Transfer on Death Deed–Danger!

There is a new deed in California, and you should avoid it – it’s called a Transfer on Death Deed. Recently created by California statute, a TOD Deed is a seemingly cheap and easy means of estate planning for real estate. These deeds allow you to easily designate a person to inherit your real estate after your death, without having to give up any control to or rights in the property before then.

The mechanism is seemingly simple. You designate a person (TOD Beneficiary) on a deed to receive your specifically described real estate after your death. Sign, notarize, and record the deed—voila! When you die, the person you named as beneficiary in the deed takes title to the property without having to go through probate. And, you don’t have to pay an attorney big bucks to set the procedure up.

But, there are a host of problems with Transfer on Death Deeds that make them bad estate planning mechanisms in almost all situations. Here are the problems:

  • TOD Deeds may only be used for certain Residential Property.
  • TOD Deeds conflict with joint tenancy and community property with right of survivorship.
  • TOD Deeds make it more likely your children will pay higher property tax after your death.
  • TOD Deeds do not allow you to name a contingent beneficiary in case your TOD Beneficiary dies before you—your property may still wind up in probate!
  • Title companies are refusing to insure clear title to your TOD Beneficiaries—What if your beneficiary wants to refinance?
  • TOD Deeds disinherit children of TOD Beneficiaries who die before you (e.g. your grandchildren)
  • With a TOD Deed, your title policy will become void at your death rather than continue in favor of your TOD Beneficiary.
  • Your TOD Beneficiaries may wind up in court if you have creditors or parties entitled to reimbursement, like Medi-Cal, or the title company refuses to insure clear title.
  • TOD Deeds may harm TOD Beneficiaries with “special needs,” including those on public assistance.

Because of these defects, the only situation in which I would consider recommending a Transfer on Death Deed over a will or a trust is the situation where: 1) You own outright a single piece of residential property and not much else; 2) You have only one loved one you want to benefit as TOD Beneficiary and no other loved ones; 3) You and the property are debt free; and 4) Your TOD Beneficiary is able to hold the property for several years without selling it or borrowing against it. Even then, the problems listed above with a Transfer on Death Deed should be considered and discussed with a knowledgeable real estate attorney.

David J. Collier is a real estate attorney in Santa Rosa, Sonoma County, California. David is responsible for this content of this Advertisement. The information in this article is not legal advice. To obtain legal advice you must discuss your unique circumstances with an attorney.

Importance of Title Insurance to Estate Planning

“Kwok” Case Highlights Importance of Title Insurance in Estate Planning

Deeding a home or residence into the family trust is a standard estate planning move. Indeed, most planning clients choose to create a revocable trust and then transfer most of their assets, including all their real property, into the trust. But did you know that this standard maneuver could cause you lots of grief in the future by voiding your title insurance policy?a

Title insurance is what you buy when you purchase real estate. It protects you from later claims by others that the title to your property is not as stated in the policy. For example, if physical access to your property depends on an easement and the owner of the easement property later disputes the title to your easement, then your title policy will probably step in and save you tens or hundreds of thousands of dollars in litigation costs. Or, if the previous owner’s lender suddenly starts foreclosure on your property claiming that they weren’t paid at close of escrow, your title policy probably has the situation covered. Title claims such as these are rare, but if they come up and you are not covered with title insurance, then you are facing a real financial disaster.

Transferring your property into your trust could void your title insurance. Specifically, under the case of Kwok v. Transnational Title Ins. Co. (2009) 170 Cal.App.4th 1562, a couple’s transfer of title to their property into their revocable family trust voided their coverage under their “CLTA Standard Coverage” policy of title insurance. The couple, named Kwok, was left without insurance coverage. Consequently they were forced to bear hundreds of thousands of dollars in expenses that their policy would have covered. As the former owner of a title insurance agency, I have personally seen title insurance underwriters deny otherwise valid claims based on Kwok. The “Kwok” problem is not fatal to estate planning though.

So far, the Kwok case has only been applied to the traditional CLTA Standard Coverage form of policy. Newer forms of title policies, especially those issued in the last decade or so on residential property, have provisions that allow for transfer of title from individuals, like the Kwoks, to standard estate planning trusts. If Kwok applies to your title policy, you can fix the situation by purchasing a 107.9 “additional insured” endorsement your title insurer. If you are unsure of how to proceed, you should contact your estate planning attorney. If you haven’t started with your estate plan yet, make sure to mention “Kwok” when you first meet with your attorney.

