Seven Reasons You Shouldn’t Use the New TOD Deed

Last month, we talked about California’s new Revocable Transfer on Death Deed, which will become available on January 1, 2016. This is a new law, so many of the details have yet to be determined, but based on what we know now here are a few reasons you might not want to use one:

1. No Medi-Cal Protection. The law itself specifies that theTOD deed does not affect whether your home is subject to Medi-Cal reimbursement. If you want to leave your home to your children, and not to the state of California, you still need Medi-Cal planning.

2. No Incapacity Protection. If you become incapacitated, aTOD deed will have no effect. Unlike a living trust, the TODdeed doesn’t let someone else manage your property when you can’t. Worse yet, if you did designate someone through a power of attorney, that person may not be able to change the TOD designation. The law just isn’t clear on that point, so it will be up to the courts to decide, and while it seems like this should work, do you want to be the test case?

3. No Coordination of Management. If you’re leaving your property to multiple people (say, all of your children) through a will or trust, your fiduciary (Executor or Successor Trustee) will coordinate the transfer. Naming multiple people in a TOD deed means they all have to cooperate in the process.

4. Limited Applicability. The law is limited, to try to keep its use only for people’s homes. If you have property that doesn’t fall into one of the narrow categories (1-4 family residence, condominium, or under-40-acre farm with a home), you can’t use this at all. Worse yet, nobody will stop you from trying (the Recorder’s office is prohibited from giving legal advice), so someone could think they were protected by using a TOD deed on business property, but it would have no effect at all.

5. Recording Requirement. By law, a TOD deed is only effective if it is recorded within 60 days of signing. Again, someone could easily miss this requirement and think they were protected when they aren’t.

6. What if Your Child Dies First? California law generally provides that a gift to a child or other relative doesn’t fail just because that person dies first (the “anti-lapse statute”). So if you leave your house to your son in your will or trust, and your son dies before you do, the house goes to your son’s children (your grandchildren). The TOD deed is an exception to this rule, so if your named beneficiary dies first, the property goes… back into probate.

7. It’s a New Law. Any time something new comes up in the law, it can take years, or even decades, to discover all its implications and how it will be interpreted by the courts. This kind of uncertainty is not something you want as part of your estate plan.

Of course, there will be times when the TOD deed is the best tool for a particular circumstance. However, it is not a panacea, and like most legal tools, you should make a careful determination whether it is right for you.