WHAT IS A BENEFICIARY DEED (TRANSFER ON DEATH DEED)?
A nonprobate device to transfer residential real property to a named beneficiary upon the owner's death. Like a will, no consideration is required and the beneficiary's acceptance is not required. Capacity to contract is required. Beneficiary deeds are revocable by recording a revocation, recording an absolute conveyance, or recording a subsequent beneficiary deed.
WHO IS A GOOD CANDIDATE FOR CREATING A BENEFICIARY DEED?
- Owner is unmarried or both owners are willing to sign.
- Property is owned free and clear and the owner has no other debt.
- The death beneficiary is a suitable candidate for an outright distribution of real property (not a minor, not a spendthrift, has not judgements against him or her or any pending litigation, not at risk of divorce, not drawing government benefits, etc.)
- The remainder of the owner's estate consists of real property with equity of less than $100,000 and/or personal property valued at less than $75,000.
WHAT GOALS ARE BENEFICIARY DEEDS INTENDED TO ACHIEVE?
- Transfer on death
- Avoid probate
- Cost effective (supposed to be Do It Yourself)
- Revocable
HOW DO TODs COMPARE TO OTHER TRANSFER ON DEATH DEVICES RE THE ABOVE GOALS?
|
GOAL |
TRANSFER ON DEATH |
AVOID PROBATE |
DIY |
REVOCABLE |
|
Will |
Yes |
No |
No |
Yes |
|
Inter Vivos Trust |
Yes |
Yes |
No |
Yes |
|
JTWRS or CPWRS |
Yes |
Yes |
No |
No |
|
TOD Deed |
Yes |
Yes |
Yes |
Yes |
A beneficiary deed allows for the avoidance of probate. Arizona allows for the transfer of real estate by affidavit if the equity of all the real property in the estate is not greater than $100,000. The use of a beneficiary deed to transfer real property will avoid the need for a probate proceeding in cases where the equity in the property is in excess of $100,000.
A beneficiary deed does not carry with it the disadvantages associated with adding someone as a joint tenant. Many aging parents are using the technique of adding their adult child or children as joint tenants to avoid a probate proceeding upon their death. However, this can result in unintended tax and other consequences. Should their child become involved in a lawsuit (divorce, tort action, or bankruptcy), the property on which that child's name has been added is subject to those proceedings.
A beneficiary deed is easily revoked. A beneficiary deed is easily revoked by the owner, or if there is more than one owner by any of the owners who executed the beneficiary deed, by executing and recording the revocation as provided by law in the office of the county recorder in the county in which the property is located.
A beneficiary deed is an effective tool for an unmarried person to transfer real property to his or her partner at death. Unmarried couples do not enjoy the benefits married couples have in the event the relationship ends, and it's often difficult to determine the property rights of those involved. Particularly in cases where property has been purchased solely with the assets of one party, it might be more appropriate to place one's partner on the deed as a beneficiary rather than a co-owner.
Lower fees. Using a beneficiary deed may reduce or eliminate fees for probating the estate or managing a trust.
Liens and loans. After a beneficiary deed is signed, grantors may still do what they want with the property, including selling it or mortgaging it. A beneficiary deed does not remove liens currently on the property when property is transferred to the heir.
HOW DO TODs COMPARE TO OTHER TRANSFER ON DEATH DEVICES ON OTHER CONSIDERATIONS?
|
GOAL |
STEP UP IN BASIS |
ANY PROPERTY |
NO EXPOSURE TO BENEFICIARY'S CREDITORS |
BENEFICIARY MAY NOT SELL OR ENCUMBER HIS/HER INTEREST |
CAN MAKE GIFTS OF UNEQUAL SHARES |
ANTI-LAPSE |
|
Will |
Yes |
Yes |
Yes |
Yes |
Yes |
Yes |
|
Inter Vivos Trust |
Yes |
Yes |
Yes |
Yes |
Yes |
Yes |
|
JTWRS |
Half |
No |
No |
No |
No |
n/a |
|
CPWRS |
Yes |
No |
No |
No |
No |
n/a |
|
TOD Deed |
Yes |
No |
Yes |
Yes |
No |
No |
OTHER DISADVANTAGES OF BENEFICIARY DEEDS
- A little too easy to trick vulnerable seniors due to nature and simplicity of device.
