A beneficiary deed is a specific type of property deed that is used to transfer real property. Basically, how it works is that the property owner will create the deed with a particular piece of property in mind. Once the property owner is deceased, the terms of the deed not only allow that piece of property to transfer upon their death, but also make it possible for the remaining parties to skip the probate process.
The reason the parties do not have to wait to acquire the property until after probate is because by immediately transferring the property upon the owner’s death, that property will no longer be considered to be part of the decedent’s estate. Thus, a beneficiary deed effectively removes the property from having to go through the probate process because it transfers it beforehand.
When the property owner signs and records a beneficiary deed, it can cause the owner’s interest (i.e., rights) in the real property to be transferred to certain individuals or entities upon the owner’s death.
However, this interest (or rights) in the real property will only go into effect after the owner dies. In which case, the interest will automatically transfer to the designated individuals or entities named in the terms of the beneficiary deed.
What are Some of the Advantages of Beneficiary Deeds?
There are several advantages that beneficiary deeds can offer a person, as compared to the other options they may have for transferring real property upon their death. Some of the primary advantages these deeds may offer include the following:
- Typically, using a beneficiary deed avoids the cost and delay of probate since the property will not be counted as part of the probate estate.
- Since property being transferred by a beneficiary deed is not considered a present transfer of property, gift taxes may not apply to a beneficiary deed.
- If for some reason the property owner changes their mind about the intended beneficiary, they have the ability to change the recipient at any point before their death.
- A beneficiary’s creditors cannot reach the assigned property because the beneficiary will not have any interest in it until after the property owner dies.
- Transferring property through the use of a beneficiary deed is much less costly as compared to when property is transferred via a will or revocable trust.
What are Some of the Disadvantages of Beneficiary Deeds?
As is the case with many life decisions, there are also several disadvantages to using a beneficiary deed. Some of the major disadvantages include:
- Sometimes, individuals will use beneficiary deeds without consulting an attorney first, which can lead to making significant legal mistakes, such as not incorporating terms that provide for the possibility of when a beneficiary predeceases the property owner.
- If someone decides to challenge the enforceability of a beneficiary deed, then it may be necessary to have a court interfere in order to resolve the issue.
- If there is anything ambiguous about or that contradicts the transfer of the property in question, the title insurance company may be reluctant to issue title insurance for it.
- It may not be possible to sell the property until four months after the owner’s death because in some states, the law permits anyone who has a claim against the property up to four months to file their claim.
How Should I Choose Between Beneficiary Deeds and Trusts?
Deciding between whether to draft a beneficiary deed or to set-up a trust often depends on a person’s individual situation or preference. In general, a beneficiary deed is typically less complicated and less expensive than forming a trust.
However, there are certain scenarios in which a trust may be more desirable to have than a beneficiary deed, such as:
- When there are multiple beneficiaries who will each own an undivided interest in the property;
- If the property is owned by joint tenants with the right of survivorship; or
- When the beneficiary is a child or minor.
Also, it is important to keep in mind that the level of capacity that is necessary to make a beneficiary deed is similar to the level of capacity that is required to make a will.
Ultimately, the best way to choose between whether a beneficiary deed or a trust will be better suited to a person’s needs is to contact a real estate lawyer for further guidance on the matter.
Do I Need to Contact a Lawyer for Help with Beneficiary Deeds?
The laws regarding beneficiary deeds can vary according to state, meaning the outcomes and requirements of beneficiary deeds may differ depending on your jurisdiction. As such, it is very important that you understand the applicable local laws before agreeing to create or to sign one.
Therefore, if you have any questions or concerns about beneficiary deeds, then it may be in your best interest to consult with a local property lawyer for further assistance.
An experienced property lawyer can guide you through the relevant laws and procedures, as well as can explain in greater detail how beneficiary deeds operate in your particular area.
In addition, your lawyer can help you draft, review, and edit a beneficiary deed before you sign it. Having a valid and legally enforceable beneficiary deed can help both prevent and protect against any legal disputes that may arise in the future.