Until recently, the only practical estate planning option available to California homeowners who wished to provide for ownership to pass to their intended heirs outside of Probate upon death was to create a revocable living trust. Rather than hiring an attorney to do so, many homeowners in the spirit of “do it yourself” have put their homes at risk by executing and recording grant deeds adding their desired heirs as joint tenants in common to their properties (more on the risks assumed by doing so later in this article).
The new provisions are set forth in sections 5600 through 5696 of the Probate Code, and at section 5642 include a simple statutory form deed. The requirements for making an effective Revocable TOD Deed are simple. The transferor must be the owner of an interest in eligible residential real property, which is defined as (a) a property with four or fewer residential dwelling units, (b) a condominium unit, or (c) a single tract of agricultural real estate consisting of 40 acres or less that is improved with a single-family residence. The owner must be legally competent to make a contract, and not be operating under duress or undue influence from another person. The deed must contain the legal description of the property it pertains to, and the person or persons to whom the property will be transferred upon death (the beneficiaries) must be specifically identified by name, not by a generic term like “my children”. Once completed, the deed must be signed and notarized, and then be recorded at the county recorder’s office within 60 days to be effective.
Some technical points apply to Revocable TOD Deeds. The transferor can only transfer the interest which he or she owns. For example, if a husband and wife are both on title to their home and want to name their children as the beneficiaries, they each must execute and have recorded their own, separate Revocable TOD Deeds. Also, if the homeowner at death holds title in joint tenancy with someone else who is still living, the Revocable TOD Deed will not be effective. To avoid this problem before executing the Revocable TOD Deed the homeowner must sign and record a deed changing how he or she holds title from joint tenancy to tenant-in-common.
There is no requirement that a copy of the Revocable TOD Deed be delivered to the beneficiary, but doing so may be advisable to avoid confusion later. To implement the deed upon the homeowner’s death, the beneficiary must record evidence of death, and file a change of ownership notice. If the homeowner received Medi-Cal benefits, the beneficiary must also notify the State Department of Health services and provide a copy of the homeowner’s death certificate.
Many homeowners to leave their property to their intended heirs have executed and recorded deeds adding those persons as joint tenants. By doing so they have unwittingly put themselves at risk of losing their homes. Unlike a Revocable TOD Deed, which transfers title to the named beneficiary upon the transferring homeowner’s death, a grant deed immediately transfers legal title to a share of the property to the grantee.
Under California law, the owner of a legal title interest in property is presumed to also be the owner of beneficial title. This presumption can only be rebutted in a court action by clear and convincing evidence, which is a high burden of proof that the transferor homeowner must establish to prove that he or she did not by the grant deed make a present gift of the beneficial ownership of the property. In such cases, the allegation that legal title does not also represent beneficial ownership has historically been disfavored because society and the courts are reluctant to tamper with duly executed instruments and documents of legal title. Therefore, if the beneficiary of a grant deed owes unpaid taxes or other debts, his or her creditors can sue, and upon obtaining a judgment record a lien against the property, foreclose the lien, and just pay a fractional share of the sales proceeds back to the transferor homeowner. To try avoiding this, the transferor can bring an expensive court action, with no guaranty of winning. It will be prudent for a homeowner who already has executed and recorded such a grant deed to consult with an attorney about replacing it with a Revocable TOD Deed.