Beneficiary deed

What is a Beneficiary Deed?

Most deeds transfer property right now. A beneficiary deed, also known an a transfer on death deed, does just what its name implies – transfers the property to a beneficiary only upon the owner’s death.

While living, the owner still has complete control over their property and can alter or revoke the beneficiary deed at any time. They can also sell the property, which has the effect of revoking the beneficiary deed. They can change their mind and leave the property to a new beneficiary by simply recording a new Beneficiary Deed. The document is typically one to two pages long and can be fairly simple to prepare. It must be recorded by the County Recorder before the owner’s death in order to be valid.

Who Is a Good Candidate for Creating a Beneficiary Deed?

While a beneficiary deed is not as flexible as a living trust, it is a valuable tool to transfer property to specific beneficiaries. Generally, good candidates for beneficiary deeds include property owners who:

    • Are unmarried or single
    • Agree on designated beneficiaries
    • Do not hold property or other debts
    • Do not have a will and want to bypass Arizona’s intestate succession laws

Beneficiary deeds may not be suitable for:

    • Owners of properties with joint tenants. If each owner designates their own beneficiary, then the waters can get muddy.
    • Owners who want minor children to receive a property
    • Owners who want special needs or irresponsible beneficiaries to receive a property
    • Owners who want to leave a property to multiple beneficiaries

Benefits of a Beneficiary Deed:

Avoiding probate: Property passed to another individual through a beneficiary deed skips the probate process and passes directly to the beneficiary.

Quickly transfer property: After the death of the grantor, it is relatively easy to transfer the property to the beneficiary or beneficiaries.

Stay in control: With a beneficiary deed, you continue to control your property until you die. You still have the power to sell, rent, alter, and mortgage the property as you wish.
A beneficiary deed can be changed or withdrawn at any time. If the property owner changes their mind, they can record a new Beneficiary Deed which will replace the old one.

Tax benefits: A beneficiary deed does not transfer ownership of a property to the beneficiary until the owner passes away. Therefore, the owner can continue to qualify for local tax benefits like the homestead exemption. Since the property is not transferred until death, it is not considered a gift. When a property in inherited at death, it can result in significantly lower capital gains tax for the beneficiary. This could save the beneficiary tens of thousands of dollars.

Cons of a Beneficiary Deed:

    • Minor beneficiaries. A beneficiary deed should not be used to leave property to minor children.
    • Joint owners: If the Property is jointly owned, the beneficiary deed becomes effective on the date of the last owner’s death and can be changed until that time.
    • No asset protection. The beneficiary receives the property without protection from creditors, divorces, and lawsuits.
    • Medicaid eligibility. Your ability to get Medicaid may be affected.
    • No automatic transfer. If your beneficiary dies before you, the property is not part of his or her estate.
    • 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.

Requirements for Arizona Beneficiary Deeds

For a beneficiary deed to be considered valid and enforceable, the deed must:

    • Comply with Arizona law
    • Be signed before a notary public
    • Be recorded with the County Recorder where the property is located before your death