By Bruce Alan Danford, LLM (revised 5/1/2017)
“Neither fish nor fowl” best describes a new estate-planning tool passed by the Colorado legislature as House Bill 04-1048 and signed into law on May 12, 2004. This article will describe in short what beneficiary deeds are, how they operate, some applications for their use as well as some of the pitfalls associated with them. This article is not meant to be comprehensive or exhaustive but is more in the manner of a primer regarding beneficiary deeds. The Colorado statutory beneficiary deed form is included at the end of this article.
In the Colorado statutes, beneficiary deeds are found in Colorado Revised Statute §15-14-401 et.seq. The statutory definition of a beneficiary deed is:
“Beneficiary deed” means a deed, subject to revocation by the owner, which conveys an interest in real property and which contains language that the conveyance is to be effective upon the death of the owner and which may be in substantially the form described in section 15-15-404. C.R.S. §15-15-401(1).
A beneficiary deed allows an owner of property to have the property go to someone else (the beneficiary or grantee) upon the death of the owner. A beneficiary deed becomes effective only upon the death of the owner of the property. Unlike other types of deeds, a beneficiary deed must be recorded prior to the death of the owner for it to be effective. C.R.S. §15-15-402(1).
Mary is the owner of a small house. Mary wants the house to go to her son, Sam, when she dies. Mary executes a beneficiary deed naming Sam as the beneficiary of the deed. Mary then has the deed recorded at the County Clerk and Recorders Office. Mary then dies; Sam becomes the owner of the house.
Up until the time of death, the grantee has no rights in the property. This means the owner of the property can revoke the deed at any time prior to their death. If the owner wishes to revoke the beneficiary deed, the owner must either execute and record a new beneficiary deed or execute and record a revocation of the beneficiary deed. C.R.S. §15-15-405(1) and (2). A beneficiary deed cannot be revoked by a will or be overridden by the terms of a will. C.R.S. §15-15-405(4).
Mary is the owner of a small house. Mary wants the house to go to her son, Sam, when she dies. Mary executes a beneficiary deed naming Sam as the beneficiary of the deed. Mary then has the deed recorded at the County Clerk and Recorders Office. Later Mary meets the man of her dreams, Harry, and they marry. Mary changes her mind about the house and decides she wants Harry to have the house. Mary executes a new will and leaves the house to Harry. Mary then dies. Sam is the owner of the property. Mary never revoked the beneficiary deed and the will cannot revoke the beneficiary deed.
This is truly a hybrid arrangement. The ability to transfer ownership of property upon death is similar to a will, but unlike a will, the property is transferred automatically upon death and does not need to go through probate. The beneficiary deed transfers the property but unlike any other type of deed, the beneficiary does not have any rights at all until the death of the owner.
Usually when a deed transfers property, the new owner takes the property subject only to those encumbrances and interests which where recorded prior to the transfer of the property. However, with a beneficiary deed the new owner will take the property subject to any encumbrances or interests recorded up to four months after the transfer of the property, which occurs at the death of the owner. C.R.S. §15-15-407(3(a). What is more, the property can be subject to the general debts of the owner’s estate if there is not enough property in the owner’s estate to satisfy all debts for up to a year.
Mary is the owner of a small house. Mary wants the house to go to her son, Sam, when she dies. Mary executes a beneficiary deed naming Sam as the beneficiary of the deed. Mary then has the deed recorded at the County Clerk and Recorders Office. Later Mary meets the man of her dreams, Harry, and they marry. Mary changes her mind about the house and decides she wants Harry to have the house. Mary executes a new will and leaves the house to Harry. Mary then dies. Sam is the owner of the property. Two months after Mary dies, Marvelous Mortgage Company records a mortgage they had against the property. Sam is the owner of the house subject to the mortgage.
A goal of the drafters of the legislation was to make the beneficiary deed statute creditor-neutral. In other words, creditors were not to be deprived of any rights simply because the property passed by means of a beneficiary deed rather than by a probated will. In this case, even though the transfer of the property had occurred upon the death of Mary, the creditor was afforded an opportunity to make known the debt and have an enforceable claim.
A beneficiary deed does not break a joint tenancy or transfer any interests belonging to a joint tenant unless the other joint tenant has predeceased. A beneficiary deed does not make the beneficiary a joint tenant in the property with the surviving joint tenant. If a joint tenant executes and records a beneficiary deed and then dies, the surviving joint tenant simply becomes the sole owner.
Hubert and Wilma are the owners of a small house they had purchased in joint tenancy from Fred. Hubert wants the house to go to his son, Sam, when he dies. Hubert executes a beneficiary deed naming Sam as the beneficiary of the deed. Hubert then has the deed recorded at the County Clerk and Recorders Office. Hubert dies. Wilma is the owner of the house. The original deed from Fred granting title to Hubert and Wilma controls.
A beneficiary deed cannot sever a joint tenancy nor place another in the place of the deceased joint tenant (Hubert couldn’t substitute Sam as joint tenant with Wilma by means of a beneficiary deed.)
A beneficiary deed cannot be used to transfer an interest in real property which would otherwise qualify as a countable resource for Medicaid eligibility. See C.R.S. §15-15-403. The execution of a beneficiary deed causes the property to be counted as a resource if an application for Medicaid is made and it is subject to C.R.S. §25.5-4-302(6) and applicable rules.
These are only a few of the characteristics and difficulties surrounding a beneficiary deed. Does this mean a beneficiary deed is never appropriate? Not at all! It does mean that, as with all estate planning and real property planning a knowledgeable professional should be consulted.
This brief article is not meant to be construed as legal advice and is meant for educational and information purposes only. The information is not legal advice or a particular legal opinion. The information is not intended to create, and receipt does not constitute, a lawyer-client relationship between The Law Firm of Bruce A. Danford, LLC and you. The law changes very rapidly and, accordingly, we do not guarantee that any information contained hereto is accurate and up to date other than the revised date. Additionally, the law differs from jurisdiction to jurisdiction, and is subject to interpretation of courts located in each county. Legal advice must be tailored to the specific circumstances of each case and the tools and information provided to you may not be an appropriate fit in your case. Nothing that you read or is provided on this web site should be used as a substitute for the advice of competent legal counsel. It is highly recommended that anyone seeking to create a Beneficiary Deed should consult with an attorney experienced in Estate Planning.
Below is a sample Beneficiary Deed.
CAUTION: THIS DEED MUST BE RECORDED PRIOR TO THE DEATH OF THE GRANTOR IN ORDER TO BE EFFECTIVE.
|____________________________________________________________, as grantor,|
|(Name of grantor)|
|designates ____________________________________________________________ as|
|(Name of grantee-beneficiary)|
|grantee-beneficiary whose address is __________ (Note to Assessor and Treasurer: This address is for identification purposes only, all notices and tax statements should continue to be sent to grantor.)|
|(Optional) [or if grantee-beneficiary fails to survive grantor, grantor designates
|(Name of successor grantee-beneficiary)|
|as successor grantee-beneficiary whose address is ____________________________ and grantor transfers, sells, and conveys on grantor’s death to the grantee-beneficiary, the following described real property located in the County of _______________________, State of Colorado:|
|(insert legal description here)|
|Known and numbered as ________________|
|THIS BENEFICIARY DEED IS REVOCABLE. IT DOES NOT TRANSFER ANY OWNERSHIP UNTIL THE DEATH OF THE GRANTOR. IT REVOKES ALL PRIOR BENEFICIARY DEEDS BY THIS GRANTOR FOR THIS REAL PROPERTY EVEN IF THIS BENEFICIARY DEED FAILS TO CONVEY ALL OF THE GRANTOR’S INTEREST IN THIS REAL PROPERTY.|
|WARNING: EXECUTION OF THIS BENEFICIARY DEED MAY DISQUALIFY THE GRANTOR FROM BEING DETERMINED ELIGIBLE FOR, OR FROM RECEIVING, MEDICAID UNDER TITLE 26, COLORADO REVISED STATUTES.|
|WARNING: EXECUTION OF THIS BENEFICIARY DEED MAY NOT AVOID PROBATE.|