– A New Procedure for Gifting Real Property on Death
– The End of Life Option Act
A New Procedure for Gifting Real Property on Death:
The Revocable Transfer on Death Deed is No Substitute for Proper Estate Planning
In an effort spearheaded by Assemblyman Mike Gatto (D), the California State Legislature has established a new procedure in California for transferring real estate on the property owner’s death.
AB 139, signed into law by Governor Brown on September 21, 2015, took effect on January 1, 2016 and will expire on January 1, 2021. The law permits a property owner to sign and record a Revocable Transfer on Death Deed (TOD Deed) during the property owner’s life, which will effectively transfer any real property interest to a beneficiary or beneficiaries upon the property owner’s death. Although the law is set to “sunset”, or automatically terminate, in 2021, any TOD Deed that was properly signed, recorded between 2016-2021, and not properly revoked by the property owner’s death will be given effect.
In the right cases, the TOD Deed has the potential to be a cost effective part of a simplified estate plan; however, because the opportunities for abuse or mistake are ample, the property owner should consult with an attorney regarding whether the TOD Deed would be a useful component of the property owner’s overall estate plan.
Purpose
The law is intended to simplify procedures for transferring real estate to a property owner’s beneficiary(ies) without the need for a probate proceeding. Currently in California, real property is transferred on the property owner’s death through a probate proceeding if the owner had a will or no will at all (property owned by a trust will be administered through a trust administration and ideally with no court involvement at all). A probate proceeding is a court supervised proceeding whereby a person is appointed personal representative of the deceased person’s estate to administer the estate in accordance with state law. The personal representative is charged with resolving the decedent’s debts and distributing the estate in the manner set forth in the decedent’s will or, if there is no will, in accordance with the laws of intestate succession. AB 139 is designed to circumvent the probate proceeding by transferring the property on the death of the property owner, outside of probate, and similar to the manner in which a bank account would pass by a pay-on-death designation.
How it Works
For those individuals who choose to use the TOD Deed, the process is simple. The property owner must with the requisite mental capacity name the beneficiaries of the property upon the owner’s death in a deed and then sign the TOD Deed in the presence of a notary public. The TOD Deed must be prepared in accordance with the law and it must be recorded with the county clerk-recorder within sixty (60) days of the date that the TOD Deed is signed by the property owner.
The Deed can be revoked by the property owner at any time, as long as the property owner has the mental capacity to do so and completes one of the following tasks: 1) The owner can record a formal notice of revocation in the form set by law, 2) a new TOD Deed can be recorded, which will replace the prior TOD Deed, or 3) the real property can be transferred to someone other than the beneficiaries of the TOD Deed before the property owner’s death.
The TOD Deed is a Low Cost, Streamlined Procedure
The TOD Deed procedure certainly seems to have some tangible benefits in the right cases. When compared to a probate proceeding in particular, the TOD Deed is streamlined, low cost, efficient, and will likely alleviate some of the burdens on our court system. In addition, the TOD Deed is likely to be a less costly alternative to establishing a revocable living trust. However, estate planning and elder law attorneys will likely share the concern that this “simple procedure” can create a host of unintended issues and effects when used in the wrong cases or without careful advice of an attorney.
The TOD Deed Could Lead to Increased Financial Elder Abuse
In particular, the TOD Deed is feared to enable the easier commission of financial abuse and elder abuse of the property owner. In order for the TOD Deed or a Revocation of the TOD Deed to be effective, the property owner must have the mental capacity to contract.
Some estate planning and elder law attorneys are concerned that there will be increased opportunities for unscrupulous family members, friends, household employees, or other third parties to unduly influence a property owner who does not have the necessary capacity to sign a TOD Deed. In addition, there is concern that the TOD Deed in the wrong hands will lead to increased fraud, duress and elder abuse in cases where the property owner does not have the mental capacity or the fortitude to resist fraud.
While there are procedures in place with which to contest the validity of the TOD Deed, they require court interventions and therefore, will likely be costly cases to file. According to the new law, a lawsuit to contest the validity of the TOD Deed must be filed within 120 days of the death of the property owner if elder abuse is suspected.
