The pros: This is by far the cheapest method for estate planning for any one who owns a home in California. Previously it was recommended that due to the high home prices in California, that it be placed in a revocable living trust, which typically cost thousands of dollars. However TODs costs hundreds of dollars or you could potentially do a TOD yourself.
Additionally, this is a great estate planning tool for people who for whatever reason do not have a joint tenant on their title (think separate property before marriage, or unmarried person, etc). When you have a joint tenant with right of survivorship on title (this is typical for married couples when the property is purchased during marriage), then the property automatically becomes 100% owned by the other joint tenant(s) upon death of the other owner. So if you and your spouse are joint tenants with right of survivorship, it wouldnt be recommended to do a TOD. However a TOD would likely be perfect for someone with one child, or if they had the property before marriage would want their spouse to receive it, but want to leave the spouse off of title in case of a divorce before death.
Another pro is that the TOD is revocable. So if you leave a property to your spouse for example, and then you divorce, you can change the TOD by revoking it completely, or by revoking the first one and naming a new beneficiary through a subsequently filed TOD.
The Cons:This is TEMPORARY legislation, or a test run. Although there are various other states that have a similar deed in place, California has not had one before. The legislature is allowing a trial period for these types of deeds until January 1, 2021; however all TODs that are recorded with the county before that date will remain in effect even if in 2021 the state decides to terminate TODs as an estate planning method.
Because these are new, many title companies will not guarantee the title transfer upon death. Why does that matter? If the title company wont guarantee the title and you plan on selling or refinancing the house, you likely will have to go to probate court to get an order transferring the home formally to the beneficiaries named in the TOD. If you have to go to probate court, then the TOD essentially had no purpose. Over time, this issue will likely be handled, but for now...it is up in the air.
Additionally, this can only be used for residential property that has less than 4 units. So if your parent's own an apartment building with more than 4 units, they would not use this to transfer title to you upon their death. Any type of commercial property, this does not apply to. Similarly, even a single family residence that has more than 40 acres of land, cannot use the TOD.
If you have more than one person you are leaving the property to, technically you can utilize the TOD, however if they are not in agreement as to what to do with the property it could lead to expensive litigation. If you had the property in a trust and specifically outlined what should happen to the property after you pass, then it is possible the arguments and litigation would be avoided.
TO DETERMINE IF A TOD IS RIGHT FOR YOU, CONTACT US TODAY: 510-999-7732