Does a Beneficiary Deed Avoid Probate?

Beneficiary Deed

In Arizona, the owner of a house can deed that house upon death to one or more people using a Beneficiary Deed. It is revocable … meaning that the owner can change the beneficiaries or cancel the deed at any time. And it can avoid the time and cost of a probate. Sounds pretty great, right? So the question is, does a Beneficiary Deed avoid probate?

What is a Beneficiary Deed?

The Arizona beneficiary deed form allows property to be automatically transferred to a new owner when the current owner dies. Under the right circumstances, it avoids the need to go through probate. It also gives the current owner retained control over the property, including the right to change his or her mind about the transfer.

What’s the Catch?

Here are the three main problems with using a Beneficiary Deed:

If original owner named more than one beneficiary, those beneficiaries may not get along.

Here’s a surprise for you: Not all siblings like each other. After the original owner dies, the beneficiaries take title as tenants in common. That means the beneficiaries each own an undivided interest in the property. They have an equal right to move into the place, rent it out, fix it up, or neglect it. That’s all fine if everyone agrees.

But what if one of the beneficiaries moves into the property and refuses to cooperate in selling it or letting the other beneficiary have use of the property? And what was the original home owner thinking? That the kids would all move into the property like a big commune, along with their kids and grandkids and spouses and friends. We have actually seen that happen and it’s kind of crazy.

Usually the only way to force all of the beneficiaries to agree to move out and sell the property is to file a legal action in civil court known as a Partition by Sale. This is sometimes called a “Forced Sale.” The rest of the beneficiaries will almost certainly be successful in forcing a sale.

If you own a house with other relatives, there is a solution. Click the link below to schedule a Strategy Session.

A second problem is naming only one family member as the beneficiary, and assuming that person will sell the house and divvy up the proceeds among the rest of the family.

We have seen this happen more than once. But we rarely see the person receiving the property actually sell the place and share the money.

The way it often happens is something like this: Mom owns the house. Mom signs a will naming son as Personal Representative (executor). The will states that everything gets divided among three kids. Mom then records a Beneficiary Deed giving the house to the son. Son decides to keep the house and tells his siblings, “Tough luck!” Son wins because the law is on his side.

There’s a solution to this situation also. The other heirs may be able to get the court to establish an Oral Trust. Click the link below to see if there is a solution for your problem.

Some people get confused and think the Beneficiary Deed is the same as a will.

They keep it safe with their important documents but never record it with the County Recorder. If the owner dies before the deed gets recorded, it is no good. There may be a solution in this situation as well. Schedule a Strategy Session by clicking the link below.

 If you co-own property with other relatives, you may be able to get the court to order the property sold. The actual way that a “forced sale” works is that the attorney prepares a Complaint for Partition. The applicable statute talks about getting three commissioners to work together and have the property surveyed. The statute was written with farm land or vacant land in mind.
 
Obviously you can’t survey and divide a house. The statute is a little vague about alternatives, but it allows some wiggle room. We usually ask for a neutral third party (such as a licensed fiduciary) to be appointed.The court will order that the neutral party be appointed as a“commissioner” in order to list the house for sale and divide the proceeds. If someone is living in the house, the “commissioner” can start an eviction proceeding to remove the tenant.
 
Does this all sound pretty complicated? Well, it can be. So the moral of the story is to use a Beneficiary Deed only if you are absolutely 100% sure that you want the property only going to a single beneficiary, and you name that single beneficiary on the deed. Otherwise, stay away from them. There are too many risks.
Besides, there are plenty of better ways of handling an estate plan. Don’t be stingy. Hire a good lawyer (such as us) to help you. The money and time that you save your family in the long run will far outweigh the cost up front.

Has your relative died, and now you own a house with relatives? We can help. You don’t need to be stuck owning a house with others. There are solutions.

Schedule a Strategy Session using the link below. You don’t have to feel stuck.

ABOUT THE AUTHOR

Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.

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