- Testamentary capacity insufficient. Must have the (higher) capacity to contract. This can be a problem if the grantor's capacity is diminished.
- Likely to create more litigation, some say.
- Potential conflicts with other estate planning devices.
- Cannot be revoked by will.
- Must be recorded prior to death.
- Law makes the death beneficiary personally liable to creditors of the decedent's estate, up to the equity in the property. The personal representative may make a restitution demand up to two after the decedent's death, possibly longer if there is extended litigation of creditors' claims.
- In the case of joint owners, the surviving owner can defeat the purpose of the beneficiary deed. In cases where there are joint owners of property, and they have executed and recorded a beneficiary deed, upon the death of the first joint owner to die, the surviving owner can revoke the beneficiary deed. It's for this reason that the use of a beneficiary deed might be problematic for couples with prior marriages and children from those prior marriages, as there is no provision in the statue for an irrevocable beneficiary designation.
- There is the possibility of conflict in the event multiple beneficiaries are named. In cases where multiple beneficiaries are named, there is the potential for disagreement as to how the property should be managed and whether the property should be kept in the first place or, alternatively, sold. The use of a revocable living trust might be the better alternative to manage these issues.
- There are issues with the use of a beneficiary deed when leaving property to minor children. Due to the numerous issues involved with leaving assets to minor children, a child's trust (either testamentary or living) should be named as the beneficiary of the beneficiary deed.
- There are possible estate tax issues when using a beneficiary deed to transfer property on one's death. Using a beneficiary deed to transfer property on one's death precludes the use of the property to fund a credit shelter trust, because the property does not pass into the trust until the death of the surviving spouse.
- No asset protection. The beneficiary receives the property without protection from creditors, divorces, and lawsuits.
- Incapacity not addressed. This type of transfer does not address or protect against your incapacity or disability. The property cannot be sold to pay for your care.
- Problems with beneficiaries. If your heirs are fiscally irresponsible, this type of deed allows them to sell or get a mortgage against the property immediately after your death.
Although extremely popular and an effective estate planning tool in some situations, due to the drawbacks, the use of a beneficiary deed is not recommended for every estate plan, and the advantages and disadvantages of using a beneficiary deed should be considered carefully before executing and recording one as part of one's estate plan.
FAQ'S
WHAT IF I NAME MORE THAN ONE BENEFICIARY? A beneficiary deed may designate multiple grantees who take title as joint tenants with right of survivorship, tenants in common, a husband and wife as community property or as community property with right of survivorship, or any other tenancy that is valid under the laws of this state. Unless the beneficiary deed provides otherwise, the interest in real property conveyed by a beneficiary deed is the separate property of the named grantee beneficiary and is not community property.
CAN I NAME A TRUST AS A BENEFICIARY? Yes
WHAT IF A BENEFICIARY DIES BEFORE I DO? A beneficiary deed may designate a successor grantee beneficiary. If the beneficiary deed designates a successor grantee beneficiary, the deed shall state the condition on which the interest of the successor grantee beneficiary would vest. Unless the beneficiary deed provides otherwise, if there are no grantee beneficiaries named in the beneficiary deed who survive the owner, the beneficiary deed is void.
WHAT IS THE EFFECT OF A TOD DEED ON PROPERTY THAT I OWN AS JOINT TENANCY OR COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP? If both joint owners signed the beneficiary deed, the property will pass to the designated beneficiary upon the death of the survivor. If you are the only one who signed the beneficiary deed and you are the first joint tenant or spouse to die, the beneficiary deed is VOID and has no effect; the property will transfer to your joint tenant or surviving spouse and not according to the beneficiary deed. If you are the only one who signed the beneficiary deed and you are the last joint tenant or spouse to die, the beneficiary deed takes effect and controls the ownership of your property when you die.
DOES THE TOD DEED AFFECT MY ELIGIBILITY FOR MEDICAID? It should not affect eligibility.
