A beneficiary deed, also called a transfer on death (TOD) deed, can transfer real estate ownership outside of probate upon the grantor's death. A beneficiary deed can provide an alternative to a last will to pass real property to a beneficiary on the owner's death. As of 2020, over thirty states recognize beneficiary deeds. In Colorado, beneficiary deeds are a legitimate means to pass real property at death; the legal requirements for a beneficiary deed can be found in the Colorado Revised Statutes section 15-15-401 et seq.

HOW DO BENEFICIARY DEEDS WORK?

The owner must sign a new deed during his lifetime that states who should inherit the real estate after the owner's death. The deed must be signed, notarized, and recorded with the county clerk recorder’s office where the real estate is located. After signing and recording a beneficiary deed, the grantor remains the real estate owner during their lifetime. Even after recording, a beneficiary deed will not transfer the property until the grantor dies. During the grantor’s lifetime, they can change their mind by recording another beneficiary deed naming a different grantor or simply selling the property to a third party.

WILL A BENEFICIARY DEED AVOID PROBATE?

A properly executed and recorded beneficiary deed will avoid probate for the specific piece of real estate covered in the deed. If there are more assets in the estate, a beneficiary deed may not be enough to avoid opening a probate proceeding for the estate. But if probate is needed, the deeded real estate would not be included as a part of the probate estate. Instead of obtaining an order from the probate court for the property to be transferred, a certified death certificate must be recorded at the county clerk recorder’s office. This serves as notice that the grantor has passed away, and the beneficiary listed in the deed has received the property. A beneficiary deed will not work to avoid estate taxes.

HOW DOES A BENEFICIARY DEED FIT WITH MY ESTATE PLAN?

A beneficiary deed can be used as an alternative to a Revocable Living Trust to transfer real estate to a beneficiary without going through probate proceedings. However, a trust is still preferable in many situations. A trust can provide specific instructions on how an inheritance is distributed, managed, and distributed and provide protection for the beneficiaries who will inherit the property. A beneficiary deed can work with a trust to create a comprehensive estate plan that avoids probate and protects all assets passed to the beneficiaries, not just real estate.

ADVANTAGES AND DISADVANTAGES OF BENEFICIARY DEEDS

• A beneficiary deed can avoid the costs and delays of probate proceedings because the property is not part of the probate estate.
• A beneficiary deed delays or avoids gift taxes because the property is not transferred upon signing and recording.
• If the owner changes his mind, the beneficiary can be changed at any time before the death or incapacity of the owner.
• Any creditors of the beneficiary creditors cannot reach that particular property because the beneficiary has no interest in the property until the death of the owner.
• Using a beneficiary deed alone is generally less expensive than using a revocable living trust or last will.

Beneficiary deeds are not always recommended; some of the significant drawbacks include the following:

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  Individuals who draft these deeds without consulting an attorney or real estate professional may make mistakes that may cause the instrument to fail.
• Any inconsistencies or ambiguities regarding the property transfer may cause a title company to refuse to issue title insurance.
• If a beneficiary deed is challenged, a costly court proceeding may be necessary.
• Beneficiary deeds generally offer no asset protection to the beneficiary.

IS A BENEFICIARY DEED RIGHT FOR YOU?

If your estate consists mainly of real estate held in your sole name without a co-owner and you would like to leave your inheritance to a single individual, a beneficiary deed could be the principal solution for your estate planning needs. Contact The McKenzie Law Firm today to schedule an attorney evaluation session if you want to discuss whether a beneficiary deed is right for you.