California offers various estate planning approaches for real property, including primary residences, vacation homes, rental properties and vacant lots. That is, the Transfer on Death (“TOD”) Deed, a Joint Tenancy or Community Property with Right of Survivorship Deed, a Life Estate Deed, a Will or a Trust. Which applies and is best suited depends on the situation. For reasons discussed below, the Living Trust is often the best choice.
The TOD Deed is limited, has significant drawbacks, but offers a simple, cost-effective option effective upon the transferor’s death. It is limited: The TOD applies to land with 1 to four residential units, but excludes real property exceeding 40 acres, and to condominiums; and a TOD deed allows you to name one or more equal beneficiaries (only) and does not allow alternative beneficiaries; if any of the beneficiaries predecease the transferor then any remaining named beneficiaries inherit all. Second, a TOD deed has serious drawbacks: All beneficiaries inherit equally; All beneficiaries inherit subject to any unpaid / unsecured debts owed by the transferor at death (often an unknown quantity); A TOD deed may be invalidated due to a preexisting joint tenancy deed or due to a competing deed filed within 60 days of when the TOD was recorded; and, very importantly, a title insurance company may decline to provide title insurance for up to three (3) years from the transferor’s death. A beneficiary is personally answerable for the decedent’s unsecured debts up to the net worth of the residence at the transferor’s death (i.e., gross value minus liens).
Joint Tenancy and Community Property with right of survivorship deeds mean that the surviving joint tenant(s) or surviving co-owning spouse, as relevant, inherit(s) the deceased co-owner’s entire interest outright by recording an affidavit and death certificate. Joint tenancy involves two or more equal co-owners during their lifetimes. Joint tenancy is not advisable except between spouses or domestic partners. Each co-owner, or their judgment creditor, can petition to force the sale of the co-owned property. It is not advisable to make one’s heirs (e.g., children) joint tenants due to possible adverse consequences to the transferor and the transferee. Community Property with Right of Survivorship is superior to Joint Tenancy due to income tax advantages for the surviving spouse.
A Life Estate deed is a transfer where the transferor gifts an interest in real property to one or more persons (i.e., remaindermen”) subject to retaining a reserved life estate for the transferor to live in and to rent the property while alive. This has its limitations and drawbacks. The life tenant cannot sell the property without the cooperation of the remaindermen who receive a percentage of the net sale proceeds equal to the present value of their interest. It may lead to a probate at the death of the life tenant if a remainderman predecease the life tenant without transferring their interest into a living trust.
A Will means a court petition at the owner’s death (unless another non probate approach is used). That is, either California’s new simplified Petition to Determine Succession to a Decedent’s Primary Residence interest (without probate) or a Petition for Probate administration. The new simplified petition is limited to primary residences only (worth less than $750,000) where the Decedent’s remaining probate assets collectively are worth less than the threshold for probate (e.g., under $208,850 for deaths after 4/1/2025). It is inapplicable to rental properties, vacation homes and vacant lots. A will, unlike the other foregoing options, can name alternative death beneficiaries.
A Living Trust unlike a Will avoids any court petition, whatsoever, and can provide more protections both for the transferor while alive (but not against the settlor’s own creditors) and for the trust beneficiaries (including against many creditors of the beneficiaries). Anyone who owns more than one piece of real property and wants to avoid probate will probably want to use a living trust to avoid probate.
The foregoing is not legal advice. If needing legal guidance regarding health care decision planning consult an estate planning attorney. Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.
