What You Should Know About Beneficiary Deeds
1. What is a Beneficiary Deed?
A Beneficiary Deed is a type of real estate transfer deed 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 is eliminated 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 owners dies. Probate only occurs 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 Phoenix. Parent wants her adult son to inherit the residence if she dies. Parent signs and records a Beneficiary Deed, effective upon Parent’s death, naming the adult son as beneficiary. When Parent dies, assuming she still owns the home, the adult son need only record a death certificate and the property is his.
During Parent’s lifetime the child has no rights to the property. Parent may sell the property without permission of the child. The deed may also be revoked by recording a Revocation of Beneficiary Deed in the county where the property is located.
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 or beneficiaries must assume the payments (in some cases) or qualify for a new loan in order to keep the property.
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 living trusts learn this can be a headache when they need to refinance a mortgage loan. Lenders and title companies often require the property to be transferred out of trust temporarily, and charge higher closing costs for the privilege. This annoyance can be avoided by leaving the property in personal name, but adding a Beneficiary Deed naming a living trust as beneficiary.
The drawback of this plan is reliance on a financial power of attorney for incapacity planning. Unfortunately, they are notorious for not working when they are needed most. Property titled in a living trust is almost guaranteed to avoid court involvement in the event of incapacity. Thus, real estate that is owned free and clear should be titled in the name of a living trust.
7. How much does a Beneficiary Deed cost?
An estate attorney may prepare a Beneficiary Deed for approximately $250 to $750. There will also be a nominal recording fee in the county where the property is located.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, 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 author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.
A Beneficiary Deed is a type of real estate transfer deed 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 is eliminated 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 owners dies. Probate only occurs 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 Phoenix. Parent wants her adult son to inherit the residence if she dies. Parent signs and records a Beneficiary Deed, effective upon Parent’s death, naming the adult son as beneficiary. When Parent dies, assuming she still owns the home, the adult son need only record a death certificate and the property is his.
During Parent’s lifetime the child has no rights to the property. Parent may sell the property without permission of the child. The deed may also be revoked by recording a Revocation of Beneficiary Deed in the county where the property is located.
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 or beneficiaries must assume the payments (in some cases) or qualify for a new loan in order to keep the property.
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 power of attorney, and consider titling the property in 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. For example, a Beneficiary Deed is not able to deal adequately with the possibility of minor, disabled, or irresponsible beneficiaries.
- Eliminates many planning options. For example, the property owner may wish to transfer the property into an asset-protected trust for benefit of the beneficiary, rather than grant outright ownership. Beneficiary-controlled inheritance trusts can provide substantial creditor and divorce protection, which a Beneficiary Deed cannot.
6. How can a Beneficiary Deed work in conjunction with a Living Trust?
Many people who place real estate into living trusts learn this can be a headache when they need to refinance a mortgage loan. Lenders and title companies often require the property to be transferred out of trust temporarily, and charge higher closing costs for the privilege. This annoyance can be avoided by leaving the property in personal name, but adding a Beneficiary Deed naming a living trust as beneficiary.
The drawback of this plan is reliance on a financial power of attorney for incapacity planning. Unfortunately, they are notorious for not working when they are needed most. Property titled in a living trust is almost guaranteed to avoid court involvement in the event of incapacity. Thus, real estate that is owned free and clear should be titled in the name of a living trust.
7. How much does a Beneficiary Deed cost?
An estate attorney may prepare a Beneficiary Deed for approximately $250 to $750. There will also be a nominal recording fee in the county where the property is located.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, 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 author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.