The TOD Deed Cannot Be Used in All Cases
There are restrictions on the type of property that can be gifted using a TOD Deed. The TOD Deed can only be used to gift the following types of real property: 1) real property with 1-4 residential dwelling units, 2) a condominium unit, or 3) a single tract of agricultural real estate consisting of no more than forty (40) acres with a single family residence. What this means is that if a person signs and records a TOD Deed in the chain of title on a non-qualified parcel of real estate, that TOD Deed will not be valid. The effect will be as if no TOD Deed was ever signed, which could result in administration by probate proceeding despite the property owner’s good intentions and/or misplaced expectations.
Further, the TOD Deed is not effective to transfer real estate that is owned by the property owner as a joint tenant or as community property with right of survivorship. It can be used to gift property that is owned as a tenant in common. Therefore, if a TOD Deed is prepared on a property that is owned in joint tenancy or as community property with right of survivorship, then the TOD Deed will not be valid, and the property will pass automatically to the surviving joint owner of the property upon the first joint owner’s death. The surviving joint owner will have no obligation to commemorate the wishes of the deceased joint owner, who will have lost all ability to direct how his or her share of that property should pass.
There is Little Flexibility for Transferring Title
There is little flexibility in how the property owner may leave the real property to a beneficiary or beneficiaries of his or her choosing. Under the new law, beneficiaries are only entitled to take title as tenants-in-common.
Further, there is no way for the property owner to name a contingent beneficiary in the event that a beneficiary predeceases the property owner. Further, if all beneficiaries predecease the property owner, the Deed will be worthless in preventing a probate proceeding.
Beneficiaries Will Have to Resolve Debts
Another issue that the beneficiaries will have to contend with is the decedent’s debts. One role of the personal representative in a probate or a trustee in a trust administration is the settling of the decedent’s debts. If the property passes directly to beneficiaries, the beneficiaries then absorb the decedent’s liabilities, including Medi-Cal recovery up to the value of the portion of the estate received by that beneficiary. What this means, is that the TOD Deed cannot be used to avoid repayment of Medi-Cal benefits or other creditor claims.
Other Options
A long standing option for California real property owners to consider is the revocable living trust. Trust law is well established. In addition, there are no limitations as to the types or character of the real property that can be funded into such a Trust. The Trustor can freely decide what should happen with the real property on his or her death, whether the property be sold, or how the beneficiaries should take title. The Trustor can (and should!) write contingency plans into the trust to avoid unintended results where one or more beneficiaries predeceases the Trustor. The Trustee of the Trust will ensure that the debts are appropriately resolved once the Trustor is deceased.
Conclusion
In short, the TOD Deed is an exciting new option for some California families to gift real property on the death of a property owner. Although the purpose behind the TOD Deed was to create a low-cost option for families to avoid hiring an attorney, the TOD Deed in the wrong hands and without the right level of skill is a recipe for potential elder abuse, fraud, and/or unintended consequences. The TOD Deed is an option worthy of discussion with your estate planning attorney as part of your overall estate plan. Although the TOD Deed might be the right option for some individuals, it is not a substitute for careful and well drafted estate planning.
If you have questions about the Revocable Transfer on Death Deed, or estate planning in general, please call our office to consult with an attorney regarding what might be your best option for careful transfer of your wealth.
The End of Life Option Act: Empowering Californians with Terminal Illness
On October 5, 2015, Governor Brown signed into law ABx2-15, the “End of Life Option Act”. You may have seen the Governor’s signing message to the California State Assembly regarding his feelings on the matter, which was touching. If you haven’t seen it, you can review the message here.
As Governor Brown eloquently notes, the option to end one’s own life under circumstances contemplated by the bill is hotly debated; it comes with the dual edged sword of empowerment on the one hand, and moral baggage on the other. Whatever your personal feelings on the matter, the End of Life Option Act (“the Act”) will go into effect ninety days after the Legislature adjourns its special session on health care, or, sometime next year. Unless the Legislature acts otherwise, the Act will sunset on January 1, 2026.
