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California's Revocable Transfer on Death Deed: Another Possible Estate Transfer Tool

A recent blog post highlighted the need for estate planning, and used the untimely death of music legend Prince as a cautionary tale. Because Prince apparently did not plan for the distribution or management of his estate, it is likely to be tied up in probate court proceedings, ultimately costing the estate time and money.

California residents who want to avoid probate court at their deaths now have a new tool at their disposal, as of January 1, 2016: the revocable transfer on death deed. California joined 26 other states with similar laws when the legislature added this new estate planning option. A revocable transfer on death deed is essentially a beneficiary designation for residential real estate, providing another option in addition to living trusts and joint tenancy as a means of allowing real estate to pass outside of court.

You can name one or more beneficiaries; if naming more than one person as beneficiary, each beneficiary will take ownership after your death as tenants in common. And, because it functions like a beneficiary designation, you can revoke the deed at any point during your life.

The revocable deed can be used either for property you hold individually, or for property you own as joint tenants. If you own property as tenants in common, know that each co-owner would need to file a separate revocable transfer on death deed.

While the deed can be a helpful estate planning tool, it has absolutely no effect on gift or estate taxes, nor does it protect real estate from potential claims for Medi-Cal expenses. So clients who might benefit from more in-depth estate planning will probably not find much value in this planning option. Given the size and complexity of Prince's estate, for example, using one or more trusts as part of the planning process would likely have made more sense.

Another drawback for many people is that the revocable transfer on death deed cannot be used to make a "per stirpes" gift to descendants. In other words, if you name three children as beneficiaries but one of your children dies before you, the beneficiary designation will pass automatically to your two surviving children, with no share going to the descendants of your deceased child. This does not reflect the wishes of many clients.

A revocable transfer on death deed may make sense for some clients, but not for everyone. Contact a California estate planning attorney to learn more, and to review your estate planning goals. No two estates are exactly alike, so it is important that your plan makes sense for your estate and goals.

You can find the sample form and answers to frequently asked questions here.

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