How a California TOD Deed Form Works
The California TOD deed form allows a person to avoid probate by using a deed to transfer property at his or her death. California first authorized TOD deeds on January 1, 2016, joining the growing list of states that allow probate to be avoided when property is transferred by a revocable deed.
Living trusts have long been the go-to technique for avoiding California probate. Living trusts work by removing property from a person’s probate estate. That means that, when property is transferred to a living trust, it is no longer owned by a living person and need not be probated when that person dies.
A California TOD deed form provides a low-cost alternative to a living trust. As stated by Assemblyman Mike Gatto (D-Glendale), who introduced the new law:
Just like a person can designate a bank account to go to a loved one upon death, by allowing individuals to transfer property cleanly through a TOD deed, we can avoid the expensive probate process and give families greater peace of mind.
By allowing California homeowners to decide who should receive their home upon their death, a TOD deed functions in much the same way as a beneficiary designation on a bank account or investment account. This means that:
- During the homeowner’s lifetime, the person can change his or her mind or designate a new beneficiary.
- At the homeowner’s death, the home will pass automatically to the person named in the TOD deed.
This structure accomplishes the twin goals of giving the owner flexibility during life and avoiding probate at death.
Other Names for a California TOD Deed Form
Although the California statutes use the term revocable transfer-on-death deed, the word “revocable” is often omitted, so that the deed is called a transfer-on-death deed or simply a TOD deed. In Illinois, this type of deed is called a transfer-on-death instrument. In Nevada, it is called a deed upon death. In other states, it is called a beneficiary deed. These terms all refer to the same type of deed.
A transfer-on-death deed serves the same purpose as a lady bird deed, but there are differences between the two types of deeds. Lady bird deeds are only used in five states (Florida, Michigan, Texas, West Virginia, and Vermont) and are not recognized in California.
Benefits of a California TOD Deed Form
A California TOD deed form contains several features that make it a popular estate planning tool for California homeowners:
- Probate Avoidance – A transfer-on-death deed allows homeowners to avoid probate at death. When the homeowner dies, the property passes to the beneficiaries named in the deed without having to go through probate.
- Retained Control and Flexibility – A transfer-on-death deed allows the homeowner to keep control during his or her lifetime. This gives the homeowner flexibility if he or she needs to change his or her mind about the transfer.
- Continuity of Ownership – Because the transfer-on-death deed does not take effect until death, there are no immediate consequences to the homeowner. The homeowner continues to qualify for homestead status and any other property tax benefits.
- Federal Income Tax Benefits – Because the homeowner keeps an interest in the home during his or her life, the transfer-on-death deed is ignored for federal tax purposes. The property is considered owned by the homeowner until death, when it passes to the remainder beneficiaries. This allows the property to qualify for a basis step-up at death, which effectively erases any appreciation in the property for income tax purposes.
- Saving Legal Fees – Although the goals of a transfer-on-death deed could also be accomplished with a living trust, a transfer-on-death deed provides a less expensive alternative.
We make it easy to create your own California Transfer-on-Death Deed. Just complete our user-friendly interview and our software will create a custom, ready-to-file California transfer-on-death deed that includes the right language based on choices you make in the interview. We also include customized, step-by-step instructions for completing the real estate transfer. Documents are delivered instantly.
Effect of California TOD Deed Form
The creation and recording of a TOD deed have no immediate consequences. The homeowner continues to hold all ownership rights. This means that the owner can still transfer the property, sign contracts that affect the property, or take out loans or other encumbrances against the property. The TOD deed does not affect the owner’s property taxes during the owner’s lifetime.
The homeowner also retains the right to revoke the deed. To cancel the deed, the homeowner can either create and record a new TOD deed, transfer the property to someone else before death, or file a written revocation in the land records. The California statutes set out a specific form for a Revocation of Revocable Transfer-on-Death Deed.
The broad ownership rights retained by the owner distinguish TOD deeds from traditional life estate deeds, which grant immediate ownership rights to the remainder beneficiary. With a TOD deed, neither the beneficiaries nor any creditors of the beneficiaries have any right to the property while the owner is alive. In fact, there is no requirement to even notify the beneficiaries about the TOD deed.
The TOD deed takes effect when the homeowner dies. On the owner’s death, the property will pass to the beneficiaries named in the TOD deed. The beneficiaries must record evidence of death (usually a death certificate) in the land records and, if the property owner received California Medicaid (Medi-Cal) benefits, notify the State Department of Health Care Services.
Each beneficiary named in the TOD deed is personally liable for any unsecured debts of the deceased owner to the extent of the property value that the beneficiary received in the TOD deed. The beneficiaries are also responsible for any property taxes, including changes in the property taxes that result from transferring ownership.
Special Rules for Joint Tenancy and Community Property with Right of Survivorship
Special rules apply if the current owner holds the property with other owners (i.e., if there are multiple owners of the property). These rules prevent contradictions between survivorship rights and the terms of the deed.