Semantics
First, a word on semantics. The Act makes clear that “death resulting from self-administration of an aid-in-dying drug is not suicide”. (California Health and Safety Code Section 4413.13(a)(2)). Therefore, this article will not use the commonly used phrases “assisted suicide”, “physician assisted suicide” or plainly “suicide” at all.
Basic Purpose
The Act would authorize an adult with a terminal illness who meets certain qualifications to make a lawful request for a prescription for, and then lawfully self-administer, an aid-in-dying drug.
The Details
The Act is designed to provide many protections for the individual making the request, as follows:
An adult with capacity that is a California resident: The law requires that the patient be an adult (over age 18) resident of California who has the capacity to make his or her own medical decisions. If the patient also suffers from mental illness, the patient will be referred to a mental health specialist for an assessment of whether the mental illness actually impairs the judgment of the patient to the point that he or she cannot be said to have capacity to make medical decisions.
Who has a medically confirmed terminal illness: The patient must have a terminal disease, or one that is incurable, irreversible, and will, within reasonable medical certainty, result in death within six (6) or less months. The prognosis must be certified by the individual’s attending physician and confirmed by a consulting physician who meets with the patient and reviews the pertinent medical records.
Who makes a voluntary request for an aid-in-dying drug: The patient must make the request for the drug himself or herself and the request must be completely voluntary. No agent designated under a power of attorney for health care or advance health care directive and no conservator or other surrogate decision-maker may make the request on behalf of the patient.
The patient must make two oral requests, at least fifteen (15) days apart, and one written request in the format prescribed by the Act directly to his or her physician for the aid-in-dying drug. The written request must be signed and dated in the presence of two witnesses. At least one witness cannot 1) be related to the patient; 2) own, operate, or be employed by the medical facility where the patient receives treatment or resides; or 3) be the attending physician, consulting physician, or mental health specialist making an evaluation of the patient.
The physician has many obligations, including: evaluate the patient, counsel the patient, document preparation, and reporting requirements to the State Department of Public Health.
Who must, if at all, self-administer the aid-in-dying drug: The patient can always choose not to take the aid-in-dying drug after it has been prescribed. If the patient does choose to ingest the aid-in-dying drug, the patient must self-administer the drug. The patient may have assistance in preparing the drug for ingestion, however, and such assistance is not a crime provided that the assistance does not include assistance in administering the drug to the patient, i.e, ingestion, etc.
Civil and Criminal Liability
It is not a crime under the Act to assist with the preparation of the aid-in-dying drug, or be present when the drug is administered. No actions taken by any individual in compliance with the provisions of the Act can form the basis for neglect or elder abuse, nor can a request for an aid-in-dying drug be the sole basis for the appointment of a conservator.
Importantly, it is not a crime for a doctor to refuse to participate in the activities authorized by the Act. Therefore, it will be necessary to establish care with a doctor that supports the Act if a person wishes to take advantage of the options afforded by the Act.
It is a felony under the Act to forge, destroy, or knowingly coerce or unduly influence a request, or the revocation of a request for an aid-in-dying drug. Euthanasia, mercy killing, or lethal injection by the physician is not authorized under the Act.
Contracts
The Act also prohibits the sale of a life, health, or annuity policy, health care service contract, or health care benefit plan, or the rate charged for same, from being conditioned on, or affected by, the request for an aid-in-dying drug. Further, no obligation owing under any contract executed after January 1, 2016 may be affected by a qualified request for an aid-in-dying drug, or revocation thereof. Thus, it appears that a life insurance or other such policy cannot refuse to pay benefits on the basis of a request for an aid-in-dying drug. It does not appear that these provisions are retroactive.
Conclusion
Certainly, there are and will be moral, ethical and religious objections to the idea that a person may now legally opt to end his or her life. The intent of the Act is not to condone suicide, but to empower those with terminal illness with an alternative to certain suffering.
If you have questions about this article or the End of Life Option Act, please contact Michelle Martin by e-mail at mam@rlgprobate.com or by telephone at (916) 434-2550.
Robertson Law Group, Trust and Estate Attorneys 