It’s expensive to die in California!
If you die and don’t name a beneficiary on your California home, it will have to endure probate. Probate is an expensive Court process that can cost up to $30,000 of your home. This is subtracted from your estate and does not go to your children or grandchildren (beneficiaries).
Besides $30,000, there are 2 other problems with Probate:
- Very time consuming because it can take up to 2 years
- Every private matter of your family is made public
Yuck!
Traditionally, a living trust was set up to avoid probate.
Now, on January 1, 2016, there may be another option. California Assembly 139 or AB 139 as it is commonly known, allows Californians to name a beneficiary on a new legal document created called the Transfer on Death Deed TOD (also known as the Transfer on Death Beneficiary Deed).
Unfortunately, there is a tiny window to do this as the law expires five years later on January 1, 2021.
Over 20 states already have a similar process, including neighboring Nevada.
To do this, you will need the help of a legal professional to prepare this rather complicated form. You can simply name your child (beneficiary) right on the form. The form will have to be recorded within 60 days from execution, otherwise it is void.
But what happens if the beneficiary dies before you?
The California transfer on death deed is worthless!
It’s also useless if you have taken title as joint tenants or as community property with right of survivorship because title is passed to the surviving person automatically and before the new transfer deed kicks in.
Essentially, a living trust is a far superior document because it allows you to do a number of things the TOD deed cannot:
- Name contingent beneficiaries,
- Stage distributions to minor children,
- Name a health care agent,
- Name a guardian
- Name a conservator.
Let examine staged distributions. With a living trust, as opposed to a TOD deed, you could leave your money to your children in stages or phases so they don’t blow it all at once. For instance:
- 25% of the money to them after they graduate(you can even put a grade-point average stipulation on this)
- 25% when they get married turn age 30
- 25% when they buy their first home
- The balance of the distributions at age 35
Of course, this is just an example. You can configure your living trust distributions anyway you desire. Unfortunately, the new transfer beneficiary deed does not permit that.
Contingent beneficiaries allow you to leave you money to alternates in case the first person dies. This to me, this is another major problem with the new deed law.
For instance, with a living trust, as opposed to beneficiary deed, you could:
- Leave your estate to Jack and Jill, your two kids.
- If Jack died, then the money could go to Jack’s kids.(with a TOD deed, the money will go to Jill only).
- If Jack and Jill died, it could be a college fund or staged distributions like the example above.
Since the new CA AB139 transfer on death beneficiary form is the same price as a living trust, be sure to compare them.
If you have two weeks to live and one child, the TOD deed may be the quickest way to go, but in almost every other scenario it lacks what people need.