Want to avoid probate on real estate transfers at death? Not married? There is a new California method of holding title for certain real property that may work for you.
For years California estate planners have been nagging their clients to setup a Revocable Living Trust. A Revocable Living Trust avoids probate and insures that assets go where the owner wants them to go, not where the state thinks they should go.
There have always been ways of avoiding probate for certain types of assets. For example, bank accounts and brokerage accounts have “Pay on Death (POD)” and “Transfer on Death (TOD)” designations, respectively. These designations allow the account owner to select the beneficiary or beneficiaries that will inherit the account at the owner’s death simply by providing the information to the bank or brokerage firm along with the percentages to be inherited. To receive the funds after the beneficiary’s death all the beneficiary has to do is provide the institution proof of identity. Probate is avoided and no will or trust is necessary.
Married or California registered domestic partners also have been able to hold title to real estate in either joint tenancy with right of survivorship or community property with right of survivorship. Both titles transfer the property to the surviving spouse without probate. However, a non-married individual with real estate was not able to do the same thing without putting the intended beneficiary on title. Many times this was not a viable option.
Now California has a new title designation for these individuals. Catching up to more than half of the states that are already using this method of titling, effective January 1, 2016, Californian’s can now use a “Simple Revocable Transfer on Death Deed”. Nicknamed “poor man’s trusts” because this deed accomplishes the same thing as a trust, the deed names the recipient or recipients of the property at the owner’s death. The deed must be notarized and recorded in the specific county within 60 days. If the owner changes their mind it can be revoked at any time.
There are some restrictions on the type of property that can be held this way. Eligible property has to be improved real estate with no more than four units, condominiums or agricultural property with no more than 40 acres containing a single dwelling. An entity, not just an individual or individuals, can be named as a beneficiary. If there are multiple beneficiaries they take title as tenants in common which allows each of them to designate their own beneficiaries after inheriting.
This is a pilot program for California. It is scheduled to sunset on January 1, 2021, however any deeds held this way as of that date will be grandfathered and there is always the chance that it will be extended or made permanent if all goes well in the intervening five years.
There are many other reasons to have a trust such as creditor protection (this deed does not provide any), owning other assets with no titling capabilities, the desire to leave staggered inheritances to young adult beneficiaries, etc. If you have significant assets or second marriage issues it’s always a good idea to meet with your own advisory team to set in place an estate plan that will meet your specific needs.
For more information contact your LSL Advisor at 714.569.1000.
With over three decades in public accounting, Sherry’s area of expertise include individual and business taxation, estate gift and trust taxation, IRS and Franchise Tax Board representation, strategic growth strategies, tax planning, and wealth preservation. Sherry is responsible for our estate tax department as well, specializing in estate and trust planning and fiduciary accounting.
You can reach Sherry at 714-569-1000