Beneficiary Deeds – Potential & Problems

by Susan M. Ciupak and Joshua Forest, of Fennemore, Craig, P.C. (reprinted with permission of authors)

As of August 9, 2001, those wishing to pass real estate upon their deaths have a new option, the Beneficiary Deed. Through House Bill 2280, found prospectively in A.R.S. §33–405, the legislature has provided a means for conveying an interest in real property effective only upon the death of the grantor. Without giving up any present possessory or ownership rights (such as the property held in joint tenancy with right of survivorship (JTWRS) or community property with right of survivorship (CPWRS)), grantors can now make valid, revocable, testamentary transfers of property using the Beneficiary Deed. The grantor may convey a Beneficiary Deed to any lawful tenancy, entity, or trust (including revocable trusts). The Grantor may also transfer the property to be held as tenants in common, community property, or any other tenancy. Such designation, however, is not binding on the grantees and may be changed at will after the death of the grantor. The Beneficiary Deed was also adds as an additional exemption under A.R.S. § 11-1134, and thus an Affidavit of Value is not needed to record the Beneficiary Deed.

The grantor may convey a Beneficiary Deed even if the grantor holds less than complete ownership, or holds the property in JTWRS or as CPWRS with others. In the survivorship situation, the Beneficiary Deed will not take effect until the death of the last surviving owner. Further, in order for the transfer to be valid, all of the owners under the JTWRS or CPWRS must grant the Beneficiary Deed, or the grantor of the Beneficiary Deed must survive the other co-owners. Apparently, the grant of a Beneficiary Deed by a JTWRS or CPWRS property owner is to be treated as a provisional conveyance to take effect upon the grantor’s death in the event that the grantor is the surviving co-owner. Unlike other conveyances, it appears that the legislature did not intend for the grant of a Beneficiary Deed to destroy the existence of a JTWRS or CPWRS.

Essentially, there are only two requirements for conveying a Beneficiary Deed. First, the deed must he recorded and executed according to the laws of the official County recorders office. Second, the deed must specifically state that it is not to take effect until the death of the owner. The Beneficiary Deed may also be revoked at any time, so long as the revocation is recorded.. Any co-owner may revoke a Beneficiary Deed, however, all co-owners must revoke, if more than one has granted the Beneficiary Deed, to completely revoke all of the grantee’s contingent interest. According to House Bill 2280, if multiple Beneficiary Deeds are granted the last to be recorded controls. All Beneficiary Deeds and revocations must he recorded before the death of the last surviving grantor in order to be valid.

The Beneficiary Deed is not without its pitfalls or perils. Some of the anticipated problems that have been raised by title companies and real estate attorneys are

• It may not he clear to title researchers and others viewing the records that the interest does not exist until the grantor’s death.
• A Beneficiary Deed grantee nay be mistaken as a remainderman.
• Revocation by only one co-owner may leave uncertain the extent of the revocation.
• Revocation by a non-granting co-owner may cloud the grantee’s interest.
• Subsequent addition of a party as owner (for example, a second marriage) after granting of Beneficiary Deed, may call into question the grantee’s rights.
• There is no requirement of filing the death certificate or otherwise proving the death of the grantor.
• A potential conveyance of a Beneficiary Deed to unborn grantees brings into question the validity of entire transfer, who holds the property in the interim and the potential application of the Rule Against Perpetuities.
• There is potential uncertainty pertaining to whether the conveyance of Beneficiary Deed transforms a joint tenancy with right of survivorship into a tenancy in common.
• There is potential confusion concerning the delay or failure to record, and subsequent grants of Beneficiary Deeds.
• There is potential litigation concerning the subsequent recording of a prior grant of Beneficiary Deed, as the legislation provides that the last recorded grant prevails. the legislation provides that the last recorded grain prevails.
• Whether a foreclosing party must give notice of foreclosure to a grantee beneficiary.

Because of these and other potential complications, various title companies have stated that they will refuse to issue Beneficiary Deeds and that they will require owners to revoke Beneficiary Deeds before selling or refinancing the property:

So who is best suited to use a Beneficiary Deed? The Beneficiary Deed is most effective where there is only one owner of the property or all owners agree on who should be designated as beneficiary. If the grantors should wish to change the grantee, they should revoke any prior Beneficiary Deeds. Additionally, the deed is best used when the grantor does not anticipate refinancing or further mortgaging the real property. In short, Beneficiary Deeds are ideal for smaller estates wishing to avoid probate and associated costs; such as a single parent with a modest estate leaving the property to children at death. The Beneficiary Deed does not provide for posthumous control of the property, as would a trust, but does transfer ownership at death, in an uncomplicated manner. There may be a. relatively small niche best suited for the Beneficiary Deed, but it appears the Beneficiary Deed can be an effective, inexpensive estate planning tool when used correctly.