For many clients, one of the major goals of estate planning is to avoid probate. There are several ways to do this. One is to put everything in a trust. Another is to put beneficiary designations on all of your assets. But, what about those assets you can’t put beneficiary designations on? Let’s say… a house? Arizona has a solution for that. The beneficiary deed.
What is a beneficiary deed?
A beneficiary deed is a deed that transfers title of real property to a beneficiary automatically on the death of the property owner. The deed itself is executed by the property owner during their lifetime and includes relevant information like, the grantor, the grantee, a legal description of the property and more. Once it is executed by the grantor, it’s recorded with the county recorder’s office.
The Good
There are a lot of good things about beneficiary deeds. The first is that they can be a great tool to avoid a probate for Arizona real estate. Property transferred by a beneficiary deed is not subject to probate.
Second, beneficiary deeds offer a lot of flexibility. Even after the beneficiary deed is executed and recorded, it doesn’t give the beneficiary any interest in the property until after the death of the grantor. The grantor still owns the property and can still sell it without any consent or consultation with the beneficiary. The grantor can also revoke or amend the beneficiary deed during their lifetime.
The Bad
As with any estate planning, document, there are also downsides to executing a beneficiary deed. For starters, because beneficiary deeds are recorded with the county’s recorders office, they don’t offer a whole lot of privacy. In Pima County, anyone can go to the recorder’s office website and look up a property to see if there is a beneficiary deed on it. They can even download the deed and see who the beneficiary is.
Another downside? Beneficiary deeds aren’t available everywhere. Let’s say that you have a property in Arizona another home in another state somewhere else. Sure, you can do a beneficiary deed for your Arizona real estate, but you might not be able to do one in the other states where you own property, thus exposing your estate to probate.
The Ugly
Beneficiary deeds also aren’t appropriate for every circumstance. They may avoid probate, but create some really ugly outcomes for the beneficairies.
Here’s a scenario for you- a client has one checking account with a beneficiary designation, one investment account with a beneficiary designation and a house. Their goal is to divide everything equally between their 8 kids. They don’t want to do a trust but they do want to avoid probate. They were able to name all eight children in equal shares on their bank and investment accounts. They can just name all eight of their children on their beneficiary deed too, right?
They can, but it doesn’t mean they should. If all of the kids are joint owners, they all have to agree on what should happen to the property. What if one wants to sell and the others don’t? What if the house needs a new roof? Will they all agree? Can they all afford to contribute? What if one of them is living in the house? Will the others be able to boot him out? Who is going to step up to clean out the house? Hire a real estate agent? Put the house on the market?
Answering these questions is hard, especially when beneficiaries may be in different financial situations, or have different levels of capability to handle these sorts of tasks. Naming multiple beneficiaries on a beneficiary deed may sound like a good way to make sure everyone gets their fair share, but in reality, it’s inviting conflict. And it can get ugly.
Want to avoid a mess? If you’re thinking about using a beneficiary deed to transfer your Arizona real property on your death, talk to an attorney first.
