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“Arizona’s Beneficiary Deed”

By Matthew S. Dana

The main purpose of an estate plan is to make certain that your assets pass on to your beneficiaries as easily as possible, so as to cut out any unnecessary court proceedings and cause the least amount of administration as possible. The Arizona legislature has made this much easier with the advent of the Beneficiary Deed. On August 9, 2001 the legislature passed into effect the Beneficiary Deed. This Deed allows a person to accomplish some simple estate planning by naming a direct beneficiary of the property, thereby allowing the property to pass outside of a person’s estate. Simply put, a Beneficiary Deed allows the familiar ‘payable on death’ feature found on many financial accounts to be applied to real property.

The primary benefit of a Beneficiary Deed is that it allows a person a much cheaper alternative to avoid expensive administration (i.e. probate) after they have passed away. A middle class household in America generally has an estate where the house is the primary asset. This is the type of estate that the Beneficiary Deed is designed to help most. For families in this category, generally a Revocable Trust is too expensive and a Last Will and Testament will not help them out of probate. Through the use of the Beneficiary Deed the house is transferred directly into the beneficiary’s estate and is not counted when deciding whether an estate needs to be probated.

However, there are some drawbacks to having a Beneficiary Deed and therefore should not be used in every circumstance. One obvious problem with the Beneficiary Deed is if a person names their minor children as the beneficiaries of the Deed. This is not advisable as it will likely cause even more administration and court proceedings after the original owner has passed away than even a probate would cause. In this case a Guardian and Conservator would have to be appointed by the court to hold the property until the children became adults.

Another common problem associated with Beneficiary Deeds is the naming of several beneficiaries to inherit the property after the original owner passes away. When multiple people are named as beneficiaries to the property, each of them becomes a respective owner of the property which gives them each a legal interest in the property. This may sound good on paper as each person gets their designated shares of the property but I have seen issues arise that have torn some families apart. When several people own property, everybody who owns a portion of the property has to agree in order to sell the property. This can lead to a major fight if not everyone wants to keep the property. The most common solution here is that the beneficiaries who wish to hold onto the property will need to buyout the other beneficiaries’ shares. This could possibly lead to someone having to pull out a mortgage on the property they just received as an inheritance. The natural solution to the minor children and multiple beneficiary issues is to create a Revocable Trust where these issues are better managed.

Despite the drawbacks, the Beneficiary Deed has become very popular here in Arizona, as has happened in other states with similar laws. This Deed has offered many Arizonans a new effective and less expensive way to do their estate planning. However, every estate and every family is different. A Beneficiary Deed will not work for every estate, but it has proven to be a great tool when setting up an estate plan.