A transfer on death (TOD) deed is an estate planning device that allows you to pass on your real estate property to your loved ones in the event of your death. Introduced in California in 2016 through AB 139, TODs allow you to transfer real estate property to your beneficiaries without having to set up a trust.
In this article, we take a look at the upsides and downsides of California’s TOD deeds.
California Transfer on Death Deed: The Upsides
- It is one of the cheapest and easiest ways to transfer real estate property to your beneficiaries. All you need to do is fill out the TOD form, sign it in front of two witnesses, get their signatures, notarize the form, and get it recorded in the county where the property in question is located.
- It protects the property in question from probate and allows your beneficiaries to inherit it without any delay or any unnecessary intervention from the probate court.
- The beneficiaries who are named in the TOD deed can receive the property by recording the evidence of your death and filing a change in ownership notice. No other legal action is required on their part to be able to take ownership of the property.
- You can revoke it at any time for any reason. You are not legally obligated to get your beneficiaries’ consent before revoking the deed. Similarly, the beneficiaries who are named in the deed do not have the authority to stop from you revoking the deed.
- A TOD deed allows you to retain full control over the property in question until you die. The beneficiaries named in the deed cannot have any say in how the property should be maintained or what you can do with it.
- If you only name one beneficiary in the deed and if they predecease you, the deed becomes automatically invalid. You are not required to revoke it. If you name multiple beneficiaries and if one of them predeceases you, their share will be equally split among the remaining beneficiaries.
California Transfer on Death Deed: The Downsides
- A TOD only allows you to transfer residential real estate property to your beneficiaries. It can be a single-family home, a condo, a property that contains no more than four residential units, or a single-family home that is built on agricultural land (40 acres or less). If you own commercial or industrial property or if your residential property does not fit into any of the aforementioned categories, you cannot pass it on to your beneficiaries through a TOD.
- It can eliminate the need for probate only if the value of the rest of your estate (excluding the property named in the TOD deed) does not exceed $166,250. If it exceeds this threshold, it must go through probate. In such a scenario, your beneficiaries might be able to inherit the property named in the TOD deed without probate. However, the remaining assets must go through probate, which can be expensive and time-consuming.
- A TOD does not have any built-in mechanisms to defer the distribution of the property to the beneficiaries named in the deed. For instance, if you want to leave your home to your minor children, you cannot add a provision in the TOD that they can receive the property only after they turn 18. In fact, you cannot set any terms as to how the property should be managed after your death. It is entirely up to your beneficiaries to decide what they should do with the property.
- The beneficiaries who inherit your property through a TOD deed can be held personally liable for your debts.
Why You Need a Comprehensive Estate Plan
As you can see, a TOD deed has several limitations and cannot be used to pass on all your assets to your beneficiaries. To be able to do so, you need to set up a trust and have a proper estate plan in place.
Unlike a TOD deed, a trust gives you complete control over your assets and allows you to decide how your assets should be managed, how they should be divided, and when they should be distributed to your beneficiaries. So, if you have substantial assets whose value exceeds California’s probate threshold, setting up a trust might be a better way to manage and pass on your assets to your beneficiaries.
Need Help with Estate Planning? Our California Estate Planning Lawyers Can Assist You
At Garmo & Garmo, we understand how complicated estate planning can be. Our attorneys can make the process easier for you by offering the right advice and creating a plan which is tailor-made to suit your unique needs. We have over 80 years of combined experience in estate and incapacitation planning and can create a personalized plan that works for you.
To talk to one of our Southern California estate planning attorneys, call us today at 619-441-2500 or contact us online and schedule a free consultation.