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Peter Robert Stone


Interpretations of AB 139: Transfer on Death Deeds (TOD)

Property Qualifications: The Transfer on Death Deed transfers “Real Property” on the death of its owner without a probate proceeding under specified rules. The definitions section of the bill defines “Real Property” to mean any of the following (1) a parcel of property that contains one to four residential dwelling units, (2) a condominium unit, or (3) a parcel of agricultural land of 40 acres or less, which contains a single-family residence. This essentially rules out being able to use this deed to transfer business property except maybe in certain situations discussed below. Below are interpretations of the bill regarding different types of properties:

Residential Housing Rental properties: As long as no more than four residential dwelling units are found on one single parcel, the property could be transferred by a TOD deed. Thus, if you have five or more residential rental units on the same parcel, they would not qualify.

Residential Home that is used as/for a business: There appears to be no restriction on homes that are also used as a business as long as the home is a residential dwelling unit. Further, there is no requirement that one live in the home, so even if the owner uses the residential home for business purposes only, the property would still qualify.

Condos: It is clear that one condominium unit qualifies as “Real Property”. A tricky question here is whether a single property containing four or less condos can qualify. The first option listed above would seem to allow for the property to qualify as the property would contain no more than four residential dwelling units. The second option seems to not allow for such a property to qualify as it refers to a singular condominium unit. However, because the bill states that “Real Property” means any of the following, the stronger argument would be that as long as one of the options is met, the property would qualify. Therefore, the best interpretation of this bill in regards to four or less condos on a single property is that such a property would qualify.

Apartment Complex: Would a small apartment complex of four units or less qualify? This seems like a similar situation to the one involving condos. The argument can be made that each unit is residential and that there is no more than four of them on a parcel. Further, the bill does not single out an apartment like is does one condo. The counterargument would be that the apartments are seen as a business property and that the bill was not intended to allow for transfer of apartment complexes. According to the definition provided for “Real Property” however, such a complex would seem to qualify. Thus, unless further clarification is put forth by the legislature, it appears that such a property would qualify.

Agricultural land: Agricultural land less than 40 acres can qualify, but only if the parcel contains a single-family residence. Could an owner of more than 40 acres of agricultural land subdivide his property into separate parcels in order to qualify? If each subdivided plot contained a single-family residence, then the answer would seem to be yes. But even if barns or storehouses could be modified to be single-family residences in order to qualify, the costs associated with such modifications or placements of single family residences on each 40 acre parcel would easily outweigh the cost of simply placing the property in a trust.