On September 23rd, Governor Brown signed AB 139, a bill introduced by assemblyman Mike Gatto. The bill will effectively transform the probate system in California by creating a "Revocable Transfer on Death Deed." This deed allows Californians to sign a document that transfers real property to another individual upon their death. "Real property assets" refer to fixed assets, such as land, homes, or other buildings. POD (payable on death) forms are commonly seen for other types of assets, such as bank accounts or IRAs. While 25 other states currently have a similar law, this is the first time California legislature has signed a bill of this nature. Similar bills in California have failed 4 times in the past 10 years.
As the article in California News Wire notes, The new probate bill essentially creates an alternative to forming a trust or enduring the probate process. Proponents of the bill argue that this will save the citizens of California thousands of dollars, and decrease the number of cases being overseen by California probate courts. This is because the majority of probate cases occur due to a home that must be transferred or "probated" when the owner dies.
An article recently published by LA Weekly quotes Assemblyman Mike Gatto as saying this will prevent "bottom feeders who go to nursing homes" from peddling trusts. Not sure I know any estate planning attorneys who frequent nursing homes, but we can let that one slide. However, Mike Gatto went on to say that creating a trust beats spending "$50,000 in legal fees to gain the title to a typical $500,000 home." This is just plain fallacy. The typical legal bill on a non-contested $500,000 probate would be about $10,000. And that's only if you choose to use an attorney - the law by no means requires you to.
So, let's get our facts straight. Mr. Gatto claims the new bill will avoid the need to form a trust, which he is quoted as saying costs "between $2000-$10,000". Is this really true? Well, yes and no. Yes, California's"Revocable Transfer on Death" deed will avoid probate and allow you to skip creating a trust, if the reason you are creating a trust is simply to avoid probate. I would recommend this method for persons who have 1 child or heir, who is over 18, and they completely trust with their home and other assets when they die. If, however, you have multiple beneficiaries or would like to make certain stipulations for those inheriting your property and assets, a trust will still be beneficial. A trust that is executed by a reputable and experienced Estate Planning attorney can be crafted to meet the needs of your family and your wishes for when you're gone. For example, a sub trust can be created for a grandchild with the stipulation that the money only be used for education, or not received until they turn a certain age. Or, a trust can stipulate that a house be sold and the proceeds divided evenly between your children.
Now, to Mr. Gatto's second claim regarding the cost of a trust. For an individual whose net worth is less than $5.34 million, or couple with less than $10 million, the average cost of executing an entire estate plan is typically between $2000-$3000 dollars. An estate plan not only includes a trust, but will also include a power of attorney, an advance health care directive, and a will. A legally valid Power of Attorney alone could save you thousands of dollars in legal fees later in life if someone should become incapacitated and a Conservatorship is necessary.
So, my conclusion is that yes - this bill will help people with very simple estate planning needs. For multiple beneficiaries, or a more complicated estate, I believe the bill will not only be unhelpful, but could create substantially more estate litigation.
As an Elder Law attorney in Contra Costa County who handles a wide variety of estate litigation cases, I see this new bill as only increasing litigation within the Probate Courts. Here are two examples of why.
1. Let's say you're a married couple who has two grown children. Your eldest, your daughter, is the more responsible one, so you decide to put her name on the Transfer on Death Deed for your home. You have an understanding with her that she will ensure her younger brother is given his fair share. Let's also suppose that at the time she is listed on the deed, dad has been diagnosed with early stage alzheimer's. Upon your passing, your daughter decides to sell the house and give a portion of the proceeds to the church her parents attended for 30 years. This, in essence, robs the younger brother of part of his share of the estate. But the truth is, he was never entitled to any proceeds from the house. So he gets an attorney, and takes the sister to court - claiming undue influence over the father at the time the transfer deed was signed. A good estate litigation lawyer could get this wrapped up in mediation - a bad lawyer could take thousands upon thousands of dollars in legal fees, only to cause the daughter and son a significant amount of stress. When everything is said and done, the daughter and the son no longer like each other, and 20% of the value of the estate has been used up fighting with one another.
2. Example 2: You have a house and 4 children. You want to be fair, so you list all four children as beneficiaries. When you pass, the deed to the home will be transferred into the names of your four children. At the time of your death, one child is living in the house and wants to stay there, two children want the house to be sold, and the 4th child wants to evict the 4th child and rent out the house. Now there's a problem. If you had set up a trust which specifically stated that the house must be sold, and made provisions for the child still living in the house (by setting up a subtrust to cover their rent, for example), the complications could have been avoided. A hefty amount of attorney's fees could also potentially be avoided as well. Because when family members can't come to an agreement by themselves, they will often hire estate litigation attorneys to do so for them.
These are only two examples of how the California's Revocable Transfer on Death Deed for Real Property may adversely affect citizens in California. From an Elder Law perspective, I believe the bill effectively creates one more avenue for potential estate litigation. I still strongly recommend that home owners in Walnut Creek, Pleasant Hill, Concord, Lafayette, San Ramon, and the surrounding cities of the SF East Bay will come out ahead with a properly executed estate plan.
If you have questions about Probate, your Estate Plan, or your Trust, I offer a free consultation in my Elder Law and Estate Planning office in downtown Walnut Creek. I serve clients residing in both Contra Costa and Alameda County.
Call 925-322-1763 for your free consultation.