Understanding the Transfer on Death Deed in Arizona

Man handing keys; transfer on death deed Arizona.

A Transfer on Death Deed in Arizona allows people to name a beneficiary who will take ownership of their real estate after they pass away without having to go through the expensive and complicated probate process. Learn whether using this document makes sense for you.

What is a Transfer on Death Deed in Arizona?

An Transfer on Death Deed in Arizona is a document that allows a person to pass their real estate to someone else without having to involve the probate court. The deed is registered with the county recorder. It names one or more beneficiaries who will take ownership of the real estate when the original owner passes away. In order for the transfer to take effect, it must be signed and recorded while the original owner is still alive.

The official name for an Arizona Transfer on Death Deed is a Beneficiary Deed. There is sample language in the Arizona statute at A.R.S. Section 33-405.

Pros and Cons of Transfer on Death Deed in Arizona

When to Use a Transfer On Death Deed.

Transfer on Death Deed might make sense if all of the following are true:

  • The owner is unmarried or both owners are willing to sign. (But if you are married, then the surviving spouse may be left without a house! Be careful.)
  • The property is only going to one beneficiary. Trying to transfer property to two or more people creates a risk of conflict.
  • The property is owned free and clear. The owner has no other debts.
  •  The beneficiary is not be a minor.
  • The beneficiary is not going through a divorce.
  • The beneficiary does not have judgments against him/her and does not have pending litigation.
  • The beneficiary is not on government benefits.
  • The of equity in any other real property of the owner is less then $100,000.
  • The value of any personal property (less liens and encumbrances) is less than $75,000.

What Are the Goals of Using a Transfer on Death Deed?

A transfer on death deed allows for probate avoidance (assuming everything goes perfectly).

When you use a transfer on death deed in Arizona to pass your property to your heirs, they can avoid probate. But, be careful to think through the next step. Ask yourself this question. If you are transferring it to more than one heir, will they all be able to work together to manage the property?

Here are some things that could go wrong if you transfer property to more than one heir with a TOD deed:

  • One of the heirs could move into the house and refuse to move out. In that event, they could eventually acquire the entire property through adverse possession. The result is that you rewarded the greedy heir.
  • The heirs may not all agree on what to do with the property. One may want to sell it. Another may want to keep it and rent it out. If there is a disagreement, the other heirs will need to file a partition action in court to force a sale. In other words, you may have saved your heirs from probate court. But you forced them to fight in civil court.

A transfer on death deed is more flexible than adding someone as a joint tenant.

If you add an adult child or children onto title as a joint tenant, then they own part of your house. You can’t sell it or refinance it without getting them to sign off.

Also, if your joint tenant child becomes involved in a lawsuit or divorce, your house could be caught up in those proceedings.

In contrast, a transfer on death deed is revocable. You can simply cancel it or amend it. The beneficiary does not own the property.

A transfer on death deed is a good way for an unmarried person to transfer real property to a partner at death.

Before you decide to tie the knot, you may want to at least provide a house for your romantic partner. Getting a full-blown estate plan is expensive, and maybe you aren’t ready for that yet. For a fairly small fee, you can record a transfer on death deed naming your partner as the beneficiary. Then if you split up, you can easily cancel it.

Unmarried couple who used transfer on death deed in Arizona

Problems That Can Arise When Multiple People Inherit a House.

When multiple people inherit a house it can create both logistical and legal problems. For example, all heirs must agree on how the property will be divided or managed after the transfer takes place. Selling the house may also require unanimous agreement, especially if there is disagreement between beneficiaries. Additionally, all heirs must decide if they want to keep the property and are able to afford to maintain it. 

Potential Problems With Using a Transfer on Death Deed in Arizona.

Here are some ways that you could have a problem with a TOD deed during your lifetime:

  • It is easy to trick a vulnerable adult into signing a TOD deed. The property would be more protected in a living trust. 
  • You need more than just testamentary capacity. That is the lower standard required for signing a will. But a TOD deed requires the higher capacity to contract. This can create an issue if the person signing the deed has questionable mental capacity.
  • A transfer death deed in Arizona does not help if the owner becomes incapacitated. In that case, a General Durable Power of Attorney MAY be adequate to manage the property. Otherwise, someone will need to become conservator for the owner.

Here are some ways a TOD deed could create a problem for your loved ones later:

  • It may create more litigation later on. (See the previous section called “Problems That Can Arise When Multiple People Inherit a House.”)
  • There may be a conflict with other estate planning documents. For example, you could write a will or trust stating that your children get something. But you have a TOD deed giving everything to your new spouse. The spouse gets the property. The will or trust does not control who gets the property.
  • You could forget that you have a TOD deed on your house, and then do an estate plan with an attorney. The will does not revoke your TOD deed.
  • The TOD deed must be recorded prior to death. A will does not need to be recorded. 

Your heirs could have problems with the TOD deed. (These could all be avoided with a living trust.)

  • If your heirs are not financially responsible, a TOD deed is not a great solution. It would be better to use a living trust with restrictions over when the beneficiaries get their inheritance. (By the way, the name of our law firm is Sudden Wealth Protection law because we want to protect heirs from being irresponsible with their inherited “sudden wealth.”)
  • The beneficiary of the property could still be liable for the deceased owner’s debts. If the estate doesn’t have enough assets to pay the debts, there could be a lengthy court battle to bring the property back into the estate.
  • You can’t leave real property to minor children. If a minor child inherits property, someone will need to go to court to get appointed as conservator until they are 18.
  • If your estate is subject to estate taxes, there could be a conflict over whether you need to sell your property to pay your portion of the taxes.
  • There is no asset protection for the beneficiary. If they have creditors, the property could be used to pay the beneficiary’s debts. Likewise, if the beneficiary is getting a divorce, it’s possible that the property could be commingled sufficiently to be converted into quasi-community property.

Revoking and Amending an Arizona Transfer On Death Deed.

In Arizona, revoking or amending a transfer on death deed (TOD) can be done by following a few simple steps. To revoke a TOD deed, the owner must execute and record a Revocation deed that revokes the original TOD deed. This revocation must be done before the death of the owner. To amend a TOD deed, the owner must execute and record a new deed that amends the original TOD deed. The new deed must specifically state the changes being made to the original TOD deed. It is important to note that any changes or revocations to a TOD deed must be done in writing, signed by the owner, and recorded in the county where the property is located. It is also advisable to consult with an attorney to ensure that the revocation or amendment is done correctly and legally.

Let Us Help You.

We have extensive experience in estate planning and can guide you through the process of creating a TOD deed that reflects your wishes and complies with Arizona law. Don’t wait until it’s too late – contact us today at 602-443-4888 to schedule a consultation and start planning for the future.

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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