REVOCABLE TRANSFER ON DEATH DEED – Adverse Affect on Joint Tenancy
For many if not most people, their home is the single biggest asset they own. But what happens to that home when they die? Until 2016, the only choices people had to transfer their home to their heirs was to spend $2,000-$6,000 to create a Trust or subject their heirs to the more costly, public, and lengthy process of Probate. Effective January 1, 2016, California authorized use of a
Revocable Transfer of Death Deed
which, for the first time, provides a low cost alternative. You can read more about this in my 2/15/16 Blog: Understanding the new California Revocable Transfer on Death Deed.
In passing this Law, the Legislature provided for a ratification period running through 2021 which would allow time for issues to arise that may require revisions before the law becomes permanent. One of those issues has now surfaced.
Many people, especially spouses, may hold title to real estate as “Joint Tenants” or as “Community Property with Right of Survivorship”. This means that when one of the owners dies, the survivor owns all of the property. However, when title is held in Joint Tenancy or in Community Property, a subsequent Revocable Transfer on Death Deed by a couple would be void.
California Probate Code Section 5664
expressly states: “If, at the time of the transferor’s death, title to the property described in the revocable transfer on death deed is held in joint tenancy or as community property with right of survivorship, the revocable transfer on death deed is void.
The transferor’s interest in the property is governed by the right of survivorship and not by the revocable transfer on death deed.”
Normally recording a Deed changing the way title is held would extinguish a Joint Tenancy or Community Property with Right of Survivorship, Section 5664 preserves that title even if a Transfer on Death Deed is created. Presumably the Legislature recognized that a person using this Deed might unknowingly be denying their spouse (or other joint tenant) the intended right to own all of the Property. However, Section 5664 may require the Probate.
Consider the following scenario: Husband and Wife own their home, and they hold title as Joint Tenants. Husband and Wife create a Revocable Transfer on Death Deed believing that their home will be transferred to their kids upon the surviving spouse’s death (eliminating the need for a Probate). The kids later discover that when Mom and Dad created the Revocable Transfer on Death Deed- it was void because they owned the home as Joint Tenants. The are then required to Probate the home upon the surviving parent’s death (exactly what the Husband and Wife did not want.)
So where are Property owners left now? Here are several choices and concerns:
1. Leave the existing Deed in place:
The survivor would own all of the Property and then the surviving joint tenant could execute a Revocable Transfer on Death Deed if they chose to do so;
2. Terminate the Joint Tenancy and record the Transfer on Death Deed:
This would result in the parties holding title as Tenants in Common without rights of survivorship. The Deceased spouse’s interest would pass to the designated beneficiary, but the Surviving spouse’s interest would not pass until death. Distributing only a portion of the property makes the ownership rights of the survivor unclear, and raises additional questions. The survivor can’t alter the Deceased spouse’s beneficiaries, but could alter their own Beneficiary designation – creating possible disputes among new owners. Would the decedent’s Beneficiaries have any actual title interest in the property? What about tax treatment during the survivorship period? Could the Decedent’s beneficiaries force the sale? In short, the Transfer of Death Deed could work fine unless the survivor decides to alter or revoke their Beneficiary designation;
3. Terminate the Joint Tenancy and Each record separate Transfer on Death Deeds:
This could solve some of the problems apparent in option #2, above. Either spouse could change their Beneficiary designations whenever they wanted during their lifetimes. But the Surviving spouse may not be able to reserve a life estate in the Deceased spouse’s interest, and the beneficiaries (who own 50% of the property) may be able to force the sale.
4. Create a Revocable Living Trust instead:
Although the Revocable Transfer on Death Deed was created to provide a more cost effective alternative when two people, particularly spouses, co-own the property, a Trust may be the best vehicle for preserving survivorship and joint tenancy if that’s what the spouses want. And it may more effectively deal with co-ownership and property rights and obligations of the survivor and Beneficiaries.
Bottom-line in all of this is steering us to a conclusion that the Revocable Transfer on Death Deed may be the best vehicle when there is only one person owning the Property.
Before any decisions are made to establish estate planning goals, you should seek competent legal advice to help you navigate these life decisions.
For over 20 years, the attorneys of BPE Law Group, P.C. have been advising and representing property owners and real estate professionals in dealing with their legal concerns including easements and other land-use issues. Our major areas of practice include: Real Estate, Business, and Estate Planning. We do business primarily in California although our clients are world-wide. Check us out on the Web at: www.bpelaw.com. If you would like a consultation with us, please call our office at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com.