David J Collier

Selling Real Estate without a Realtor in California

When is it safe to sell your California real estate without a realtor? For example, your longtime renter might approach you about buying the rental. Or, a business associate, acquaintance, or friend might offer to purchase your land or commercial building. You might be tempted skip the realtor’s office and head straight to the escrow office, cash in hand. Wouldn’t your be saving the typical 5-10% sales commission, perhaps worth tens of thousands of dollars? But, “seller beware!” There are risks to selling your California real estate without representation.

For more information,  please go here to request a report with more details.

The primary disadvantage of cutting out professional representation from a real estate transaction is lack of access to proper contract and disclosure forms. Almost all California Realtors have access to standardized transaction forms provided by the California Association of Realtors (C.A.R.). These forms cover most types of transactions and are almost worth the commission you would pay a C.A.R. member Realtor. And without a proper contract in place, you could run into trouble. For example:

  • Your deal might not be enforceable because it is not in writing
  • Your contract could be void due to a drafting error or mistake
  • Your property could be tied up in escrow indefinitely due to vaguely worded conditions
  • You might not address critical details such as closing costs, deposits, timing, inspections, arbitration, rights after a breach, and the condition and title of the property.

Even worse, without representation, you risk a future law suit based on lack of disclosure if your buyer regrets the deal after it closes. The risk from lack of disclosure is even present if you sell your property “AS IS.” The ancient maxim caveat emptor (“let the buyer beware”) has little or no application to California real estate transactions; and an “as is” clause will not protect you from the consequences of failing to disclose anything about your property that would affect your buyer’s decision to buy. Plus, California Statutes require disclosure of many things you would likely never think of. Here are just a few examples of things you may have to provide to the buyer of your residential property:

The list goes on and on.  For more comprehensive discussions of seller disclosures in California, click here and here. Even sellers of estate, trust, or commercial property must provide many of the disclosures. And, California real estate disclosure rules change every year.

California disclosure law has become so complex that your chances of providing all the required disclosures is very low without professional representation. If you didn’t use a Realtor to market your property, then you should probably consult with a reputable real estate attorney before you ink your deal. Many real estate attorneys will draft the contract, manage the disclosures, and even guide you through escrow and closing for a fee far less than the standard real estate commission. Selling real estate without a Realtor in California is safe, as long as you review your deal with a qualified real estate attorney.

David J. Collier practices law in Sonoma County in the areas of Real Estate, Wills, Trusts, and Probate. David is responsible for the content of this ADVERTISEMENT. The information in this article is not legal advice. To obtain legal advice you must discuss your unique circumstances with an attorney.

 

 

David J Collier

Transferring Deceased Person’s Property in California without Probate through Summary Procedures

So dear old eccentric Uncle Jim has gone to his reward and you learn to your shock that he actually owned more than that ancient, beat-up Chevy. Even more shocking, he left it all to you. How do you go about transferring Uncle Jim’s assets to your name? And is it going to cost more than the value of the estate to do so?

The first thing to look at is whether Uncle Jim had placed his assets into a trust. No. Didn’t think so. He mistakenly thought that trusts were for the “fancy people.” Too bad. A trust would have saved you time and money. Nor did he hold assets in joint tenancy or use a transfer-on-death form. Ah, well.

So transferring the assets will probably require the time consuming, complicated, and expensive court process known as Probate. Wait. There may still be hope. If the value of the estate is small, you can get title to the assets much more quickly and inexpensively through the summary procedures set forth in the California Probate Code.

Most of the summary procedures are limited to estates with small values. For example, estates with values of $150,000 or less can be transferred through summary procedures to any successor. In contrast, estates of any size can be transferred through summary procedures to a spouse entitled to the property. If Uncle Jim had left his worldly goods to his spouse, she could have used a cheaper and quicker summary process. But Aunt Maude passed on years ago.

To determine whether an estate meets the $150,000 value threshold, the gross values of each of the decedent’s non-trust and non-transfer on death assets are counted. There is no offset for mortgages or other debts. So, if Uncle Jim left a residence valued at $300,000 with a mortgage of $200,000 to his favorite niece (that would be you), then you would not be able to use a summary procedure to obtain title to the residence, even though the net value of the residence is only $100,000. But, if the residence was valued at $150,000 at the time of Jim’s death and there were no other assets in Jim’s estate, you would be able to use a summary procedure.

There are three summary procedures in which only an affidavit (sworn statement under penalty of perjury) rather than a court order is required to transfer the decedent’s property. First, successors can collect the decedent’s personal property by affidavit if 40 days have elapsed since the death and the value of his estate is $150,000 or less. Personal property would in your case be Uncle Jim’s gun collection, his old baseball cards (probably valuable), some lovely antique rings of Aunt Maude’s, a small savings account, and a wad of cash under the mattress. Oh, and the Chevy.

