Beneficiary Deeds

A great tool in Arizona for avoiding probate is a beneficiary deed. It works best if your main asset is your house and there isn’t a large amount of other property that is subject to probate. Real property with an equity over $75,000 might be probated if the property isn’t in a trust. Personal property over $50,000 is probated if it has no joint owners or a beneficiary designated.

A beneficiary deed is defined by A.R.S. 33-405 as "a deed that conveys an interest in real property, including any debt secured by a lien on real property, to a grantee beneficiary designated by the owner and that expressly states that the deed is effective on the death of the owner transfers the interest to the designated grantee beneficiary effective on the death of the owner subject to all conveyances, assignments, contracts, mortgages, deeds of trust, liens, security pledges and other encumbrances made by the owner or to which the owner was subject during the owner’s lifetime." An owner or owners can convey their property to their children, for example, effective upon their death. Any debt that is on the property goes with it.

The statute allows for multiple grantees who can take title as joint tenants with right of survivorship, tenants in common or a husband and wife as community property with right of survivorship. The type of tenancy determines what happens if one of the parties predeceases the original property owner. If two people are to receive the property as tenants in common and one predeceases the grantor(person giving the property), then the surviving party takes the property, but the party could be a co-owner with the predeceased person’s heirs. If two people who are to receive the property as joint tenants and one predecease the owner, then the surviving person takes the property alone. Thus, if you are going to name two children as beneficiaries, you have to decide what you want to happen if one predeceases you. Ideally, you should change your documents when an heir predeceases you while you are still alive, but this doesn’t always happen.

A beneficiary deed can name a successor grantee beneficiary. If one child dies, then their children can inherit, for example. The deed would have to state the condition on which the interest of the successor grantee beneficiary would vest, such as if the named parent predeceased the grantor and no siblings were available to inherit the property.

To have multiple beneficiaries assumes that would they be able to deal with each other in deciding how to handle to property. If two siblings are named as beneficiaries and they hate each other, it would defeat the purpose of the deed to avoid probate because they might end up in court disputing the disposition of the property. If a beneficiary unexpectedly becomes a co-owner with another relative because the grantees are tenants in common and the first beneficiary predeceased the grantor, then that could created disputes as well. So the dynamics of the potential beneficiaries as joint property owners is critical.

The advantage of a beneficiary deed is that it is revocable. It has to be recorded to be effective, but a recorded revocation will can be canceled if the owner changes his or her mind as to disposition. If there is more than one owner, it is revoked by any of the owners who executed the deed. If the real property is owned by joint tenants with right of survivorship or community property with right of survivorship and the revocation is not executed by the all the owners, then revocation is not effective unless executed by the last surviving owner.

A beneficiary deed will not replace a will, but it may be used instead of a trust to avoid probate, if a person’s other assets would not be probated. It has to be drafted carefully and recorded, so an attorney familiar with deeds and probate law should write it.

ARS 33-405