Define Beneficiary Deed
A beneficiary deed in Arizona is used to transfer real estate upon death to a specific person also known as beneficiary. These deeds can also be used to transfer real estate to more than one person, or a trust.
Uses of Beneficiary Deeds
Beneficiary deeds are a special kind of deed used in estate planning. These deeds do not give anyone else ownership in your property until your death. That means, if you own real estate and want to transfer it to your child upon your death, your child is the beneficiary listed on the beneficiary deed. Upon your death, all your child has to do is record your death certificate in the county where the real estate is located.
Benefits
Probate is avoided.
The property passes to the beneficiary immediately upon your death, without the hassle and cost of probate. Probate can be very expensive and take years to complete. Here, no court action is needed.
Creditors of your Beneficiary Can’t Hurt You.
The other key benefit is that your beneficiary has no ownership interest in the real estate while you are alive. So, if your beneficiary gets into financial trouble, that financial trouble can’t hurt you.
Simple to Create.
Beneficiary deeds are relatively simple to create however it is always better to have a lawyer help you. The lawyer helps you to avoid costly mistakes. The lawyer may also help you to choose the right beneficiary for the property.
You can change your mind.
Another key benefit is that you can always change your mind and cancel the beneficiary deed. Special legal language is required to make a change however. I call it ‘magic words’ which are spelled out in the statute. If the cancellation of the beneficiary deed is not done correctly, many bad things can happen.
Cautions
No substitute for estate planning.
Creation of a beneficiary deed is not a substitute for a well-designed estate plan, it is just one tool. Remember, the transfer to your beneficiary occurs at your death. What if you get very ill and need to sell the property to provide for your care? If you are very sick, you may not be able to sign the deed over to the new buyer. What then? The property cannot be sold without a court action which is worse than probate: a conservatorship.
Life happens and people change.
Estate planning is a process. It is never completed. When you prepare the beneficiary deed, you may really like the beneficiary you choose. However, over time, that beneficiary could die, you could have a falling out or might just change your mind. A well-designed estate plan allows you to change just one document. A beneficiary deed may require you to change the beneficiary and the rest of your estate plan.
Best Situations to use a Beneficiary Deed
Married Couple
The best reason to use a beneficiary deed is when you have a very simple estate plan, with more than enough investments to take care of you for the rest of your life. For example, let’s take a retired couple, with a home, and a large investment account. We have to make certain, that no matter what, the investment account, and social security and pensions will provide for them for the rest of their lives. A beneficiary deed to their children, or to their trust would allow them to avoid probate and to give the property to the right people on the second death. This couple would never need to sell the house while they were alive.
Widow or Widower
Once again, this tool is best used in a simple estate plan, as long as there are enough investments to provide for themselves for the rest of their days. A beneficiary deed would transfer the property to children, their trust, or other loved ones will avoid probate.
Bad Situations to use a Beneficiary Deed
A Single Mother
A single mother with young children should never use a beneficiary deed giving the house to the children or to a trusted family member. If the mother dies and the house transfers to minor children, a guardianship/conservatorship would have to be created for the children. This is a fate worse than probate. Also, when the youngest reaches age 18, the kids can sell the house, pocket the money and have no financial security.
A Retired Couple with a Question
A retired couple may not know, if they will have enough assets to last them the rest of both lives. In order to sell real estate if one or both of them is seriously ill, the property needs to be held either:
- In a Trust, which owns the property and the Successor Trust can sell the real estate.
- In a business or LLC where the next generation of managers can complete the sale.
In Conclusion
Beneficiary Deeds are very useful tools when combined with a rock-solid estate plan. You need to remember that bad things can happen to us at any time. Are you certain that your estate plan is rock solid?