AFTER MY DEATH, WILL MY REAL PROPERTY BE LIABLE FOR REIMBURSEMENT OF THE STATE FOR MEDI-CAL EXPENDITURES? The beneficiary of your beneficiary deed may be liable for reimbursement to the extent of the equity in the real property received.
AFTER MY DEATH, WILL MY REAL PROPERTY BE LIABLE TO PAY OTHER CREDITORS OF MY ESTATE? Yes. The executor or trustee can make a claim against the beneficiary of the beneficiary deed if the value the beneficiary received is needed to pay creditors. The beneficiary will not be able to breathe a sigh of relief until approximately two years after your date of death.
CAN A BENEFICIARY DEED BE RECORDED AFTER DEATH OF THE TRANSFEROR? No.
Comments
Robert Reply
Posted Jun 05, 2020 at 06:30:53
Is there a form available for after the owner has passed away to transfer the TOD to the beneficiary?
Nina Whitehurst Reply
Posted Jun 05, 2020 at 06:34:01
I would recommend an Affidavit of Death.
nancy Reply
Posted Jul 24, 2020 at 13:59:11
Is there a beneficiary deed form that is free and can be printed? I have searched the internet and I am not finding a form.
Nina Whitehurst Reply
Posted Jul 24, 2020 at 14:10:09
I am not aware of there being a form on the internet. Even if there were, I would recommend that you hire an attorney to assist you. For most people, real estate is one of their most valuable assets. It is worth spending a few hundred dollars with an attorney to make sure it is done right and, more importantly, to ensure that a beneficiary deed is the best choice for you.
Sean Reply
Posted Aug 05, 2020 at 10:53:22
As a couple, when one spouse dies, would this activate the TOD Deed for the house to go to the beneficiary? Or would the TOD deed for a couple be triggered once both spouses have passed away?
Nina Whitehurst Reply
Posted Aug 05, 2020 at 11:14:26
The answer depends on how title is held by the couple. In the case of a couple that owns a joint tenants with right of survivorship or community property with right of survivorship, both of which are very common, no, all the death of the first owner does is trigger ownership in the survivor; it does not activate the TOD. The surviving owner can then defeat the purpose of the beneficiary deed. In cases where there are joint owners of property, and they have executed and recorded a beneficiary deed, upon the death of the first joint owner to die, the surviving owner can revoke the beneficiary deed. It’s for this reason that the use of a beneficiary deed might be problematic for couples with prior marriages and children from those prior marriages, as there is no provision in the statue for an irrevocable beneficiary designation.
Christen Reply
Posted Nov 25, 2020 at 11:45:54
If the beneficiary deed gets notarized but doesn’t get recorded before death (AZ) could it still be considered their wishes and be used after probate to determine who gets property?
Nina Whitehurst Reply
Posted Nov 25, 2020 at 11:48:10
The legal heirs to an estate can all get together and agree to do whatever they want. Before doing that, however, you should hire an attorney to help you with a family settlement agreement and give advice as to tax and other implications.
Karen Whitaker Reply
Posted Dec 27, 2020 at 13:10:01
How do you know if there is a TOD on property?
Nina Whitehurst Reply
Posted Dec 27, 2020 at 13:50:30
You would need to do a title search. Any title company can help you with this as can most real estate attorneys. Or you can go to the county recorder’s office and try to search the title yourself.
Sofia E. Reply
Posted Jan 15, 2021 at 16:28:18
Is there a way to have the beneficiaries who’s are listed on the Beneficiary Deed transfer ownership to the estate? If there is a will in place designating an Executor to manage the deceased’s assets could they sign over their ownership of the property back to estate for someone else to manage?
Nina Whitehurst Reply
Posted Jan 16, 2021 at 09:11:56
That would be a very odd thing to do because the whole purpose of Beneficiary Deeds in Arizona is to avoid probate. If you WANT probate, then use a last will and testament.
If you are asking whether you can force the beneficiary under a Beneficiary Deed to transfer the property to the estate, then I would say most likely no, but a full consultation would be needed to analyze that. There would have to be some really powerful evidence to show that was what the grantor intended. Just the fact that there is a Beneficiary Deed in place would be strong evidence against that.
