Last year I alerted you to the creation of a new form of real estate transfer, the beneficiary deed. This form of transfer 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 I have been getting frequent questions about various possible uses of the beneficiary deed, 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. 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.
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.
For example, a husband and wife who own a residence as community property with right of survivorship and who have two children can by a beneficiary deed give the residence to the two children effective only when both parents are deceased. The beneficiary deed can specify that the beneficiaries (the children, in this example) shall own the property as joint tenants with right of survivorship or as tenants in common. A beneficiary deed could also name a husband and wife as beneficiaries and specify that they are to own the property as community property with right of survivorship.
A beneficiary deed may even 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 many people to pass property to their successors without the potential problems of joint tenancy or the need for a probate proceeding.