To understand these rules, understand how survivorship rights work. If multiple owners hold title with survivorship rights (joint tenancy with right of survivorship or community property with right of survivorship), each owner’s interest in the property passes to the surviving owners upon death. The last surviving owner owns the entire property.
With this background, it’s easy to see how the survivorship rights may contradict the terms of a TOD deed. If a property has survivorship rights, it passes to the surviving owners. If the property is transferred by TOD deed, it passes to the beneficiaries named in the TOD deed. These conflicting concepts create conflicting results.
To resolve this conflict, the California TOD deed statute invalidates TOD deeds for property held with right of survivorship if—and only if—the property would pass to a surviving owner under a right of survivorship. If the property would not pass to anyone else by right of survivorship (because the current owner is the last surviving owner), the TOD deed will control. Here’s the exact language from the question-and-answer section of California Probate Code § 5642:
WHAT IS THE EFFECT OF A TOD DEED ON PROPERTY THAT I OWN AS JOINT TENANCY OR COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP?
If you are the first joint tenant or spouse to die, the deed is VOID and has no effect. The property transfers to your joint tenant or surviving spouse and not according to this deed. If you are the last joint tenant or spouse to die, the deed takes effect and controls the ownership of your property when you die. If you do not want these results, do not use this form. The deed does NOT transfer the share of a co-owner of the property. Any co-owner who wants to name a TOD beneficiary must complete and RECORD a SEPARATE deed.
This means that, if there is a conflict between the TOD deed and a right of survivorship, the right of survivorship will control the transfer of the property. If there is no conflict because the current owner is the last surviving owner, the TOD deed will control.
The practical effect of this is to create different planning strategies depending on the form of co-ownership.
- If the property is jointly owned without right of survivorship (i.e., if the property is held as tenants in common), then each owner can use a TOD deed to transfer his or her interest. Because there are no survivorship rights, there is no conflict. The TOD deed will always control.
- If the property is jointly owned with survivorship rights (i.e., if the property is held as joint tenants or community property with right of survivorship), each owner should sign a separate TOD deed. The TOD deed of the first owners to die will be invalid if there is a surviving owner. The last surviving owner’s TOD deed will become effective on the death of the last surviving owner.
If there are multiple owners with survivorship rights and the owners use the second strategy (each owner signing a separate TOD deed), there is a risk that the last surviving owner could change his or her mind and revoke the TOD deed or leave the property to someone else. This could be a problem in a second marriage situation.
Example: Juan and Hillary have each been married before and have one child from their respective prior marriages. They decide that they want to leave their home to the two children in equal shares. Each of them signs a TOD deed naming their child and their spouse’s child as beneficiaries. After Hillary dies, Juan revokes the TOD deed by signing a new TOD deed leaving the entire property to Juan’s child. This effectively disinherits Hillary’s child.
For many families (including those that do not involve children from prior marriages), this risk may be insignificant. But if it is a concern, the co-owners should consider an alternative strategy, such as a contract not to revoke the TOD deed or transfer to a living trust.
Revocable Transfer-On-Death Deeds and California Medicaid (Medi-Cal)
As with other states (like Texas), a California TOD deed does not affect Medi-Cal eligibility because the deed has no effect during the person’s lifetime. But, as stated above, the beneficiaries named in the TOD deed must notify the California State Department of Health Care Services if the homeowner received Medi-Cal benefits before his or her death. The home may be liable for reimbursement for Medi-Cal expenses paid before the owner’s death.
How to Create a California TOD Deed
California law is particular about the requirements of TOD deeds. Many requirements are inflexible and differ from requirements for other types of deeds (like ordinary quitclaim deeds, grant deeds, and warranty deeds). The TOD deed requirements include:
- Residential Property Only – The property transferred by the TOD deed must be (a) property that includes a structure with at least one—but not more than four—dwelling units; (b) a condominium; or (c) agricultural property of fewer than 40 acres with a single-family residence. TOD deeds cannot be used to transfer commercial real estate or other non-residential property.
- Valid Legal Description – The property must be identified by a proper legal description.
- Legal Capacity – The owner must have the legal capacity to sign contracts. This requires that the owner be at least 18 years old and be capable of understanding the consequences of the TOD deed.
- Signed, Dated, Notarized, and Recorded Within 60 Days – The TOD deed must be signed, dated, and notarized (acknowledged by a notary public). It must also be recorded in the land records of the county where the property is located within 60 days of the date it is signed.
- Identify Beneficiaries by Name – The deed must identify the beneficiaries by name. Designating beneficiaries by class is not effective. That means, for example, that a homeowner cannot leave the property to “my children in equal shares.” Instead, the deed must list each child by name.
- Specific Statutory Form – California law does not allow just any deed form to qualify as a TOD deed. All TOD deeds must be in substantially the same form required by California law, and drafters may not add custom conditions to the form. To ensure that the deed will be respected, it is important to follow the specific form specified in the California statutes.
The California transfer-on-death deed forms created by our Deed Generator were designed by attorneys to meet the requirements of California law for revocable transfer-on-death deeds.