AB 288: The impact on California probate

On July 13, 2023, Gov. Gavin Newsom signed Assembly Bill 288 into law, amending California Probate Code Sections 5610, 5614, 5642, 5652, and 5660. These Sections set the rules regarding revocable transfer on death deeds (“TOD Deeds”). The bill authorizes a new addition to the Probate Code, Section 5614.5. Despite being overlooked by many attorneys, these changes could have a substantial impact on California estate planning and probate litigation.

TOD Deeds allow individuals to transfer real property to beneficiaries without going through probate or preparing a trust agreement. Upon the transferor’s death, the real property passes to the named beneficiary listed on the TOD Deed. Probate Code Section 5642 provides a template form with required language for a valid TOD Deed.

AB 288 broadens the scope of TOD Deeds to transfer real property even if that property is not typically transferred by this type of deed. Previously, the law prohibited an interest in a stock collective from being transferred by TOD Deed. However, as a result of AB 288, one can transfer an interest in a stock cooperative by a revocable TOD Deed. AB 288 provides guidance on the scenario in which a stock cooperative exercises an option to purchase property transferred by a TOD deed. Upon the transferor’s death, when the stock cooperative exercises the option, the property is transferred directly to the stock cooperative rather than to the TOD Deed beneficiary. Additionally, the purchase price for the property subject to the TOD Deed is paid directly to the beneficiary. The purchase price paid to the beneficiary is the fair market value of the property less any debt on the property at the time of the transferor’s death less any amount the transferor owed to the stock cooperative. (See Probate Code Section 5652)

Current law provides guidance if there is a conflict between a TOD deed and a subsequent document (such as a trust) over the same property. It is important to note whether the subsequent document is revocable or irrevocable. Under the old law, if the conflicting document was revocable and was prepared within 120 days of the TOD Deed, the TOD Deed would be the controlling document. If the conflicting document was irrevocable and was prepared within 120 days of the TOD Deed, the conflicting document was the controlling document. AB 288 reduces the time frame set forth above in Probate Code Section 5660 from 120 days to 60 days.

While AB 288 looks to address certain issues with TOD Deeds, questions remain about whether the changes will actually reduce disputes. Simplifying the transfer process with a TOD Deed can clarify property disputes, but also can result in increased chances of litigation if there is a conflicting document. Certainly, the reduced time frame set forth under Probate Code Section 5660 might decrease the number of purported “conflicting documents” presented in litigation. But only the passage of time will show the true impact of Assembly Bill 288 on probate litigation and estate planning.