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Using Transfer on Death Deeds as an Estate Planning Tool in California

Posted by Mark Ruiz | Oct 07, 2024 | 0 Comments

One of the most common discussions I have with my clients involves how to ensure their assets pass smoothly to their loved ones after death. A common goal is to avoid the often lengthy and expensive process of probate. While many clients come in thinking a Living Trust is their only option, there's another tool that California residents might want to consider: the Transfer on Death Deed (TOD Deed).

What Is a Transfer on Death Deed?

A Transfer on Death Deed is a relatively new estate planning tool in California, designed to allow property owners to transfer real estate to a named beneficiary upon their death without the need for probate. The concept is simple: You name a beneficiary to receive your home when you pass away, and you continue to own and control your property during your lifetime.

It's important to note that TOD Deeds are limited to certain types of property, such as:

  • A single-family residence or condominium
  • A multi-family dwelling with up to four units
  • Agricultural land of 40 acres or less that includes a single-family residence

Why Consider a Transfer on Death Deed?

Here are a few reasons why a TOD Deed might be beneficial:

  • Avoid Probate: Much like a Living Trust, a properly executed and recorded TOD Deed allows property to bypass probate entirely, saving your beneficiaries time, hassle, and money.

  • Simplicity: Unlike setting up a Living Trust, which can involve more paperwork, a TOD Deed is relatively simple to create and file. There's no need to fund the deed into a trust, and it can be revoked at any time.

  • Cost-Effective: TOD Deeds provide a cost-effective alternative to probate and living trusts, particularly if you're looking to transfer a single piece of property.

Considerations and Limitations of TOD Deeds

While TOD Deeds offer a streamlined alternative for transferring property, there are several important considerations to keep in mind:

  1. No Asset Protection: Unlike certain types of trusts, TOD Deeds do not protect your property from creditors during your lifetime. If you have existing debts or liabilities, your property could still be subject to those claims. After your death, creditors of your estate may still seek to recover debts from the property before it transfers to your beneficiary.

  2. Revocation: You retain full control over the property during your lifetime, including the ability to revoke the TOD Deed or sell the property without your beneficiary's consent. However, the deed must be properly recorded with the county to ensure that it's legally valid, and if you wish to revoke it, you must also record the revocation.

  3. Estate Taxes: TOD Deeds do not avoid estate taxes. If your estate exceeds the estate tax exemption limits, your property could still be subject to estate tax, even if it passes to your beneficiary without probate.

  4. Beneficiary Capacity: If your intended beneficiary passes away before you, the TOD Deed may fail, and your property could end up going through probate anyway. Unlike a Living Trust, there's no way to name an alternate beneficiary in a TOD Deed.

TOD Deeds vs. Living Trusts: Which Is Right for You?

While both TOD Deeds and Living Trusts can help avoid probate, they serve different purposes and come with their own set of advantages and disadvantages. A TOD Deed might be a good option for individuals with a straightforward estate plan focused primarily on transferring real estate. However, if you have multiple assets, or you need to account for specific estate tax planning, creditor protection, or alternate beneficiaries, a Living Trust might offer a more flexible and comprehensive solution.

Ultimately, choosing the right estate planning tool depends on your specific circumstances and goals. It's always advisable to speak with an estate planning attorney to explore the best options for your unique situation.

Legal Disclaimer

This article is intended for general information purposes only. Any legal analysis or other content should not be construed as legal or professional advice or substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of this information. If you require legal or professional advice, please contact an attorney or other suitable professional advisor. The choice of an attorney or other professional is an important decision and should not be based solely upon advertisements and blog postings.

 

About the Author

Mark Ruiz

Mark A. Ruiz Attorney/Owner Mark  primarily focuses on Business Law, Real Estate Law and Estate Planning.  He holds a Bachelors Degree from Santa Clara University with an emphasis in Business/Marketing and a Law Degree from the University of San Francisco with a Business Law Certificate.  He ...

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