If you are asking if the beneficiary under a Beneficiary Deed could voluntarily transfer the property to the grantor/decedent’s estate, then I would again say a full consultation would be needed to determine what would be the best way to accomplish that. I would need to see the Beneficiary Deed itself, the decedent’s last will and testament, and other things.
Johnny Sayegh Reply
Posted Jan 18, 2021 at 00:23:08
My mom passed away recently and we recorded her benificiary deed. She left the house to me and my sister. Does that also include her car and other assets? Or is it just the house. My brother took her car that belongs to the house. It is paid for and the house doesn’t have a mortgage. Can he take the car or does it belong to us as well.
Nina Whitehurst Reply
Posted Jan 18, 2021 at 07:17:41
An Arizona beneficiary deed, if prepared and recorded property, only transfers the real estate described therein. It does not transfer motor vehicles or other personal property, whether or not located inside the house.
To be valid, the beneficiary deed must have been recorded BEFORE the grantor’s death. The statute is very clear on this.
Tony Pagano Reply
Posted Feb 10, 2021 at 09:19:58
What struck me as odd was the the section that described other disadvantages of (TOD) beneficiary deeds section #2 which reads – Incapacity Not Addressed. This type of transfer does not address or protect against your incapacity or disability. The property cannot be sold to pay for your care.
I guess this section is unclear for a couple of reasons. # 1. If this instrument is revocable, then the TOD arrangement should be able to be terminated, as per my understanding. #2 – It unclear of why the property cannot be sold (for any reason) thus that should terminate the property’s TOD automatically, as the beneficiaries are not legal owners at the time of sale. Correct?
Can you provide me clarity on this subject, as if it is correct, this is a big disadvantage over putting the property in a Trust – I think.
Nina Whitehurst Reply
Posted Feb 16, 2021 at 08:22:42
A beneficiary/transfer on death deed is a will substitute. It serves to transfer title upon the death of the maker/grantor. The problem with both wills and beneficiary deeds is they do not provide any mechanism for managing the property while you are still alive but incapacitated. A trust is better for that because it can both designate who gets what when you die but also designate who has the authority to manage your assets while you are still alive but incapacitated. That is why this is listed as a disadvantage of beneficiary deeds.
Randi R. Reply
Posted Mar 07, 2021 at 19:49:19
In 2018 my friend created a beneficiary deed for real property. It was signed and notarized but not recorded. I didn’t think she was going to pass anytime soon. Then she prepared another beneficiary deed to someone else and it was recorded before her death this year. Is my deed invalid? Should I record my deed now or throw it away. The second deed I believe was under duress.
Kenny Crenshaw Reply
Posted Mar 18, 2021 at 13:00:56
My aunt passed away a couple of months ago. She named me as trustee of her trust. Her caregiver says my aunt gave her a beneficiary deed to her home that she owned free and clear just prior to her death (within 2 weeks). The BD is not registered in Maricopa County. Is the document she has valid?
Nina Whitehurst Reply
Posted Mar 20, 2021 at 06:43:19
It is not possible to provide an answer to your question without reviewing the document in question and obtaining more facts. Please call our office to schedule a consultation.
Nina Whitehurst Reply
Posted Mar 22, 2021 at 10:42:09
It is not possible to provide an answer to your question without reviewing the document in question and obtaining more facts. Please call our office to schedule a consultation.
Nina Whitehurst Reply
Posted Mar 25, 2021 at 07:45:31
Randi., I cannot give legal advice over the internet. Please call our office to schedule a personal consultation.
Damion Reply
Posted Jun 16, 2021 at 14:24:29
Is a BD a useful mechanism to postpone any capital gains for a surviving spouse that was not on the title of real property?
I understand the probate benefit although in this case, there will be a surviving spouse and no family members will contest ownership of the property.
Nina Whitehurst Reply
Posted Jun 16, 2021 at 14:29:52
At the present time (June 16, 2021), assets in a decedent’s estate (including non-probate assets) get a step up (or down) in basis to fair market value as of the date of death. If the surviving spouse inherits the asset and then sells it a short time later, the only taxable gain would be the difference between the date of death value and the sale price, which in theory should be little to nothing.
