Bulletin: CA2016001

Dear Associates:

On February 23, 2017, we issued Bulletin CA2017003 and on January 20, 2016, we issued Bulletin CA2016001 regarding Revocable Transfer on Death Deeds. Both bulletins dealt with the provisions of the 2016 Act and underwriting guidelines regarding the application of the 2016 Act as it relates to the issuance of title insurance following the death of a Transferor. Recently, California has passed another act (the "2021 Act") governing the operation of the Revocable Transfer on Death Deed (TOD Deed), which was approved by the Governor and filed with the Secretary of State on September 22, 2021, under Chapter 215. The new act amends a section of the Government Code; it also amends, adds, and repeals sections of the Probate Code. This bulletin is intended to provide an overview of the key provisions of the 2016 Act together with the salient amendments, revisions, and additions thereto under the latest 2021 Act, together with any subsequent changes to the 2021 Act.

The key provisions of the 2016 Act are as follows:

• The main provisions of the 2016 Act can be found in the Probate Code, commencing with Section 5600 and were operative January 1, 2016, until January 1, 2021, and subsequently extended to January 1, 2022, and then again to January 1, 2032.
• The 2016 Act only applies to a TOD Deed or revocation form signed before January 1, 2022.
• A TOD Deed is valid if made by a transferor who dies on or after January 1, 2016, regardless of whether the deed was executed or recorded before, on, or after January 1, 2016.
• The real property description in a TOD Deed is limited to (1) improved real property with not less than one nor more than four residential dwelling units; (2) a condominium unit, including the limited common elements; or (3) a single tract of agricultural real estate consisting of 40 acres or less that is improved with a single-family residence.
• The grantor is referred to as the "Transferor," and the person named in a TOD Deed as the transferee is referred to as the "Beneficiary."
• A TOD Deed is revocable, either in writing or by contrary action by the Transferor, as provided below.
• A TOD Deed is not effective until the Transferor's death.
• The Transferor must have the capacity to contract in order to make a TOD Deed or to revoke a TOD Deed.
• The Transferor is not required to deliver a TOD Deed to the Beneficiary nor is the Beneficiary required to accept a TOD Deed during the Transferor's life, but the Beneficiary does have the right to disclaim the transfer after the TOD Deed becomes effective.
• A TOD Deed is not effective unless recorded on or before 60 days after the date it was executed.
• The failure to record the "Common Questions" has no effect on the effectiveness of a TOD Deed executed on or after July 9, 2018, or in the instance where the Transferor was alive on July 9, 2018.
• A revocation must be in writing and executed and recorded before the Transferor's death.
• When two or more TOD Deeds are recorded, the subsequent one revokes the previous one. If the subsequent one is revoked by the Transferor, the previous one is not revived.
• Unlike a transfer by Grant Deed, a TOD Deed transfers the property without covenant or warranty of title.
• During the life of the Transferor, a TOD Deed does not affect the ownership rights of the Transferor (the Transferor may subsequently sell and encumber, and liens and judgments against the Transferor attach to the property).
• During the life of the Transferor, a TOD Deed does not convey any rights to the Beneficiary or to creditors of the Beneficiary (liens and judgments against the Beneficiary do not attach).
• If the property is held in joint tenancy or as community property with right of survivorship at the time of the Transferor's death, a TOD Deed is void and the property passes to the surviving joint tenant or spouse, as the case may be.
• A TOD Deed does not sever a joint tenancy.
• A TOD Deed transfers only the interest of the Transferor. Any co-owner's interest in the property is not transferred unless the co-owner executes and records a separate deed.
• Upon the death of the Transferor, the Beneficiary must record evidence of death of the Transferor and file a change of ownership notice.
• A conservator or guardian of a Transferor may, before the Transferor's death, petition the court for invalidation of a TOD Deed executed by the Transferor.
• An action contesting the validity of a TOD Deed may be filed by the Transferor's personal representative or other interested person.
• A lis pendens may be recorded in connection with such action. The law provides certain protections to a purchaser or encumbrancer for value and in good faith where their interest was acquired before commencement of a proceeding and recordation of the lis pendens filed and recorded more than 120 days after the death of the Transferor.

