Estate Planning: Who should you name as your beneficiary?

On January 1, 2016, Assembly Bill 139 (A.B. 139) went into effect in California, allowing Californians a new alternative to keep their homes out of probate. The revocable transfer on death deed, colloquially referred to as “poor man’s trusts,” is an inexpensive and quick way of effecting a transfer of real property to a named beneficiary (or beneficiaries) upon the death of the real property owner.  

Up until January 2016, the most commonly used ways to transfer real property upon death was through 3 methods:

1. Ownership of property in joint tenancy or community property with right of survivorship.

2. A living trust.

3. A will.

The transfer on death deed is considered a nonprobate method for transferring property to a named beneficiary. There are several conditions governing the type of property that can be transferred through this deed:

1. A single-family home or condominium unit, or

2. A single-family residence on agricultural property of 40 acres or less, or

3. A residence with no more than four residential dwelling units.

Pros & Cons of a Transfer on Death Deed

As with any method of estate planning, there are advantages or disadvantages that differ from person to person. Price, convenience, and security all affect the decision process for creating an estate plan, as well as the amount of assets that someone may want to protect or pass on. This deed is most useful for single people, as opposed to married couples who can avoid probate by simply owning their home under joint tenancy or community property. This means that if one spouse dies, the surviving spouse would fully inherit the other's share.

Pros:

1. Filing and recording the transfer on death deed is fast, simple, and very inexpensive (especially compared to the living trust and last will options).

2. Protects your property from probate court as long as the beneficiary does not predecease you.

3. Fully revocable during the real property owner’s life time. See section on revoking transfer on death deed.

4. You are still the full owner of your property, instead of adding your beneficiary as a joint tenant and making him/her an immediate legal owner.

5. No taxes to worry about. Adding a joint tenant is considered a gift by the IRS and thus requires the filing of a gift tax return, not to mention possible higher taxes in the future.

6. In terms of protecting real property, it is a good solution to avoid probate if the real property owner does not have the time or ability to create a living trust.

Cons:

1. Your property will be subject to probate court if your beneficiary predeceases you and you do not have an alternate estate plan.

2. If you co-own property under joint tenancy, your joint tenant becomes the sole owner upon your death and has full control of the property despite your deed, unless your co-tenant has also filed the deed separately naming the same beneficiary or beneficiaries.

3. If the beneficiary is a minor upon the death of the property owner, a court-appointed custodian will be granted control and management of the property until the child reaches legal age, and only then will the child own the property outright. This process may incur legal and court fees.

4. The property may still be subject to Medi-Cal estate recovery if the property owner was a recipient of Medi-Cal benefits. Let’s say you forgot to update the Transfer on Death Deed when the person you wanted to gift the property to dies before you. Then the property would have to be probated and would be subject to Medi-Cal reimbursement claims.

5. If you become incapacitated and you didn’t have a living trust or power of attorney, then your loved ones would need to obtain conservator-ship to manage or sell your property.

More Information: https://www.edmundvincentlaw.com/blog/complete-guide-to-california-transfer-on-death-deeds

Source: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB139