I talk with a lot of people who want to avoid probate, so they ask me about their options to avoid probate and want to know what is available.  One of the options that comes up is a beneficiary’s deed.  A beneficiary’s deed may also be called a “transfer on death deed,” but in Colorado the proper term is a beneficiary’s deed.  Not all states allow for such deeds, but Colorado does.  A lot of the people asking about avoiding probate don’t want their heirs to need to go through any legal process, but they also don’t want to go through the time and expense of setting up a trust to avoid probate.  Instead, they are looking for a less expensive option.  A beneficiary’s deed can be that solution for those who have the right situation.

A beneficiary’s deed can be a less expensive solution to prevent real estate property from going through the probate process.  A beneficiary’s deed can speed up the process of transferring real estate from a deceased individual to a beneficiary, and can help smooth the transition of ownership.  However, beneficiary’s deeds are not without their negatives.  When choosing to use a beneficiary’s deed, or not, as part of your estate plan, you need to consider the benefits and the drawbacks.  You will need to decide if a beneficiary’s deed is right for you.  So without further ado…

 

What, exactly, is a Beneficiary’s Deed?

A beneficiary’s deed is a document that designates who you want to receive a piece of real estate property after you have passed away.  You are able to name the individuals, or entities, to receive real estate property – and in what proportions – on the beneficiary’s deed itself.

A beneficiary’s deed acts much like a beneficiary designation for a financial account.  Most people are familiar with beneficiary designations for assets like IRAs, 401(k)s, or life insurance policies.  You name someone to receive the amount of money from such an account when you die.  The same is true of a beneficiary’s deed.  You name the beneficiaries that will receive the real estate property upon your death.  This can happen fairly quickly after you have passed away by using a beneficiary’s deed if you only have a will, and have not set up a trust.

Of course, you will need to follow the correct procedures.  Once you have completed a beneficiary’s deed properly, then you will need to record the beneficiary’s deed with the County Clerk and Recorder’s office where the real estate is located.  That is a requirement for the beneficiary’s deed to be effective and valid.  Then, upon your death, your designated beneficiaries can take a copy of your death certificate, and a supplemental affidavit – to make sure the name of the deceased person on the deed and death certificate are connected – to the County Clerk and Recorder’s office.  The County Clerk and Recorder’s office can then change ownership to the beneficiaries without the need to go through the probate process.  This can be a much simpler and easier process than enduring the full probate process.

 

How Does a Beneficiary’s Deed Ease the Probate Process?

The process with a County Clerk and Recorder’s office really is as simple as described above.  There is no need to go to the probate court to transfer a piece of real estate property at death, if you use a beneficiary’s deed.  A beneficiary’s deed does need to be properly prepared and recorded prior to death, and must include a full legal description of the real estate property.  Only then will the beneficiary’s deed eliminate the need to go to probate over a piece of real estate property.

The probate rules in Colorado dictate if someone who has died owned real estate property, then probate is necessary to transfer the property.  Using a beneficiary’s deed means that the real property which has a beneficiary’s deed attached to it does not need to go through probate.

For many people who have a house, some modest savings, and a retirement account, the house is the only thing that would cause an estate to need to go through probate.  A beneficiary’s deed eliminates the need to go through probate just because you have a house!

 

 

What are the Potential Downfalls to a Beneficiary’s Deed?

If you are thinking, “This sounds like a perfect solution, why wouldn’t everyone do this?” then you are not alone.  A beneficiary’s deed does have many advantages, but a beneficiary’s deed is not the perfect solution.  If you have a beneficiary’s deed, then you still may not avoid probate.  If you die with outstanding debts, and those creditors are not paid back, then the creditors can force probate to open to be repaid.  This may not be a common situation, but you need to be aware of the potential for probate being forced to open.

A beneficiary’s deed is also tied to just one piece of real estate property.  So, each piece of real estate would need its own beneficiary’s deed.  If you move, then the beneficiary’s deed would need to be done on the new property.  Fortunately, a beneficiary’s deed can be revoked, so that you can sell your house without having any difficulties that you have a beneficiary’s deed on the real estate property.  However, because a beneficiary’s deed does not move between real properties, a beneficiary’s deed is not a great solution for someone who moves a lot.

Lastly, if someone has a beneficiary’s deed and is looking to apply for Medicaid, a beneficiary’s deed can prevent a person from being eligible for Medicaid in Colorado.  In order to qualify or Medicaid, a person would need to revoke a beneficiary’s deed.  A beneficiary’s deed also does not help someone to protect assets from Medicaid, despite what some people may think.  So, if you are looking at applying for Medicaid, a beneficiary’s deed is not for you.

 

A Beneficiary’s Deed May Be for You, But Only As Part of Your Estate Plan

Even if you have a beneficiary’s deed, you will still need the rest of an estate plan.  You still need a will, living will, a financial power of attorney, and a medical power of attorney.  A beneficiary’s deed and those documents are such that they will help you avoid probate for a lesser expense than a living trust.  To determine if a beneficiary’s deed is the right tool for you, you will want to talk to an experienced estate planning attorney, who can help you evaluate your options.  You can make an appointment to do so by going here: