Beneficiary
Deed
A New Estate Planning Option for Smaller Estates
by
Susan C. Villarreal
As of August 9, 2001, Arizona has a new estate planning tool called the "Beneficiary Deed." With this deed, an owner of real property transfers title to a named beneficiary upon the owner's death. This is a significant change in the law for several reasons. Probate is avoided, the beneficiary's creditors do not obtain an interest in the property, and the owner can revoke the deed at any time if circumstances change.
In the past, property owners who could not afford a trust and who wanted to avoid probate were limited to joint tenancy with rights of survivorship ("JTWRS") or community property with rights of survivorship ("CPWRS") designations. While these designations avoided probate at the death of the first owner, they did not help the surviving owner. If nothing was done, the surviving owner's estate faced probate if the fair market value of the property was over $50,000. In contrast, the Beneficiary Deed passes title outside of probate to the beneficiary at the death of the surviving owner. This method is a simple and inexpensive way for smaller estates to dispose of generally their most significant asset, their home. Even if probate is required because of the estate's other assets, the Beneficiary Deed simplifies the process by keeping the real property out of the probate estate.
To be valid, the Beneficiary Deed must be recorded and must take effect only after the death of the owner. The owner retains complete control of the property during his or her lifetime and may revoke the Beneficiary Deed at any time. This means that the intended beneficiaries do not acquire an interest in the property until the death of the owner. This is important where the owner wants to avoid subjecting the property to attachment by a beneficiary's creditors or having it included in a beneficiary's divorce proceedings.
Another advantage of the Beneficiary Deed is that the owner can designate more than one beneficiary. In this case, the owner or owners decide how they want to convey title to their property depending on the particular circumstances. In addition to naming a single beneficiary, designations can be made to a trust or to multiple beneficiaries as joint tenants with right of survivorship, tenants in common, community property, community property with rights of survivorship or any other lawful tenancy.
Flexibility is the cornerstone of this new deed. For example, if the property is currently owned as JTWRS or CPWRS, the joint owners can use the Beneficiary Deed to convey title to another after they die. Upon the death of the last joint owner, the property is conveyed to their designated beneficiary. This conveyance is effective even if all of the joint owners did not sign the Beneficiary Deed. The last surviving owner, however, must be the person who signed the Beneficiary Deed. This option is especially helpful where the property is jointly owned with a disabled person.
For example, Robert and Mary hold title to their home as joint tenants with right of survivorship. They have their bank and brokerage accounts in "pay on death" and "in trust for" accounts. Their retirement accounts have designated primary and contingent beneficiaries. Their remaining personal assets are less than $50,000, but the value of their home is $80,000. Under these facts, the house is the only asset preventing Robert and Mary from avoiding the expense and delay of probate.
Robert and Mary have two adult children, Jack and Jill. Robert dies and Mary obtains title to their home by recording a certified copy of Robert's death certificate along with an affidavit terminating the joint tenancy. Mary wants her children to share the family home equally during their lifetimes so she executes and records a Beneficiary Deed naming Jack and Jill as the beneficiaries to the home as joint tenants with rights of survivorship. At Mary's death, Jack and Jill record an affidavit and a certified copy of Mary's death certificate in order to obtain title to the home. Jack and Jill can then do their own estate planning which might include another Beneficiary Deed on the home.
What if Robert has late stage Alzheimer's disease instead? While Robert is incompetent to execute any legal documents, Mary's hands are not tied. She can execute the Beneficiary Deed naming Jack and Jill as beneficiaries. In this situation, Mary is gambling that Robert will die before she does. If Mary fails to survive Robert, the Beneficiary Deed will be found invalid and the home will pass under Robert's will or by intestate succession if he dies without a will.
During their lifetimes, Robert and Mary retain control over their home and can sell it if the need arises. If Jack develops a gambling problem, Mary can revoke the Beneficiary Deed and record a new one naming Jill as the sole beneficiary or set up a spend thrift trust for Jack and name Jack's trust and Jill as the beneficiaries. The last recorded Beneficiary Deed controls the disposition of the property. As such, it is important that Mary not only prepare and sign any subsequent Beneficiary Deed, but that she record it as well.
Mary cannot use the Beneficiary Deed to avoid her own creditors. Arizona law allows creditors to go after nonprobate transfers if the probate assets are insufficient to pay the outstanding bills. If Mary dies with more debts than assets, the creditors could force Jack and Jill to sell the house to satisfy their mother's debts.
As with any estate planning tool, there are different consequences unique to each estate. Property owners need to review their particular situation in order to determine if the Beneficiary Deed is right for them. An attorney practicing in the area of estate planning can aid in this process so that the property owner makes an informed decision with the intended consequences. Certainly, Arizona has given property owners a flexible and inexpensive way to pass real estate upon death.
