INTRO: After many attempts during recent years, the California legislature recently passed, and the governor signed, an interesting new bill - AB139. This blog post will discuss that law, effective January 1, 2016, and its merits.
AB139 - the new law, makes available a new kind of deed, called a "revocable transfer on death deed", that enables an individual real property owner to designate a grantee who will, on the owner's death, become the legal owner of the property. Furthermore, no court probate proceeding will be required.
I've often written about the many disadvantages of probate, which include significant attorneys' fees, costs and inconvenience. This legislation was an attempt to create a consumer-friendly way for individuals (not couples) to transfer real estate to a loved one simply, without needing to hire an attorney to draft a Will and/or a Revocable Living Trust.
Until enactment of this new law, no methods have been available to enable a non-probate transfer on death of real estate owned by an individual. While one has always been able to deed/transfer a "joint tenancy" interest in a property to a loved one, this can cause serious problems, including that: a) the owner exposes her equity in the property to the creditors of the added joint tenant (co-owner); b) the joint tenant loved one could force the sale of the property and take half of the sale proceeds!; and c) the future sale by the loved one can potentially result in substantial income tax liability that would not have been triggered if the loved one had instead received the property on the owner's death by Will or Trust.
The appealing part of this new law is that since the property transfer is effective only upon the owner's death, the above disadvantages do not exist. So, does the new law mean that Wills and Trusts are no longer necessary or desirable or, furthermore, that the need to engage in estate planning has gone away? Definitively, "no!" Is this new method of transferring real estate on death by deed a magic bullet? Again, a resounding "no".
While it can be useful in certain, limited circumstances, the revocable transfer on death deed has important limitations and potential problems. First, it creates a relatively easy way for a predator to take advantage of an elderly property owner by persuading the elder to sign such a deed. The law contains some protections against such abuse, but the protections are certainly not foolproof. This type of fraud could cause a huge problem and be difficult and expensive to try to remedy. If an elderly owner instead engages in more conventional estate planning - such as working with an attorney to establish a comprehensive estate plan, including a Revocable Living Trust - this potential fraud damage is avoided.
PART TWO: What happens if the named grantee in the deed dies before the property owner dies? Find out in Revocable Transfer on Death Deed - Part Two.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.
ESTATE & TRUST ADMINISTRATION: Need to find an experienced estate & trust administrator in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on a Revocable Living Trust, "Summary" Estate Administration, Trust/Estate Beneficiary Representation and Will & Trust Disputes.