The California Revocable Transfer on Death Deed (“TOD deed”), which became law on Jan. 1, 2016, has numerous risks and drawbacks both for the transferor and the beneficiaries.
Let’s examine.
To the extent that the estate of the deceased creditor has creditors, the TOD deed creates liability and headaches for any surviving beneficiary.
For a period of up to three years after the death of the transferor, the personal representative in probate of the decedent’s estate may demand restitution from any of TOD deed’s surviving beneficiaries in order to satisfy the debts of the decedent.
That means that the beneficiary not only inherits an the real property but also inherits personal liability to pay the decedent’s debts, even those debts that are unsecured (like credit card debts) and unrelated to the real property that the beneficiary received. Let’s examine that predicament.
Typically speaking most transferors who use a TOD deed do so as a cheaper alternative to a living trust in order to avoid a probate. When they die the beneficiaries of their estate are unlikely to need to open a probate to inherit assets.
They will rely on the TOD deed to transfer title to the decedent’s residence and the small estate procedure to transfer title to other assets; this is assuming that the assets in the decedent’s estate collectively have a gross value of under $150,000 (excluding any non probate assets that pass to designated death beneficiaries – such as life insurance and retirement accounts – or to surviving joint tenants).
Nonetheless, the deceased transferor’s creditors may themselves commence a probate proceeding, within one year of the decedent’s date of death, solely for the purpose of timely filing their own creditor claims.
The personal representative appointed by the court has up to three years from the decedent’s date of death to demand restitution from any beneficiary of any TOD deed executed by the decedent.
Restitution requires that the transferor return the real property and any net income (such as rents less expenses) received by the beneficiary since he or she became the new owner.
Restitution becomes more burdensome if, after transferring title into his or her name, the beneficiary encumbers the property with a loan, improves the property or sells the property.
If the beneficiary borrows money and secures the loan against the real property, then restitution means both transferring title to the property and sufficient money to pay-of the debt.
If the beneficiary sells or gifts the property prior to the demand for restitution, then the beneficiary must return the following: (1) any net income received prior to the transfer; (2) the fair market value of the property at the time of the transfer (which may be different than any sale proceeds received); and (3) statutory interest at the annual rate of 10% from date of the transfer to the date of restitution (repayment).
If the beneficiary improves the property then the beneficiary then the beneficiary is only entitled to reimbursement if the improvements were “significant.” What is significant is left to be argued.
Given the foregoing, a beneficiary is well advised to find out as much as possible about the decedent’s debts and creditors.
If the beneficiary would prefer not to deal with potential liabilities, then the beneficiary must file a written disclaimer in writing within nine months of the decedent’s death to prevent becoming the owner with all attendant liabilities.
Dennis A. Fordham, Attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and 707-263-3235. His Web site is www.DennisFordhamLaw.com .
Estate Planning: Liabilities of a beneficiary of a transfer on death deed
- Dennis Fordham
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