Of particular use to many estates is the ability to collect by affidavit a beneficial interest in a mortgage—which in a weird quirk of the law is considered personal property—as long as the decedent’s estate meets the $150,000 value threshold. This means that if Uncle Jim left you the $100,000 mortgage he held on Cousin Jimmy’s ranch, then you can probably get title to the mortgage by recording the appropriate affidavit. For more information on small estate affidavits for personal property click here.

The second affidavit-based summary procedure involves only real property, which is land and anything permanently attached to it, but not movable things like Uncle Jim’s mobile home. A beneficiary can collect a decedent’s California real property by affidavit if the value is $50,000 or less and 6 months have elapsed from the death. So, you can probably collect Uncle Jim’s 1/150,000th interest in the mineral rights to that lot in Palm Desert by affidavit if you wait a few months. Here is a link to the correct form: click_here.

The third affidavit-based summary procedures applies only to a surviving spouse, who can collect the deceased spouse’s real property by affidavit 40 days after the decedent’s death for any size estate. This comes in handy when a surviving spouse wants to sell the family residence, for example. In that case, the title company will probably take care of preparing the affidavit.

Two of the summary procedures require a court hearing, notice to certain relatives, heirs, and beneficiaries, and a court order. One of these court-based summary procedures allows any successor to collect any of the decedent’s real or personal property as long as the value of the decedent’s non-transfer on death real and personal property in California is $150,000 or less. The other applies only to a spouse.

Both the affidavit-based and court-based summary procedures require an appraisal by a probate referee. A list of probate referees can be found at this link. All summary procedures are relatively private, because with summary procedures, unlike full probate, there is no requirement to publish notice of the proceedings in the local newspaper. But, summary procedures carry some risk, because the persons who collect property under any of the summary procedures are liable to the decedent’s creditors up to the amount collected. Luckily, Uncle Jim didn’t believe in debt, so he had no creditors. If he had, and if they knew about the rings, guns, cash, and baseball cards, they could claim the value of those items from you.

The lack of court supervision makes summary procedures relatively quick and cheap. As long as the decedent’s creditors are not lurking, you should consider a summary procedure if possible. For a quick layout of the various summary procedures, please check out this link.

For more information or advice on probate or trust administration, please call me at 707-636-4806.

David J. Collier practices law in Sonoma County in the areas of Real Estate, Wills, Trusts, and Probate. David is responsible for the content of this ADVERTISEMENT. The information in this article is not legal advice. To obtain legal advice you must discuss your unique circumstances with an attorney.

 

David J Collier

Joint Tenancy Is No Substitute for an Estate Plan

You and your partner finally find the perfect real estate. At closing, your escrow officer asks how you would like to hold title. Without knowing why, you simultaneously blurt out, “JOINT TENANTS!”

Joint tenancy is a popular form of co-ownership, primarily because of its built-in “RIGHT OF SURVIVORSHIP.” This means that if one of the owners dies, the property automatically passes, despite any will, to the surviving owners, without the need for an expensive and time-consuming probate action.

But, joint tenancy does not eliminate your need for a will or other estate planning. Without estate planning, even property you acquire as joint tenants would pass at your death according to the state’s rules of INTESTACY in the following situations:

  • You are the last joint tenant to die.
  • You and the other joint tenants die simultaneously.
  • Your co-owner’s creditors attach his or her interest.
  • Your co-owner transfers, deeds, or borrows against the property, even if done without your consent or knowledge.

In addition, joint tenancy is often inappropriate for MARRIED COUPLES, because:

  • Property held by a married couple as joint tenants won’t get a full “step up in basis” at the death of the first spouse to die. This means that the surviving spouse may pay higher capital gains taxes when the property is sold.
  • Married couples holding title as joint tenants may not be able to sell, transfer, or mortgage the property while one or both are mentally incapacitated.
  • A divorce court may award the joint tenancy property of a divorcing couple to the surviving spouse if one spouse dies during divorce proceedings.

As you can see, joint tenancy does not eliminate the need for estate planning and may be an inappropriate method for you to take title. To discuss how you should take title or get started on an estate plan that fits your needs, please call me at 707-636-4806.

David J. Collier practices law in Sonoma County in the areas of Real Estate, Wills, Trusts, and Probate. David is responsible for the content of this advertisement. The information in this article is not legal advice. To obtain legal advice you must discuss your unique circumstances with an attorney.