefore probably not insurable. Will this
present a problem for the beneficiary? Will title
companies accept the RTODD as a valid and insurable
title? One of the arguments raised by the California
Land Title Association against a beneficiary deed
(expressed against AB 12 before it became a CLRC study
bill) was that title companies may have problems
sorting out which RTODD is valid if a transferor makes
multiple RTODDs. Title companies rely upon the
documents in the chain to real property to ensure that
the intended transfer is taking place and that other
legal claims will not later surface. If multiple
RTODDs are on record, or executed in a way that
creates unintended legal consequences, title companies
may be compelled to require quitclaim deeds from all
of the affected (or potentially affected) parties
before they agree to insure the property, or be
embroiled in litigation.
e. Under the general provisions governing RTODDs, a
AB 250 (DeVore)
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transferor may actually create a valid transfer not
contingent on the transferor's death, delivered but
not recorded until after death. A revocable TOD deed
executed and recorded after the property had been
validly conveyed without the contingency of transfer
on death would trump a deed that had been delivered
but not recorded. This bill does not require delivery
of the deed to the RTODD beneficiary. This is fodder
for litigation.
f. Under this bill, execution and recordation of a
RTODD 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 RTODD, they
would be able to escape capital gains taxes, gift
taxes, and estate taxes. For interspousal transfers
and community property transfers, the law provides for
the "step-up" of the basis used for property
valuation, because of the special relationship between
spouses. However, an RTODD may be executed in favor
of any person. The bill is not clear as to whether a
RTODD would be treated the same as an interspousal
transfer (as to the "stepped-up basis issue"), and if
so, why that should be the case.
g. Some provisions in the bill require rewriting. For
example, this 90-word one-paragraph provision, with
only one comma at the beginning, would have to be
taken apart to be understood:
5682. Except as provided in Section 5694, a
person acting in good faith and for a valuable
consideration with the beneficiary of a revocable
transfer on death deed of real property for which
an affidavit of death is recorded under the
procedure provided in Chapter 2 (commencing with
Section 210) of Part 4 of Division 2 has the same
rights and protections as the person would have
if the beneficiary had been named as a
distributee of the property in an order for
distribution of the transferor's estate that had
become final.
AB 250 (DeVore)
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h. It is important for potential transferors to
understand the process and effect not only of
executing and recording a RTODD, but also the process
and effect of revocation of the once-executed
instrument. The bill contains some rules for the
revocation process and some rules that would govern
which deed would be validated in the case of multiple
instruments that purport to transfer the same
property. It even declares that a RTODD would prevail
over a will that contains a contrary provision.
Still, the statutory form and the language of the bill
itself are ambiguous. For example, the form requires
the transferor to fill in the date of recordation and
the book and page number or series number of the
recorded RTODD. If the transferor is an elder person
who executed a RTODD and gave the RTODD to the
beneficiary (though delivery of the deed is not
required under this bill) who later abuses the elder
person or incurs disfavor for whatever reason, the
elder person will most likely not be able to revoke
the instrument. The ambiguities in the revocation
process and the form definitely lend themselves to
litigation.
This also represents the concerns of the California
Judges Association (CJA). "CJA submitted detailed
comments to the Law Revision Commission in late 2006
opposing the proposed legislation. As expressed at
that time, CJA has numerous concerns. We believe that
the bill should require that the TOD deed be recorded
within 30 days of execution in order to eliminate
potential notice problems. Additionally the
revocation process and requirements should be
clarified to eliminate the current ambiguities. ?In
light of existing law permitting joint tenancies and
conveyance of a remainder interest after a life
estate," CJA opposes AB 250.
Clarity is especially important with regards to
transfers of real property. Relationships between
people change, as people die, become estranged, are
institutionalized, get married, divorce, part ways,
rendering an earlier decision to gift the real
property inappropriate or ill-advised. The
AB 250 (DeVore)
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one-size-fits all approach of the RTODD may be its
biggest weakness.
Cumulatively, the unresolved issues strongly suggest
that the RTODD should be returned to the CLRC for more
work.
4. Final comments from the CLRC Report
The CLRC contains some comments from professionals who
would be implementing the RTODD, including attorneys,
judges, lenders, and title companies. In general, the
report states, these commentors have noted that the RTODD
may lend itself to use by a real property owner without
adequate counseling. "While the [RTODD] is a way to
cheaply and quickly transfer the property, it is not
necessarily the safest or most reliable method of
accurately ensuring the transferor's wishes are carried
out as the transferor intended."
Indeed, the CLRC admits, "[h]istorically 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."
Finally, the Legislature instructed the CLRC to study the
entire area of nonprobate transfers (AB 3040, Spitzer,
Ch. 215, Stats. 2006). There has been a growing concern
about the increased use of nonprobate transfers and the
efficacy of the statutes governing them. It is difficult
to imagine that as the Legislature is looking at the
general area of nonprobate transfers it is also
considering creating another nonprobate transfer
instrument that could be a tool for those who would take
advantage of the unsophisticated and the vulnerable.
Support: None Known
Opposition: California Judges Association; Trusts and
Estates Section of the California State Bar
AB 250 (DeVore)
Page 13 of ?
HISTORY
Source: Calfiornia Law Revision Commission
Related Pending Legislation: None Known
Prior Legislation: AB 12 (DeVore) Ch. 422, Stats. 2005. See
Background.
Prior Vote: Asm. Jud. (Ayes 10, Noes 0)
Asm. Appr. (Ayes 17, Noes 0)
Asm. Flr. (Ayes 79, Noes 0)
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