For almost three years now, since January 1, 2016, Californians have been able to designate beneficiaries on a deed to real property. The new type of deed is called a Revocable Transfer upon Death Deed, otherwise known as a “beneficiary deed.” The deed is designed to provide an opportunity to transfer real property at death without having to incur the costs of having a trust prepared or, after death, the family having to initiate a probate proceeding.
Here are some of the statutory requirements of the beneficiary deed:
1) The deed must appropriately identify the beneficiary or beneficiaries by name. A designation such as “my surviving children” is not allowed. Where one of multiple named beneficiaries dies before the property owner, the remaining beneficiaries take in equal shares. If all beneficiaries die prior to the transfer, the deed has no effect.
2) Even though the deed lists beneficiaries who will own the property after the property owner dies, the deed does not affect the ownership rights of the property owner during his or her lifetime. Conversely, the deed does not confer any rights to the beneficiaries listed on the deed, or creditors of those beneficiaries, during the property owner’s lifetime.
3) The deed must be substantially in the form required by statute, must be notarized and must be recorded with the County Recorder within sixty (60) days after the date signed.
4) The person signing the deed must be mentally competent.
5) The deed can be revoked by proper execution and recording of a specified revocation form.
6) If the deed is still valid and has not been revoked or otherwise superseded by another document, the property will pass to the named beneficiary or beneficiaries without probate. The beneficiary(ies) will have to record a specified Affidavit upon the death of the property owner to take title.
Beneficiary deeds have generally worked well in the twelve states where enacted, including Arizona, New Mexico, Colorado and Nevada. However, critics of the revocable transfer on death deed cite the potential for misuse where the transferor lacks sufficient mental capacity and becomes subject to undue influence, fraud, or elder abuse by family members and caregivers.
Another potential problem is that a beneficiary will be named and then the deed will be forgotten over several years or decades. If the designated beneficiary dies before the property owner, and then the property owner dies, a probate will be required and unintended heirs may receive the property. A formal probate proceeding will also subject the property to Medi-Cal Estate Recovery claims, which would not have been the case if the property passed to a designated living beneficiary.
Even though there are beneficiaries named on the deed, the property will still be subject to creditor claims against the decedent. Because there may be unsatisfied creditor’s claims against the property transferred via the beneficiary deed, some title insurance companies are not willing to issue title insurance to the beneficiary until three (3) years after the Grantor’s death.
Other concerns with beneficiary deeds are the following:
– The beneficiary deed can only be used to transfer property containing one to four residential dwelling units or condominium units, or a single-family residence with less than 40 acres of agricultural land.
– The deed cannot be used to transfer residential property held as Joint Tenancy or as Community Property with Right of Survivorship, and cannot be used to create split interests such as a life estate.
– The deed does not permit the designation of beneficiaries by class description (e.g., “my children”). The beneficiary or beneficiaries have to be specifically named.
– The deed does not permit the designation of “contingent beneficiaries,” in the event that the primary beneficiary dies before the Grantor.
The law has a sunset date of January 1, 2021. The expectation is that the legislature will review how the law has performed and will make a recommendation on whether the law should be extended or repealed.