The Revocable Transfer on Death Deed (RTODD)
The Revocable Transfer on Death Deed (RTODD) is a relatively new method of transferring real property in California. It is designed to be a simple way of leaving real property to beneficiaries at death without the need for a will or a probate proceeding.
The way an RTODD works is that a real property owner signs a deed during his lifetime, providing that at his death, the real property will pass to the beneficiaries he names on the deed. During the property owner’s lifetime, he can sell the property, refinance it, or change his mind and revoke the RTODD entirely. The beneficiaries named on the RTODD have no rights so long as the property owner is alive.
The laws governing RTODDs were updated in late 2021, and for all RTODDs signed on or after January 1, 2022, certain new requirements must be followed for an RTODD to be valid and effective. The RTODD laws are set to expire on January 1, 2032, so any property owner considering using an RTODD should make sure that he or she is knowledgeable about the laws in force at the time the deed is executed. The current laws as of January 1, 2022, provide for the following requirements:
First, only a residence may be transferred via an RTODD. “Residence” is defined in the statues as one of the following: (1) property with one to four residential dwelling units, (2) condominiums, or (3) single tracts of agricultural land, consisting of no more than 40 acres, that are improved with a single-family residence.
Second, if the RTODD names more than one beneficiary, the beneficiaries must receive equal shares.
Third, the RTODD must be signed by the property owner, whose signature must be witnessed by two witnesses who were present at the same time and who either witnessed the owner sign the RTODD or witnessed his acknowledgment that he signed the deed. The witnesses should not be beneficiaries of the RTODD; if either of the two witnesses is also a beneficiary under the deed, there is a presumption that the deed was obtained as a result of fraud, duress, menace, or undue influence. The owner must also have his signature notarized.
Fourth, the RTODD must be recorded on or before sixty days after the date it was acknowledged before a notary.
Fifth, when the homeowner dies, the beneficiaries must notify the property owner’s legal heirs, which will allow them to challenge the RTODD.
So, does the new law mean that real property owners can get the same benefits from an RTODD as they get from a will and/or trust?
The short answer is no.
If a property owner names multiple beneficiaries in an RTODD, and after his death, one of the beneficiaries is deceased, that beneficiary’s share will not pass to his or her children, which some property owners would prefer. Instead, it will pass in equal shares to the other beneficiaries. A will or trust could provide that if a beneficiary does not survive the property owner long enough to inherit his or her share, that share passes to children or other relatives in shares set forth by the property owner. Unlike an RTODD, a trust could also provide that property pass to a minor after being held in trust till the minor attains a certain age. If a beneficiary under an RTODD is a minor, the court will have to
An RTODD may also not be ideal for use with property owned in joint tenancy or held as community property with the right of survivorship. In such cases, if the other joint tenant, or the spouse, is alive at the death of the transferor, the RTODD is void.
The RTODD also fails to offer protection of the real property from claims by creditors, such as mortgage lenders and Medi-Cal. Property subject to an RTODD remains subject to claims by the property owner’s creditors, and the administrator of the property owner’s estate may demand restitution from RTODD beneficiaries, until three years after the property owner’s death. Also, the RTODD transfers the property to the beneficiaries upon the property owner’s death without covenant or warranty of title. Beneficiaries may therefore find it difficult to obtain title insurance for three years after the property owner’s death, thereby blocking refinancing and sale of the property.
Finally, if the property owner becomes incapacitated, the beneficiaries named on an RTODD has no power to make decisions about the property or help access the equity of the home. A trustee could have those powers in order to help provide for the property owner during incapacity.
For these reasons, property owners should clearly outline their goals for passing along their real property after death. An RTODD may or may not be the best way to achieve those goals, and if a property owner does decide to use an RTODD, he should be sure to carefully follow the guidelines set forth in the RTODD laws, as in effect at the time the deed is executed.