California Homeowners Can Now Keep Homes Out of Probate: Adopts Transfer-on-Death Deeds
In September 2015, Gov. Jerry Brown signed AB139, which allows "poor man's trusts" in California starting Jan. 1, 2016. At least five previous attempts for passing similar legislations have failed in the past.
With this new law in effect, California homeowners have a simple and inexpensive way to leave their California real estate without probate to their heirs, which otherwise would have been a costly and time-consuming process.
This is called a “revocable transfer on death deed,” similar to payable on death accounts offered by financial institutions and the banking sector. “Poor man’s trust” it is called because the death accounts have been nicknamed “poor man’s trust.” They avoid the necessity to set up expensive trusts to keep assets out of probate.
“We were able to build a coalition, articulate why it’s a good bill for consumers,” said Assemblyman Mike Gatto, D-Glendale, who authored AB139.
AB139 will be most beneficial for single people in California, including widows and widowers. Married people on the other hand, will have a simpler way of avoiding probate by holding title to their real estate or other assets as community property with “right of survivorship or joint tenants with right of survivorship” (source: sfchronicle). According to Steve Hartness, Associate Director of Education with the American Academy of Estate Planning Attorneys, this means that the surviving spouse inherits the deceased spouse’s ownership of the property without having to go through the lengthy and tedious probate process
For single people to avoid having their home avoid probate (without adding another person the title while they are still alive) is by setting up a trust, which roughly costs $2,000 to $6,000 depending as well if an attorney is hired and reliant on attorney’s fees. Therefore, going through probate reflects an average expenses of $26,000.
The new law acts in favor of homeowners in California where the process would only require a signature for the Simple Revocable Transfer on Death Deed, naming the beneficiary of the property. They must have the document notarized and record it with their county within 60 days. If at any time a homeowner changes his/her mind, the deed can be revoked.
With any new legislation, it is expected that the cons will also be discussed. Some of this law’s opponents expressed apprehension that the new deed could make it easy for predators to convince an elderly person to transfer a home to them upon death.
In defense, an elder law attorney Marc Hankin explained, “That was addressed with provisions for how people can go to court and seek a remedy if that occurs…If within 120 days of mom’s death you find out she transferred the property to Harvey Flybynight, you file a complaint with the court, record a notice of lis pendens (which means a lawsuit has been filed) and send a copy to Harvey Flybynight. If Flybynight tries to sell the property within 120 days of mom’s death, “no title company will give title insurance” to the buyer.”
Hankin also added that this also could make it more difficult for legitimate heirs to sell a home or property they inherit within 120 days.
The new law expires on Jan. 1, 2021, to allow time to study its impact and consequences to homeownership in California. It is essential to note however, that transfer on death deeds executed before now and the expiration would not be affected. Instead, they would still be valid and could be revoked at any time. But NO new ones can be executed after January 1, 2021 unless the law is extended.
The law requires the California Law Revision Commission to study and make recommendations regarding the new deed to the Legislature by January 1, 2020.
One of the advocates of the new law included the Howard Jarvis Taxpayers Association and the American Association of Retired Persons (AARP).
“It is a fairly easy, straightforward and relatively inexpensive way for California residents to transfer their real property, which by and large is people’s most valuable asset,” said Blanca Castro, AARP’s advocacy director in California.
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