I recently got a phone call from a very kind 93 year old man. He had read one of my articles, and he told me he was calling me because my article said to call if one has any questions or concerns. I was glad he called. While he didn’t have a case for me, he did have a great question, and one that I think will only become more relevant for California homeowners:
“Can I execute a Transfer on Death Deed for my home, if that home is already in a trust?”
The short answer is: Yes.
For those of you who are up on the changes and additions to California Probate Code, you know that as of January 1, 2016, Californians can execute what’s called a “TOD (Transfer on Death) Deed.” The TOD Deed allows a homeowner to name one or more beneficiaries, to whom their home should be transferred after their death.
For example, let's say Alex is the sole owner of home in Moraga, CA. For simplicity, his name alone is on the deed. Alex falls in love with a woman called Janet prior to his death, and decides to leave her his home. He simply executes a TOD Deed for his home, records it, and voila! - when he dies the home goes straight to Janet. The property avoids the cost and burden of probate and seemingly avoids the need for a will or trust. Sound simple? It may well be - until Alex’s children come along and challenge the deed and Janet ends up embroiled in an emotionally draining, expensive litigation. Naturally that sort of thing does not always happen, but it's certainly one of the potential complications of using a TOD deed.
Now, back to our friendly caller’s question - can you execute a TOD deed if your home is already in a trust? Yes - if the trust is revocable. Here is what Probate Code 5660 (ie the law) states:
If a revocable transfer on death deed recorded on or before 60 days after the date it was executed and another instrument both purport to dispose of the same property:
(a) If the other instrument is not recorded before the transferor’s death, the revocable transfer on death deed is the operative instrument.
(b) If the other instrument is recorded before the transferor’s death and makes a revocable disposition of the property, the later executed of the revocable transfer on death deed or the other instrument is the operative instrument.
(c) If the other instrument is recorded before the transferor’s death and makes an irrevocable disposition of the property, the other instrument and not the revocable transfer on death deed is the operative instrument.
Essentially, the law states that the most recent of the legal documents will prevail - except in the case where a home is in an irrevocable trust. “Irrevocable” means a trust that cannot be changed, and therefore it makes sense that one could not move the home out of the trust.
The caller had a Revocable (able to be changed) Trust, so he could legally execute a TOD Deed. If recorded properly, it will automatically revoke the earlier deed which titled his home in the name of the trust. HOWEVER, here’s where it gets tricky. I asked the gentleman to tell me a little more about his case. Why did he want to execute this deed? Would it change the beneficiaries of his home?
His answer was that his son, one of three children, had been of enormous help to him in the last few years, and he wanted him alone to inherit the home. In his trust, the property was to be sold and distributed equally between his three children. This is a LITIGATION RED FLAG. Changing your estate plan late in life to unequally benefit children equals trouble. I told him as much. He said he wasn’t concerned with what happened after he died. I’ve heard that one more times than not. In fact, I think that’s why a lot of folks avoid Estate Planning. And it’s not because they have ill wishes for their heirs, they just don’t realize how bad it can get.
But I wasn’t going to change his mind, he just wanted to know if the TOD was possible. So we said goodbye and that was that.
So what's the bottom line with the TOD Deed? As an attorney who has seen numerous litigation proceedings over deed changes and siblings who have been cut out, I always advocate avoiding litigation and taking the Safe Route : While the possibility of a lawsuit can never be completely ruled out, it can be safeguarded against by using multiple documents, done by reputable, experienced Estate Planning attorneys. Doing things like executing a TOD deed without consulting an attorney may result in unintended consequences or litigation.
The safest route is always an estate plan. I believe California's passage of the TOD Deed will only lead to further litigation for many of its users. For questions about Estate Planning or the Transfer on Death Deed, call my office for your free consultation - 925-322-1795.