Beneficiary Deed
1. What is a Beneficiary Deed?
A Beneficiary Deed is a type of real estate transfer deed available for use in Arizona that takes effect upon the death of the property owner. It must be recorded in the county where the property is located while the property owner is still alive.
2. What are the advantages of using a Beneficiary Deed?
The primary reason for using a Beneficiary Deed is to avoid probate when the owner dies. Probate is the court-supervised process of transferring assets from a deceased person to the persons who inherit. The need for a probate action to transfer a property upon death may be negated if a Beneficiary Deed was recorded prior to the property owner’s death. It should be noted that property held as “joint tenants with right of survivorship” or “community property with right of survivorship” will not be subject to probate if one of the joint owners is still alive. The property would be subject to probate when the last remaining owner dies. Thus, it is possible to add a Beneficiary Deed to jointly owned property, but it would not be effective until the death of the last remaining owner.
3. How does a Beneficiary Deed work?
For example, Parent owns a primary residence in Tucson. Parent wants her adult son to inherit the residence if she dies. Parent signs and records a Beneficiary Deed in Pima County, effective upon Parent’s death, naming Son as beneficiary. When Parent dies, assuming she still owns the home, Son need only record a death certificate and the property is his.
During Parent’s lifetime Son has no ownership rights to the property. Parent will not need permission of Son to sell the residence. The deed may also be revoked by Parent by recording a revocation document.
4. What if the property has a mortgage lien?
A property owner may record a Beneficiary Deed even if the property is held subject to a mortgage lien. If the owner dies, and the property is still subject to the mortgage lien, the beneficiary has options: (1) sell the property and keep the net proceeds; (2) assume the mortgage payments, if related to the deceased owner; or (3) qualify for a new mortgage loan.
5. What are the disadvantages of using a Beneficiary Deed?
There are several arguments against the use of Beneficiary Deeds:
6. How can a Beneficiary Deed work in conjunction with a Living Trust?
Many people who place real estate into a revocable living trust discover later that refinancing a mortgage loan can be a hassle. To simplify refinance transactions, lenders sometimes require the property to be transferred out of trust temporarily. This hassle can be avoided by leaving the property deed in personal name but adding a Beneficiary Deed naming a revocable living trust as the beneficiary. This approach is worth considering when property owners are relatively confident that they will refinance the mortgage loan soon.
The drawback of this plan is how it relies on a financial durable power of attorney for incapacity planning. Unfortunately, financial durable powers of attorney are notorious for not being accepted by financial institutions when they are needed most. Therefore, it is better to move real estate into a revocable living trust because this eliminates the issue.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate administration, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is the author of the Arizona Estate Administration Answer Book and a prominent member of WealthCounsel, the nation’s premiere organization of estate planning attorneys.
A Beneficiary Deed is a type of real estate transfer deed available for use in Arizona that takes effect upon the death of the property owner. It must be recorded in the county where the property is located while the property owner is still alive.
2. What are the advantages of using a Beneficiary Deed?
The primary reason for using a Beneficiary Deed is to avoid probate when the owner dies. Probate is the court-supervised process of transferring assets from a deceased person to the persons who inherit. The need for a probate action to transfer a property upon death may be negated if a Beneficiary Deed was recorded prior to the property owner’s death. It should be noted that property held as “joint tenants with right of survivorship” or “community property with right of survivorship” will not be subject to probate if one of the joint owners is still alive. The property would be subject to probate when the last remaining owner dies. Thus, it is possible to add a Beneficiary Deed to jointly owned property, but it would not be effective until the death of the last remaining owner.
3. How does a Beneficiary Deed work?
For example, Parent owns a primary residence in Tucson. Parent wants her adult son to inherit the residence if she dies. Parent signs and records a Beneficiary Deed in Pima County, effective upon Parent’s death, naming Son as beneficiary. When Parent dies, assuming she still owns the home, Son need only record a death certificate and the property is his.
During Parent’s lifetime Son has no ownership rights to the property. Parent will not need permission of Son to sell the residence. The deed may also be revoked by Parent by recording a revocation document.
4. What if the property has a mortgage lien?
A property owner may record a Beneficiary Deed even if the property is held subject to a mortgage lien. If the owner dies, and the property is still subject to the mortgage lien, the beneficiary has options: (1) sell the property and keep the net proceeds; (2) assume the mortgage payments, if related to the deceased owner; or (3) qualify for a new mortgage loan.
5. What are the disadvantages of using a Beneficiary Deed?
There are several arguments against the use of Beneficiary Deeds:
- Fails to account for potential incapacity of owner. A Beneficiary Deed fails to address the possibility of the owner becoming incapacitated. For this reason, the owner should certainly have an up-to-date financial durable power of attorney and consider adding the property to a revocable living trust instead.
- Fails to deal with unusual situations. A Beneficiary Deed does not permit the level of customization sometimes needed for unusual or unexpected situations. A Beneficiary Deed always assumes outright inheritance to the beneficiary. There is no way to customize its provisions for a young child or in response to common contingencies such as when the named beneficiary is incapacitated or deceased.
- Eliminates many planning options. A Beneficiary Deed cannot be drafted to restrict or protect the inherited property. Again, this type of deed only permits outright inheritance.
6. How can a Beneficiary Deed work in conjunction with a Living Trust?
Many people who place real estate into a revocable living trust discover later that refinancing a mortgage loan can be a hassle. To simplify refinance transactions, lenders sometimes require the property to be transferred out of trust temporarily. This hassle can be avoided by leaving the property deed in personal name but adding a Beneficiary Deed naming a revocable living trust as the beneficiary. This approach is worth considering when property owners are relatively confident that they will refinance the mortgage loan soon.
The drawback of this plan is how it relies on a financial durable power of attorney for incapacity planning. Unfortunately, financial durable powers of attorney are notorious for not being accepted by financial institutions when they are needed most. Therefore, it is better to move real estate into a revocable living trust because this eliminates the issue.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate administration, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is the author of the Arizona Estate Administration Answer Book and a prominent member of WealthCounsel, the nation’s premiere organization of estate planning attorneys.