The 2021 Act provides the following key changes, amendments, and revisions to the 2016 Act:

• The 2021 Act became operative on January 1, 2022, and extends the operative TOD Deed provisions to January 1, 2032.
• The 2021 Act only applies to a TOD Deed or revocation form signed on or after January 1, 2022.
• The 2021 Act does not apply to a TOD Deed or revocation form signed prior to January 1, 2022.
• Redefines and newly defines terms for purposes of the act, including but not limited to, "beneficiary," "real property," subscribing witness," and "unsecured debts."
• Beneficiary includes a natural person, a trust, or a private or public entity.
• The real property description in a TOD Deed is limited to (1) a parcel of land that is improved with one to four residential dwelling units; or (2) a residential separate interest and its appurtenant common area in a common interest development, regardless of the number of separate interests in the common interest development.
• The real property description in a TOD Deed cannot be a parcel of agricultural land that is greater than 40 acres in size.
• A TOD Deed is not effective unless it is signed by the transferor before a notary and signed by two witnesses who were both present when the TOD Deed was signed. If a beneficiary of a TOD Deed also signs as a witness, the TOD Deed is presumed to be the product of fraud or undue influence.
• A TOD Deed is not effective unless recorded on or before 60 days after the date it was acknowledged before a notary.
• A revocation must be in writing and executed and recorded in the same manner as execution and recordation of a TOD Deed.
• There are revised statutory forms of the TOD Deed and revocation to comport with the requirements of the 2021 Act.
• Specifies that the Beneficiary of a revoked TOD Deed has standing to contest the validity of the revocation, but only after the Transferor's death.
• Clarifies that an error or ambiguity in describing property or designating a Beneficiary in a TOD Deed does not invalidate the TOD Deed, if a court can determine the Transferor's intent by applying the general law on judicial construction of deeds.
• Permits use of a TOD Deed to transfer real property to a public entity or private nonprofit entity, enabling a court to apply cy pres principles to reform a charitable TOD Deed that would otherwise fail because the named Beneficiary disclaims the gift or does not exist at the time the TOD Deed operates.
• Establishes new processes and adds provisions to enforceability of unsecured debts against the estate and adds provisions relating to the personal liability of a Beneficiary, calculating a Beneficiary's share of liability, return of property to an estate by a Beneficiary, and contesting the validity of a transfer or revocation.
• Upon death of the Transferor, a TOD Deed that names a political corporation or governmental agency as a Beneficiary does not transfer title to that political corporation or governmental agency unless and until the political corporation or governmental agency records a resolution of acceptance or a certificate of consent in a form substantially similar to the form prescribed in the Government Code.
• Adds guidance to the "Common Questions" document to address the effect of a TOD Deed on a mobile home.
• Requires, after death of the transferor, that a Beneficiary serve a statutory notice on the Transferor's heirs; the Act creates a new statutory notice form for this purpose that must be accompanied with a copy of the TOD Deed and the Transferor's death certificate along with a statutory statement that the notice had been served as required by the specific code section, which is required to be recorded by a Beneficiary in the form of an affidavit.
• Property transferred by a TOD Deed is subject to any limitation on the transferor's interest that is of record at the transferor's death, including, but not limited to, a lien, encumbrance, easement, lease, or other instrument affecting the transferor's interest; this Act extends that provision to include limitations recorded no later than 120 days after the affidavit disclosing service of the statutory notice to the Transferor's heirs is recorded.
• Makes various technical and minor substantive changes to improve the clarity and operation of the law.
• Clarifies that the provisions governing TOD Deed(s) do not limit the application of other law that imposes a penalty or provides a remedy for the creation of a TOD Deed by means of fraud, undue influence, menace, or duress.

There are revised statutory forms for both the TOD Deed and the Revocation. The use of other forms must be in substantially the form of the statutory forms. The statutory forms are found in Probate Code Sections 5642 and 5644, respectively.

The use of the TOD Deed is primarily an estate planning device. As such, as with other estate planning devices, the concerns of fraud, elder abuse, and family disagreements are present. The use of a TOD Deed can be a viable vehicle in estate planning. For further underwriting guidelines dealing with the issuance of title insurance following the death of a transferor, please refer to Bulletin CA2017003.

Pursuant to this bulletin and other related bulletins, the issuance of any title policy in reliance upon a TOD Deed or Revocation in the chain of title, must be submitted to a Stewart Title Guaranty Company underwriter for approval.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.