Fleming & Curti, P.L.C. - Free Beneficiary Deeds! (Did We Get Your Attention Yet?)

SEPTEMBER 14, 2009 VOLUME 16, NUMBER 54

Free Beneficiary Deeds! (Did We Get Your Attention Yet?)

In 2001 Arizona became the second state in the nation to permit the use of a “beneficiary deed” to transfer real estate on death. We first wrote about the concept after the legislature acted but before the bill even became effective (and again a week later in an explanatory Q&A article). In the ensuing years, “beneficiary deed” has remained one of the most popular search phrases leading to our website. It is past time for us to explain the concept a little more thoroughly.

Beneficiary deeds are now available in about twelve states (the idea is spreading, albeit slowly, so as you read this there may be more states considering or recently adopting the concept). Sometimes called “transfer on death” deeds, the instruments work in Arkansas, Colorado, Kansas, Minnesota, Missouri, Montana, Nevada, New Mexico, Ohio, Oklahoma and Wisconsin — in addition, of course, to Arizona.

The availability of a beneficiary deed makes it relatively easy and inexpensive to transfer real property without the necessity of a probate proceeding after death. Beneficiary deeds can also be amended or revoked so long as any current property owner is still living, so they act very much like a sort of statutory mini-trust, without complicated terms or extensive documentation. They can make living trusts unnecessary for many people with estates below the estate tax limit (currently $3.5 million) and relatively uncomplicated plans.

How much does it cost to sign a beneficiary deed? It varies. Recommended language for Arizona property (NOTE: this language is Arizona specific — do not try to use it for another state without discussing it with a lawyer in that state) is set out in the statute, and can simply be put into any kind of deed. In other words, a “quit claim” or “warranty” deed can become a beneficiary deed by including the statutory language, and therefore the cost can be as little as the recording fee itself — usually less than $20 — plus the cost of a photocopy. Here is the language, lifted straight out of the statute:

Beneficiary Deed

I (we) _____________ (owner) hereby convey to __________ (grantee
beneficiary) effective on my (our) death the following
described real property:

(Legal description)

If a grantee beneficiary predeceases the owner, the
conveyance to that grantee beneficiary shall either (choose
one):

[ ] Become null and void.

[ ] Become part of the estate of the grantee beneficiary.

__________________________________
(Signature of grantor(s))

(acknowledgment)

(DID WE MENTION that this is Arizona-specific language, not to be used for other states?)

Forms are widely available on the internet and in stationery and office supply stores. Typically, a beneficiary deed kit might cost $25 to $50 (here is one advertised for $24.95 if you don't want a paper copy, $5 more if you do, and $150 if you ask the provider to fill it out for you) — remember that the deed must still be recorded, so that the total cost will be more like $50 to $75. We want to make clear, however, that we have not spent the money to purchase and review any of those deeds, so we are taking it on faith that they are adequate and appropriate.

If you hire a lawyer to prepare a beneficiary deed, you should expect to pay significantly more than those figures. Why should that be? Because the lawyer is charging not just for preparation of the document, but also to help you figure out if it is the right document for you. Expect the total cost through a lawyer to run anywhere from $250 to $1,000.

The real question — to a lawyer, anyway — is whether the beneficiary deed is really appropriate for you in the first place. Do you hate lawyers, and want to save every penny you possibly can? Go ahead and complete the free beneficiary deed, or the low-cost form providers' version, and it will probably work just fine in your circumstance. Do you want to save your heirs as much aggravation as possible, and reduce the total cost of transferring your estate (including costs incurred after your death) while maximizing the likelihood that your wishes will be carried out? Hire a lawyer, tell her everything about your estate, family and wishes, and take her advice on how to accomplish your goals.

Who should consider a beneficiary deed, whether self-prepared or prepared by a lawyer? Someone worth less than the estate tax limit (currently $3.5 million, as we noted above) and relatively uncomplicated distribution plans. Here are some of the conditions that make an estate plan "complicated" in the eyes of a competent lawyer:

More than, say, three estate beneficiaries (this number might vary, depending on family circumstances)
Plans for unequal distribution (for example, you plan on leaving 40% of your estate to one child, and 30% each to the other two)
Plans for specific properties to be distributed to individual beneficiaries (for example, you plan on leaving your home to one child, and an equivalent amount of cash to the other one to equalize that gift)
A recipient with a disability, or one who is a minor
Children who, though they will receive everything equally, don't get along well
Multiple pieces of real estate — especially if one or more are in another state
Intentions to make some or all of your gifts conditional (for example, a wish to limit recipients as to how they might use the property, or when they will be permitted to possess it)
A desire to take advantage of the "asset protection" value of trust planning for your children (for example, you might want to limit your daughter's creditors, or husband, from having access to her inheritance)

It is true that some of those conditions can actually be accommodated in a beneficiary deed, but doing so is probably tricky and may involve more than you can do by yourself. If any of those complications apply to you, we strongly suggest you invest in good legal advice to make sure you accomplish your actual wishes (and needs).

Want more information about beneficiary deeds in Arizona? We know of one fellow Arizona attorney's website that we think gives valuable and accurate information. We also might suggest — recognizing that it is in our self interest to do so — that you pay a consultation fee to discuss the beneficiary deed, a possible living trust, and estate planning generally with a qualified estate planning attorney.