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What Are The Risks And Uncertainties Of The Transfer On Death Deed?


There are many risks and uncertainties attached to transfer on death deeds. First, like a joint tenancy deed, there is no method to list a contingent beneficiary. This means that if any of the people whom you want to receive property pre-decease you, then their share will simply be ignored and go to the other beneficiary; if they were the only beneficiary, then the transfer on death deed would have no effect and the property would go through the probate process as if no transfer on death deed had been done. Additionally, there is no ability to make a class gift, or to say that your property should go to all of your children or grandchildren; the individual beneficiaries must be named.

Transfer on death deeds have no structure or method for deferring the distribution or managing the asset for a beneficiary, which could cause a tremendous amount of trouble if the beneficiary is a minor who cannot handle money responsibly, is incapacitated, or is receiving disability benefits. Furthermore, if the property is jointly owned by a husband and wife, then a beneficiary deed would have no effect upon the death of the first spouse, and a fairly uncertain effect upon the death of the second spouse. Married couples should each do their own beneficiary deed, although some title companies have said that doing so severs the joint tenancy, which would lead to probate issues upon the death of the first spouse.

Pursuant to state code, a beneficiary who receives a property from a transfer on death deed is held personally liable for all of the debts of the deceased person’s estate, even if the debts had nothing to do with the property. Due to the huge uncertainty that this creates, title companies are very reluctant to issue title policies for a home that’s been received under a beneficiary deed. As a matter of function, this means that the beneficiary cannot sell the home for at least three years. This is because no one will buy a home without a title insurance policy, and since the title company won’t insure the home for a minimum of three years, the home simply becomes unmarketable for three years after the decedent dies. If the owner of a home creates a beneficiary deed and becomes incapacitated, that deed cannot be changed; this could become problematic if there are changes in the family situation, such as the death of a beneficiary.

Lastly, if the legislature does not renew this law, then it will terminate under its own terms in the year 2021. This means that in just a little over two and a half years from now, this will no longer be the law in California, which will bring into question the validity of any beneficiary deeds that were created and recorded prior to that date.

If I Transfer Real Property In My Living Trust, Will This Cause A Reassessment Of My Property Taxes?

Transferring real property in your living trust will not cause a reassessment of your property taxes. On the form that gets submitted to the tax assessor when transferring the property, there is the option of choosing a transfer to a revocable trust for the benefit of the transfer order, which is an exemption from reassessment.

Will My Children’s Property Taxes Increase When They Inherit The Home?

Your children’s property taxes will not increase when they inherit your home. According to California’s Proposition 58, there is an exception for reassessment if the transfer occurs between parents and children. This means that any transfer of real estate from parent to children or from children to a parent is exempt from reassessment; this applies to transfers of personal residences, as well as other properties valued at up to one million dollars. For properties valued at over one million dollars, the children would face a reassessment.

Is There Any Way To Prevent My Children From Co-Mingling Their Inherited Assets With Community Property?

There is a way to prevent your children from co-mingling their inherited assets with community property. Many of my clients are concerned that when their children receive an inheritance, the child’s spouse will receive a community interest in that inheritance. The presumption under California law is that inheritances are separate property and the spouse receives no interest in that property. However, if the child who receives the inheritance co-mingles the property, puts the other spouse’s name on the property, or takes the proceeds from the sale of the property and deposits it into an account that names the other spouse, then the presumption is that they are transmuting that property from separate property to community property.

If you want to make sure that your child absolutely cannot do that, then you can’t leave the assets to that child outright; you must restrict that child’s control of the assets so that they cannot legally put it into the other spouse’s name. In order to accomplish this, you can have the assets held in trust for the child’s lifetime; you can give them access to the funds, but you cannot give them the right to transfer the funds. This means that there would have to be someone else named as a trustee over that child’s share to prevent the child from transferring those assets to their spouse as community property.

For more information on Risks Of Transfer On Death Deed In California, a free assessment is your next best step. Get the information and legal answers you are seeking by calling (626) 385-6303 today.

Newell & Havens Attorney At Law

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(626) 385-6303.

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