A beneficiary deed is a certain type of real property deed which is used to transfer property. It takes a particular piece of property out of the probate process when ownership is transferred upon death and the property is no longer part of the decedent’s estate which may go through probate or pass under a will.

When an owner of real property signs and records a beneficiary deed, it may cause the owner’s interest in the real property to be conveyed to certain individuals or entities on the owner’s death.

But the interest in real property does not take effect until the death of the owner, after which the interest automatically transfers to the designated individual or entity which is named in the beneficiary deed.

What are the Advantages of Beneficiary Deeds?

Beneficiary deeds have certain advantages compared to the other ways for transferring real property at death. Among the major ones are:

  • Typically, a beneficiary deed avoids the cost and delay of probate because the property is not part of the probate estate.
  • Because it is not a present transfer of property, gift taxes may not apply to a beneficiary deed.
  • If the owner changes their mind about the beneficiary, they can change the designation at any time before death.
  • Because the beneficiary has no interest in the property until the death of the owner, the beneficiary’s creditors cannot reach that particular property.
  • The transfer of property through a beneficiary deed is much less expensive compared to the transfer of property under a revocable trust or will.

What are the Disadvantages of Beneficiary Deeds?

There may be certain disadvantages to beneficiary deeds and among the major ones are:

  • Individuals may use these deeds without consulting an attorney and they may make legal mistakes such as not providing for the possibility that the beneficiary predeceases the owner.
  • If someone challenges the effectiveness of a beneficiary deed, a court proceeding may be necessary to resolve the issue.
  • If there is any contradiction or ambiguity regarding the transfer of property, a title company may be reluctant to issue title insurance.
  • Selling the property may not be possible until four months after the owner’s death because in some states, anyone who has a claim against the property has four months to record the claim.

How to Choose Between Beneficiary Deeds and Trusts?

A beneficiary deed is also less complex and expensive than setting up a trust. However, a trust may still be desirable in certain types of situations such as:

  • When the beneficiary is a minor;
  • When there are multiple beneficiaries who will own undivided interests in the property; or
  • When the property is owned as joint tenants with right of survivorship.

The level of capacity which is needed to make a beneficiary deed is similar to the level of capacity which is needed to make a will.

Should I Contact a Lawyer?

The particular laws on beneficiary deeds can vary state by state so it is important to consult the relevant local laws. If you need help with a beneficiary deed, it would be beneficial to consult with a local real estate attorney before proceeding.