However, the Democrats in Congress want to eliminate the step up in basis, in which case the heirs would have a lot of capital gains taxes to pay upon the sale of assets that have appreciated in value since the date the decedent purchased them.
Danielle Reply
Posted Aug 25, 2021 at 20:00:37
Is BD possible if someone has a mortgage? My mom wants me to have her house when she passes on so wondering if this is a good option for us.
Nina Whitehurst Reply
Posted Aug 26, 2021 at 06:12:57
The existence of a mortgage does not prevent one from making a beneficiary deed. However, whether that is a suitable estate planning technique for your mom is an entirely different question. The answer to that depends on a myriad of factors that can only be evaluated in a full consultation.
Jean Reply
Posted Sep 08, 2021 at 12:13:09
I filed a TOD BD several years ago. Since then my home has appreciated in value way beyond $100,000. Current value is around $320,000 maybe more. While the TOD BD still be valid on my death?
Nina Whitehurst Reply
Posted Sep 10, 2021 at 10:52:58
I cannot comment on the validity of your beneficiary deed because I was not involved in the preparation of it, but you should know that there is no dollar limit that applies to properties transferred by beneficiary deed. That is actually one of the advantages of Arizona beneficiary deeds.
MARY Reply
Posted Nov 16, 2021 at 14:48:04
I have a BD recorded in Maricopa Co, AZ. It puts my real estate property into my Living Trust. I’ve refinanced my mortgage since then. Is the BD still valid since I refinanced?
Nina Whitehurst Reply
Posted Nov 18, 2021 at 07:44:38
Refinancing does not impact a previously recorded beneficiary deed as long as the ownership did not change.
Sherri Jones Reply
Posted Dec 05, 2021 at 13:15:21
My spouse & I are homeowners in AZ. We have a beneficiary deed for our daughter living in Mesa. If one of us dies do we need to change ownership and do a new beneficiary deed?
Nina Whitehurst Reply
Posted Dec 06, 2021 at 06:13:08
The answer depends in part on how you two own the property now and whether the beneficiary deed was drawn up correctly. If you own as joint tenants with right of survivorship or as community property with right of survivorship, and if the beneficiary deed was drawn up correctly, you do not need to update it when one of you dies. I have no way of knowing whether the beneficiary deed was drawn up correctly without reviewing both the beneficiary deed and the latest vesting deed.
Patti Rose Reply
Posted Dec 26, 2021 at 12:50:14
Hello, and thanks for your time.
I’m in Arizona (me and hubby). How do we go about leaving our home (paid for, no mortgage) to charity, in the event my husband and I are no longer here. We’re only in our 60’s, so we hope to be around for many many more years. But wondering if we can Quit Claim our home or set it up to leave it to a Charitable Trust after we are both gone? (We have no family, so we’d like to leave our home to a charitable organization). Is there an easy form to complete, and I’m sure it has to be notarized. We do have investments, which name individual beneficiaries, but we’re concerned about our property. Thanks in advance for any info.
Heather Morrell Reply
Posted Jan 10, 2022 at 17:42:11
If a mortgage free home is in a trust and there are two beneficiaries, but one of them is interested in moving into the home, how would the second beneficiary get the money owed to them? Would the house be appraised and the one beneficiary take out a home equity loan to pay the other? Would there be tax implications to that?
Nina Whitehurst Reply
Posted Jan 10, 2022 at 18:32:59
The answer depends largely on the terms of the trust. It is impossible to answer your question without first reviewing the trust instrument.
Nina Whitehurst Reply
Posted Feb 12, 2022 at 03:08:13
An Arizona beneficiary deed would probably work well for you, but a full consultation would be required to determine that.
Don Gabrielson Reply
Posted Mar 09, 2022 at 12:31:09
In Arizona, if the grantor of a recorded BD winds up in long term care covered by Medicaid, can a TEFRA/Medicaid lien still attach to the property covered by the BD? If the answer is ‘no’, can the Legislature change that prior to the grantor’s death?
