Several techniques can be used to avoid probate. One commonly-known technique that most people utilize to prevent bank accounts from becoming probate assets is the completion of a pay-on-death clause, which is the process of naming a beneficiary to a bank account, life insurance policy, 401(k), investment account, or other financial-institution account. A similar concept has recently come into existence for real estate – the beneficiary deed. The legislatures of nine states have officially enacted beneficiary deeds. Those states are: Arizona, Arkansas, Colorado, Kansas, Missouri, Nevada, New Mexico, Ohio, and Wisconsin. Although Arizona law has named this document a "beneficiary deed", it is known as a “transfer-on-
death deed” in many other states. This tool was signed into state law on April 11, 2001 – Arizona Revised Statutes § 33-405. An Arizona beneficiary deed is an important document because it allows for a smooth transfer of ownership without having to wait through a long probate process.
An owner of Arizona real property may sign a beneficiary deed and record it with any county recorder in the state. This will cause the signer's ownership interest in that land to be transferred to the people or entities named in the beneficiary deed. However, it is important to note that this transfer will only take place upon the owner's death. Even though the document is drafted, signed, and recorded during the life of the property owner, this transfer of ownership does not take effect until the death of the owner. The owner of the property is free to change or revoke the beneficiary deed at any time, simply by recording a revocation with the county recorder.
Benefits and Drawbacks
The obvious benefit to recording a beneficiary deed is that, if properly executed and recorded, your heirs avoid having to pass the land through probate after your death. Avoiding probate not only saves the cost of the probate, but it also saves time. The beneficiary of the property will not have to wait through the lengthy 4-month
creditor period to be able to transfer ownership, and the cost of an Arizona Beneficiary Deed is typically five hundred dollars, whereas probates typically cost several thousand dollars.
Executing an Arizona Beneficiary Deed is much simpler than creating and administering a trust. In a Living Trust, property must be conveyed by deed to the trustee of the Living Trust and the trustee must administer the property according to the terms and conditions of the trust agreement. With an Arizona Beneficiary Deed, the owner retains total control over the property throughout his or her lifetime. Also, signing and recording an Arizona Beneficiary Deed creates no gift tax liability because it is not a present transfer of property.
There are several drawbacks to think about when drafting an Arizona Beneficiary Deed. The first is that if the beneficiary of the property is a minor (under 18) at the time of the death of the property owner, the ownership interest will be left outright to that minor child unless the deed provides for that ownership interest to be left in a trust or to an adult for the child under Arizona Uniform Gift to Minors Act. Secondly, if a probate is opened, it limited creditors to four months after publication of the Notice to Creditors to make their claims to the estate. If a probate is not opened, creditors may have up to two years to make their claim for payment.
The Different Ownership Types
The owner of real property may name multiple beneficiaries, successor beneficiary(ies), or both. If there are multiple property owners, they can take their interests in any tenancy that is valid under Arizona law. Some examples of Arizona tenancy are joint tenants with right of survivorship, tenants in common, community property, or community property with right of survivorship.
Everyone’s individual situation and perspective on the probate process is different. An Arizona Beneficiary Deed is a relatively new and flexible asset in the options available to residents for their estate planning decisions.
|
