Automatic transfer on death

Automatic Transfer on Death: Arizona’s Beneficiary Deed

You know that you can name a beneficiary on your life insurance account, your bank and other financial accounts — even your car. Wouldn’t it be great if you could create an automatic transfer on death for your home? Oh, wait — in Arizona, at least, you can.

Arizona’s “beneficiary deed”

We’ve written about the beneficiary deed before. In fact, we’ve talked about it, and posted videos on our YouTube channel about it. And not much has changed since our last major posting on the subject (four years ago). But we still see confusion, and clients keep asking questions. That makes us think there’s an opportunity for education.

First of all, Arizona’s beneficiary deed concept is contained in a single statutory section — Arizona Revised Statutes sec. 33-405. It’s easy to see what rules govern this automatic transfer on death, and not too hard to figure out how to use the concept.

Before we tell you how to do it, let’s deal with “why.” Why would you want to sign such a document?

The primary reason to consider a beneficiary deed for Arizona property: probate avoidance. It’s easy to name a beneficiary on your life insurance, your bank or other financial account — even your car. So why not your home (or any other piece of real estate), too?

What could go wrong?

Let’s get this right up front: there are problems with beneficiary deeds in practice. You have seven children and they don’t get along very well? Why would you want to make them involuntary partners in managing, selling and splitting the proceeds from your real estate? You think you might get divorced? The beneficiary deed might not work the way you intended. Your beneficiaries are minor children? Please don’t transfer real estate to a minor.

Remember that we’re only discussing Arizona real estate here. Many other states have similar options for automatic transfer on death (or real estate). They might be called “revocable transfer on death” deeds, or something similar. In a handful of places, there is a common (and similar) technique that is often called the “Lady Bird” deed (it’s an odd name, with an obscure history). The idea is very similar. But we’re only writing about Arizona’s version, because, well, we don’t know about other state’s laws.

So now let’s review some of the important details about Arizona’s beneficiary deed:

Automatic transfer on death

This is what the law is all about, of course. A beneficiary deed conveys no current interest in the property, and is effective only on the death of the owner. In the case of multiple owners, the beneficiary deed will usually be effective only on the death of the last co-owner. And it does not wipe out any mortgage, lien or other encumbrance. If you owe money on your property, your beneficiaries will also owe money when they receive it.

Some people worry that signing a beneficiary deed will cause problems with an existing mortgage. It will not. That’s because the beneficiary deed isn’t even a transfer — until the signer dies. Even then there may be no problem with the mortgage holder — that’s the topic for our next newsletter, about something called the Garn St. Germain Depository Institutions Act. We bet you can hardly wait!

Multiple beneficiaries

You can name two or more people to receive your property. If you do, you will need to specify: do they take the property as joint tenants with right of survivorship, or as tenants in common, or as community property (with or without right of survivorship)? If you don’t specify, the recipients will probably be tenants in common. That means that if one of them dies after you do, and without any other planning, their share will go wherever their will says property goes. If they have no will, their fractional interest will go to their heirs at law — usually spouses and then descendants.

Alternate beneficiaries

But what if the beneficiary you name should die before you do? Your beneficiary deed can cover that eventuality. You can specify who would take in case a named beneficiary has died before you. You can even say that the property should go to their descendants, or their spouse, or someone completely different (like a charity, for instance). If you don’t specify, then a deceased beneficiary’s share just lapses — it doesn’t go anywhere, or in some circumstances it might go to the other people named in the beneficiary deed.

You can also name a trust as beneficiary on your beneficiary deed. We recommend doing that in some (but not most) cases, especially if there is concern about qualifying for tax benefits that require individual ownership.

When does it go to the beneficiary?

The beneficiary deed is only effective at your (the homeowner’s) death. When two or more joint tenants sign the beneficiary deed, it becomes effective only on the death of the last owner. If only one of several joint tenancy owners signs, the beneficiary deed never becomes effective unless the signer is the last to die.

When multiple owners are not joint tenants (or a married couple with right of survivorship), then the beneficiary deed becomes effective as to the signer’s share of the property at their death. For example, if you own a 50% interest as a tenant in common, the beneficiary named in your beneficiary deed becomes a 50% owner on your death.

Can I revoke my beneficiary deed, or change it?

Yes. The owner can revoke a beneficiary deed by recording the revocation. If the owner (or all the owners for joint tenancy property) sign a new beneficiary deed, it automatically revokes the old version.

Want to revoke your beneficiary deed? The statute tells you what a revocation should look like. Here’s the text of the statute:

Revocation of Beneficiary Deed

The undersigned hereby revokes the beneficiary deed recorded on ___________ (date), in docket or book __________ at page ________, or instrument number ____________, records of ________________ county, Arizona.

Dated: _______________________

______________________________

      Signature           

(acknowledgment)

Can I keep my beneficiary deed confidential?

No. The beneficiary deed must be recorded (with the County Recorder’s office) before your death. You can’t sign a beneficiary deed and then just leave it with your important papers — it will not be effective.

What if I sell my property?

When you sell property that has previously had a beneficiary deed, that invalidates the beneficiary designation. The beneficiary does not receive any share of the proceeds, and does not automatically become a beneficiary of either the proceeds or the next property you purchase.

OK — I want to do it. Where do I get the form?

The Arizona statute even includes a form. You can find it at the statutory link above. Here it is if you want to see what it looks like:

Beneficiary Deed

I (we) _________________________ (owner) hereby convey to _______________ (grantee beneficiary) effective on my (our) death the following described real property:

(Legal description)

If a grantee beneficiary predeceases the owner, the conveyance to that grantee beneficiary shall either (choose one):

[] Become null and void.

[] Become part of the estate of the grantee beneficiary.

_________________________

                               (Signature of grantor(s))

(acknowledgment)

Should you hire us to create the deed?

You’re in Arizona? Yes. Of course you should. But we’re going to let you in on a secret:

When you hire us, you’re not hiring us to prepare your beneficiary deed. You’re hiring us to review the positives and negatives, to coordinate your entire estate plan and to advise you about the best way to proceed. It’s not about the document preparation — it’s about the document selection and advice we give. That, and peace of mind.

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