Nina Whitehurst Reply
Posted Mar 09, 2022 at 12:57:16
For personalized advice regarding your particular situation, please call our office to schedule a consultation.
John Chonka Reply
Posted Apr 05, 2022 at 16:01:00
In AZ can a beneficiary deed be used to transfer the property when there is a mortgage on it? Equity in the home would be approximately $400K
Nina Whitehurst Reply
Posted Apr 06, 2022 at 03:12:31
Yes. But the mortgage will remain and will need to be paid by the beneficiary.
Christy B Reply
Posted Apr 11, 2022 at 10:02:01
My father has a BD on his second home to be transferred to my brother and I. For the past few years, he’s rented it out to the same couple for a few months out of the year. Will this rental status affect the step up basis?
Nina Whitehurst Reply
Posted Apr 14, 2022 at 03:44:45
Step up in basis at death is not affected by the status of property as owner occupied or rental.
Nancy Mendoza Reply
Posted Apr 14, 2022 at 20:54:24
What is the best option to do a Will , BD or update the title right now still under my my parents names but he passed 4 yrs ago but my mom is worry what will happen with the house if she die. Thank you
Nina Whitehurst Reply
Posted Apr 28, 2022 at 03:38:46
Your mother needs to hire a probate attorney and an estate planning attorney to help her with this. This is not a do it yourself project.
Kandi Cook Reply
Posted Jun 10, 2022 at 11:38:25
If a man signs a beneficiary deed that only has a house address on it in Arizona & it is accepted and filed before he dies, and after death the recorders office sends a letter saying the deed has to included parcel numbers and suggest you file a correction = what do you do? Man has already died. Can we file a correction without his signature?
Nina Whitehurst Reply
Posted Jun 11, 2022 at 04:09:09
No, you cannot file a correction without his signature.
Frank Castro Reply
Posted Aug 08, 2022 at 10:37:05
Hi, My mother wants to leave a real state property in AZ via a TOD/Beneficiary Deed. I am married, we live in Arizona. Should the TOD/Beneficiary deed include both my name and my wife’s since AZ is a Community property state?
Thank you for your time
Nina Whitehurst Reply
Posted Aug 08, 2022 at 11:11:29
Frank, we cannot provide PERSONALIZED legal advice without a full consultation. Please call our office at 931-250-8585 to make an appointment for a personal consultation.
Shelly Reply
Posted Aug 12, 2022 at 14:06:22
Would a warranty deed transferring a property to a trust void a previously recorded BD?
Nina Whitehurst Reply
Posted Aug 12, 2022 at 14:11:57
Yes, any conveyance out of the name(s) of the grantor(s) of the beneficiary deed revokes the previous beneficiary deed.
Debra Allen Reply
Posted Aug 21, 2022 at 10:48:46
Are there tax implications for my daughters who will have a BD assigned to them upon my death? They have no desire to keep the house.
Nina Whitehurst Reply
Posted Aug 21, 2022 at 10:51:28
Debra, I could not possibly answer that question without a full consultation. Too much missing information.
James Huston Reply
Posted Aug 28, 2022 at 07:05:14
What is the process after the grantor is deceased? How does the deed transfer to the beneficiary?
Nina Whitehurst Reply
Posted Aug 28, 2022 at 07:19:02
The typical process involves recording an affidavit of death with a certified death certificate.
Patrick Reply
Posted Mar 16, 2023 at 11:25:17
Which option is better for the beneficiary. Just a house. In a trust or TOD? To avoid fees or taxes when inherited or to avoid debts and such
Nina Whitehurst Reply
Posted Mar 16, 2023 at 12:34:31
Patrick, your question cannot be answered without a full consultation. Individual facts and circumstances matter, both from the perspective of the homeowner and from the perspective of the beneficiary. Also, it is a VERY rare individual who owns a house and nothing else.
Mystic Tuba Reply
Posted May 25, 2023 at 11:51:34
Can I do a TOD for my paid-for house to a 501©(3)? I cannot find ANY example of how to do this online. All examples are leaving to people.
Nina Whitehurst Reply
Posted May 25, 2023 at 12:02:00
There is nothing in the statute to prevent a TOD to an entity as opposed to a natural person.
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