What is a Transfer on Death Deed in California?
A California Transfer on Death Deed (TOD) allows homeowners to name a beneficiary who will inherit their real estate upon their death—without the need for probate. This estate planning tool, governed by California Probate Code §§ 5600–5698, is designed to be a simpler alternative to a living trust for passing down property.
At first glance, a TOD seems like an easy way to avoid probate. But what many homeowners don’t realize is that TODs come with serious risks, the worst of which is that title insurance companies may refuse to insure the property for up to three years after the owner’s death.
This issue—often called the “3-Year Problem“—can make it impossible for beneficiaries to sell, refinance, or transferthe property, creating the exact legal nightmare the TOD was meant to avoid.
The “3-Year Problem” with TOD Deeds: Why Your Heirs May Be Unable to Sell
Most people assume that when they pass away, their TOD beneficiary can immediately take ownership and sell the home. But due to title insurance rules and California law, that’s often not the case.
Why Do Title Companies Refuse to Insure TOD Properties?
For a real estate transaction to move forward, title insurance is required to protect the buyer and lender from ownership disputes. However, title companies in California frequently refuse to insure properties transferred via TOD for three years.
1. California Law Allows TOD Challenges for 3 Years
Under California Probate Code § 5696, a TOD deed can be challenged in court for up to three years after the owner’s death.
🚩 Why this is a problem:
- If an excluded heir or family member claims the TOD was signed under fraud, undue influence, or lack of capacity, they can sue to overturn the deed.
- Because of this risk, title companies won’t insure a TOD home until the challenge period expires.
2. The 120-Day Waiting Period Adds to Delays
Under California Probate Code § 5681, after the property owner dies, the beneficiary must wait 120 days before they can formally take ownership.
🚩 During this time:
- Creditors and other heirs can contest the TOD in court.
- The beneficiary cannot sell, refinance, or take out a home equity loan.
Even after this period ends, the 3-year challenge window means title companies still won’t insure the property.
3. Creditors Can Block the Sale of TOD Properties
A TOD property does not protect against creditor claims like a living trust does. If the deceased had unpaid debts, creditors can file a claim against the property for up to a year after death.
🚩 How this creates problems for your heirs:
- A medical bill, credit card debt, or unpaid tax lien could result in a lien against the home.
- If a title company insures a TOD property before all debts are cleared, they risk legal liability—so they often refuse to insure TOD homes at all.
4. Title Defects Can Make a TOD Property Unsellable
When the TOD beneficiary inherits the home, they must file an Affidavit of Death with the county recorder’s office to update the title. However, if there are any errors, missing paperwork, or competing claims, title defects arise that prevent a clean sale.
🚩 Title insurance companies may refuse to issue a policy if:
- The property title is not clear and undisputed.
- There are multiple heirs or disputes over ownership.
- The deceased’s estate has unresolved financial obligations.
Because TOD properties are frequently contested, delayed, or tied up in legal battles, many title companies will not insure them until three years have passed.
Why a Living Trust is the Best Alternative to a TOD in California
A revocable living trust allows homeowners to pass their property to their heirs without probate, but without the risks and delays of a TOD.
Key Benefits of a Living Trust Over a TOD Deed
✅ Immediate Control After Death – The successor trustee can take over and sell the property immediately with no waiting period.
✅ No 3-Year Legal Challenges – Unlike a TOD, a living trust does not have a three-year contestability period.
✅ Title Insurance Companies Favor Trust Transfers – Trusts provide a clear chain of ownership, making them easier to insure and sell.
✅ Creditor Protection – A trust keeps the home out of probate, protecting it from certain creditor claims and estate debts.
✅ Smooth Estate Planning – A properly structured trust avoids family disputes, legal challenges, and court intervention.
Bottom Line: If you want to ensure your heirs can inherit, sell, or refinance your home without getting stuck for three years, a living trust is the best choice.
Final Thoughts: A TOD Might Seem Easy, But It Can Cause Years of Problems
A Transfer on Death Deed might look like a simple way to avoid probate, but in reality, it can create years of legal issues, title insurance problems, and financial headaches for your heirs.
💡 If you want to ensure a smooth transfer of your home, protect your heirs, and avoid costly delays, a living trust is the best estate planning tool in California.
Avoid the 3-Year TOD Problem. Plan Your Estate the Right Way.
👉 Thinking about your estate plan? Let’s make sure your family is protected. Schedule a Life & Legacy Planning Session today!