This article is not intended to be legal advice, and should not be taken as legal advice. Every case requires review of specific facts and history, and a formal agreement for service. Please feel free to contact us if you need legal advice and are interested in seeing if we can help you.
For many if not most people, their home is the single biggest asset they own. But what happens to that home when they die? Until 2016, the only choices people had to transfer their home to their heirs was to spend $2,000-$6,000 to create a Trust or subject their heirs to the more costly, public, and lengthy process of Probate. Effective January 1, 2016, California authorized use of a
Revocable Transfer of Death Deed
which, for the first time, provides a low cost alternative. You can read more about this in my 2/15/16 Blog: Understanding the new California Revocable Transfer on Death Deed.
In passing this Law, the Legislature provided for a ratification period running through 2021 which would allow time for issues to arise that may require revisions before the law becomes permanent. One of those issues has now surfaced.
Many people, especially spouses, may hold title to real estate as “Joint Tenants” or as “Community Property with Right of Survivorship”. This means that when one of the owners dies, the survivor owns all of the property. However, when title is held in Joint Tenancy or in Community Property, a subsequent Revocable Transfer on Death Deed by a couple would be void.
California Probate Code Section 5664
expressly states: “If, at the time of the transferor’s death, title to the property described in the revocable transfer on death deed is held in joint tenancy or as community property with right of survivorship, the revocable transfer on death deed is void.
The transferor’s interest in the property is governed by the right of survivorship and not by the revocable transfer on death deed.”
Normally recording a Deed changing the way title is held would extinguish a Joint Tenancy or Community Property with Right of Survivorship, Section 5664 preserves that title even if a Transfer on Death Deed is created. Presumably the Legislature recognized that a person using this Deed might unknowingly be denying their spouse (or other joint tenant) the intended right to own all of the Property. However, Section 5664 may require the Probate.
Consider the following scenario: Husband and Wife own their home, and they hold title as Joint Tenants. Husband and Wife create a Revocable Transfer on Death Deed believing that their home will be transferred to their kids upon the surviving spouse’s death (eliminating the need for a Probate). The kids later discover that when Mom and Dad created the Revocable Transfer on Death Deed- it was void because they owned the home as Joint Tenants. The are then required to Probate the home upon the surviving parent’s death (exactly what the Husband and Wife did not want.)
So where are Property owners left now? Here are several choices and concerns:
1. Leave the existing Deed in place:
The survivor would own all of the Property and then the surviving joint tenant could execute a Revocable Transfer on Death Deed if they chose to do so;
2. Terminate the Joint Tenancy and record the Transfer on Death Deed:
This would result in the parties holding title as Tenants in Common without rights of survivorship. The Deceased spouse’s interest would pass to the designated beneficiary, but the Surviving spouse’s interest would not pass until death. Distributing only a portion of the property makes the ownership rights of the survivor unclear, and raises additional questions. The survivor can’t alter the Deceased spouse’s beneficiaries, but could alter their own Beneficiary designation – creating possible disputes among new owners. Would the decedent’s Beneficiaries have any actual title interest in the property? What about tax treatment during the survivorship period? Could the Decedent’s beneficiaries force the sale? In short, the Transfer of Death Deed could work fine unless the survivor decides to alter or revoke their Beneficiary designation;
3. Terminate the Joint Tenancy and Each record separate Transfer on Death Deeds:
This could solve some of the problems apparent in option #2, above. Either spouse could change their Beneficiary designations whenever they wanted during their lifetimes. But the Surviving spouse may not be able to reserve a life estate in the Deceased spouse’s interest, and the beneficiaries (who own 50% of the property) may be able to force the sale.
4. Create a Revocable Living Trust instead:
Although the Revocable Transfer on Death Deed was created to provide a more cost effective alternative when two people, particularly spouses, co-own the property, a Trust may be the best vehicle for preserving survivorship and joint tenancy if that’s what the spouses want. And it may more effectively deal with co-ownership and property rights and obligations of the survivor and Beneficiaries.
Bottom-line in all of this is steering us to a conclusion that the Revocable Transfer on Death Deed may be the best vehicle when there is only one person owning the Property.
Before any decisions are made to establish estate planning goals, you should seek competent legal advice to help you navigate these life decisions.
For over 20 years, the attorneys of BPE Law Group, P.C. have been advising and representing property owners and real estate professionals in dealing with their legal concerns including easements and other land-use issues. Our major areas of practice include: Real Estate, Business, and Estate Planning. We do business primarily in California although our clients are world-wide. Check us out on the Web at: www.bpelaw.com. If you would like a consultation with us, please call our office at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com.