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  • Gabriel B. Lenhart

Beware the Pitfalls of Transfer on Death Deeds

On January 1, 2016, AB 139 passed which purportedly created a new way for California property owners to transfer real property to their intended beneficiaries through a Revocable Transfer on Death Deed (RTODD). This RTODD was intended to provide a simple and inexpensive format to transfer real property to intended beneficiary(ies) if the home is the main asset. The RTODD enables someone to leave their property to designated beneficiary(ies) without establishing a living trust. Unfortunately, the California Legislature failed to provide adequate guidance for this potentially effective tool, leaving the beneficiaries with unanticipated issues to resolve after the transferor has passed.

There are multiple drawbacks regarding the use of RTODDs that could be resolved by using appropriate estate planning tools such as a Will, a Trust, or a combination of the two. For example, if the named beneficiary(ies) predeceases the grantor the property will still be subject to probate, and if minor children are involved the property may be controlled and managed by a court appointed custodian. Additionally, for those that hold title jointly, uncertainty lies in the ultimate beneficiary as the surviving spouse retains the ultimate control over the distribution. If capacity becomes an issue, the ability to revoke this transfer is hindered, ultimately negating the ability to make adjustments based on changes in family, financial, or legal circumstances and this property is not be protected from MediCal recovery or other creditors.

While the dangers above more than suffice as a warning to any potential transferors aiming to utilize the new RTODD, one very important pitfall lies with the use of these deeds, one that is not discovered during the lifetime of the transferor and leaves the beneficiaries with unmarketable property: the inability to sell the property due to lack of title insurance. Due to the relative newness of the RTODD, title insurance companies are refusing to insure title to these types of transfers, leaving the new owners of the property without the ability to sell the home to a potential buyer. While the beneficiaries of the property may have the right to take title to the home, without the ability to obtain title insurance for the buyers, the property becomes unmarketable and relatively valueless, ultimately resulting in a long and expensive probate proceeding to obtain a court order that will enable the beneficiary to sell the home with title insurance.

The California Legislature has attempted to provide a relatively inexpensive alternative to traditional estate planning for those whose main asset is their home, however the litany of potential issues surrounding these types of transfers will remain a burden to the beneficiaries until one of two things occur: either the Legislature provides guidance and assurances regarding these issues so that title insurers are willing to enable the beneficiaries to sell the home, or enough case law is established through litigation of these cases that the title insurers feel comfortable insuring the title on these transfers. Until more time passes or the Legislature provides these assurances, there is no substitute for estate planning in California.

Please note that this article is a general summary of law and omits many important details, footnotes, and caveats. It is no substitute for legal advice from a lawyer based on your particular circumstances.

For more information or to speak with a lawyer, please call us at (530) 268-5485, visit our website,, or send us an email at

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