A new form of real estate transfer, the beneficiary deed, has, as I expected, become popular very quickly as a way to transfer real estate to a person’s successors without a probate and without the potential problems of using a joint tenancy deed. Because the Arizona Legislature recently clarified some details of the law, I decided that now would be a good time to revisit the subject and to discuss the use of a beneficiary deed for property with multiple owners and multiple beneficiaries.
The beneficiary deed does for real estate what the “payable on death” or “POD” designation does for a bank account. It allows the owner to designate a beneficiary for that asset and creates a method by which ownership of the asset will transfer directly to the beneficiary upon the owner’s death. It is not affected by the owner’s will, meaning that the property will pass to the designated beneficiary regardless of any contrary provision in the owner‘s will.
The difference between a beneficiary deed and joint tenancy is that with joint tenancy, all of the joint tenants (owners) have a present ownership interest in the property. With a beneficiary deed, the beneficiary has no ownership interest in the property until the present owner dies. This means that the owner retains complete control of the property while he or she is living, and the beneficiary has no control over the property until the owner dies.
Transfer of title upon the owner’s death is essentially the same under a beneficiary deed as under a joint tenancy deed. Recording the death certificate together with an affidavit reciting the contents and location of the deed confirms title to the surviving beneficiary. Also as with a joint tenancy deed, the transfer to the beneficiary is subject to all recorded liens.
A beneficiary deed can name one or multiple beneficiaries, and can be given by one owner or multiple owners. If there are multiple owners, all of them must sign the beneficiary deed in order to transfer the entire ownership of the property. If there are multiple beneficiaries, the title can pass to the beneficiaries in any legal form of ownership. Use of multiple beneficiaries is usually not optimum, however, for the simple reason that ownership of property by multiple individuals makes management and disposition of the property cumbersome. Use of a business entity or a trust is usually preferable if multiple individuals are to be the owners.
A beneficiary deed may also be used to transfer property to a trust. Ordinarily a person creating a revocable living trust transfers their property to the trust as soon as the trust is created, but there may be circumstances where a person would want to delay such a transfer until their death. Using a beneficiary deed under those circumstances would avoid the need for a probate transfer of the property.
The law creating the beneficiary deed became effective in August, 2001. A beneficiary deed will not be the right method for everyone, but it can be an effective way for property owners to pass property to their successors without the potential problems of joint tenancy or the need for a probate proceeding.