What is a Beneficiary Deed and When Should It Be Used?
A beneficiary deed, or commonly called a TOD deed (Transfer on Death Deed), is a special type of deed that can be used to transfer ownership of real estate outside probate and can be very useful when utilized with a Reverse Mortgage.
The beneficiary deed is a conveyance of an interest in real property which is revocable, and which becomes effective upon the death of the grantor, or, if there are multiple grantors, upon the death of the last surviving grantor. Section 15-15-401 et seq. of the Colorado Revised Statutes authorize the execution and recording of “beneficiary deeds” in Colorado.
A beneficiary deed is generally used for avoidance of probate, although it may be used to remove a particular property from a probate estate. When used with a Reverse Mortgage, not only will it remove the property from any probate, but will also allow the beneficiary to immediately access the property and begin working with the lender or servicer to deal with matters such as transfer of ownership or sale of the property.
How Beneficiary Deeds Work
If you own real estate in your sole name without a co-owner, you have limited options if you want to pass the property to a beneficiary at your death without the necessity of probate. Assets placed in a living trust can avoid probate, but it’s far simpler and less expensive to simply transfer the property by beneficiary deed.
You can create and sign a transfer-on-death deed now, moving your property from your sole name into the name of your beneficiary, but the deed is not valid and does not take effect until you die. You continue to own the property during your and your spouse’s lifetimes, so you retain the right to mortgage it or sell it. Your beneficiary has no legal right to it until your death and if drafted correctly the death of your spouse.
You do have to record the deed with the county land records office where the property is located. If you change your mind—perhaps you decide you want to leave the property to someone else at a later point in time—you can simply revoke the deed or create and record a new one to supersede the old one and transfer the property to someone else.
Because you’re not technically giving the property away during your lifetime, the deed will not incur a gift tax. However, the property will contribute to the value of your estate for estate tax purposes.
How a Beneficiary Deed Works to Avoid Probate
First, the owner signs a new deed that states who she would like to inherit the real estate at her death. The new deed must be signed and recorded with the County Clerk and Recorder office in the county where the real estate is located. Recording it will not incur real estate transfer taxes because there won’t be an immediate transfer of ownership. There will be a recording fee however.
Finally, the death certificate is also recorded among the same public land records office after the original owner dies. This puts the world on notice that title to the real estate has been transferred into the name of the beneficiary listed in the beneficiary deed due to the owner’s death.
When the Owner Changes His Mind
If the owner of the real estate should have a change of heart and decide that she does not want her named beneficiary to inherit his property, it’s a simple matter to “undo” the deed. She can sign and record a new beneficiary deed naming someone else instead. In most circumstances, this rescinds the previous deed because the most recent beneficiary deed is considered to supersede all previous ones. Alternatively, one can file a statement of revocation of the first deed with the Country Clerk and Recorder. Both methods can be used to properly execute changes. This way there’s absolutely no confusion or doubt about your intent.
A qualified estate planning attorney can easily assist with this process.
Should You Consider a Beneficiary Deed
The ultimate goal of a beneficiary or TOD deed is to avoid the costly probate process after the owner of real estate dies and to facilitate an efficient transfer of the property to heirs.
Consult with an estate planning attorney to determine if one of these deeds is right for you and your family. If you don’t have a good attorney, contact Silver Leaf Mortgage and we would be happy to provide a list of qualified attorneys who can assist you.
NOTE: This article is for informational purposes only and is not intended to be nor is it a substitute for qualified legal advice. For current legal advice, please consult with an attorney.