Co-Author: Miriam Abrams Goodman, Esq.
Question: What is a “beneficiary deed” and how are they useful in Colorado?
Response: A beneficiary deed is a legal document to pass title to real property to a “grantee-beneficiary” at death, without the need for probate administration. In Colorado, probate can be avoided if the decedent’s estate consists only of personal property with a value not exceeding $50,000.00. If the rest of the decedent’s property can be directed to successors through beneficiary designations and rights of survivorship (joint tenancy), successors can collect the small probate estate with an affidavit rather than a full probate procedure. The beneficiary deed is a legislatively authorized “will substitute,” used to direct real property to a successor at death without the need to transfer any interest in the property to the beneficiary during lifetime.
The Colorado beneficiary deed statute carefully defines the interest of the grantee-beneficiary in order to protect the rights of other parties interested in the property. First, during the lifetime of the owner who grants the beneficiary deed, the grantee-beneficiary has no legal right or interest to the property whatsoever, and the owner retains full power and authority with respect to the property without the need to notify or obtain the consent of the grantee-beneficiary for any purpose. This provision alone provides an advantage over the common practice of adding an intended heir as a joint tenant on property; there is no gift tax issue, and no potential for exposure of the property to the joint tenant’s creditors, because the grantee-beneficiary receives no interest in the property until the owner dies. The beneficiary deed also provides an alternative method to transfer real property to an owner’s trust at death, avoiding issues with lenders that might occur when mortgaged property is transferred to a trust during an owner’s lifetime.
Under Colorado’s law, to be of any effect a beneficiary deed must be recorded before the death of the owner. If not recorded, the property will pass to the beneficiaries of the owner’s probate estate, and the grantee-beneficiary on the beneficiary deed will receive no interest in the property. A beneficiary deed can be revoked during the owner’s lifetime by recording a revocation of the deed, or by recording another beneficiary deed executed after the revoked deed. A subsequent beneficiary deed revokes all beneficiary designations in their entirety, even if the subsequent deed doesn’t convey the owner’s entire interest in the property. At the owner’s death, the most recently executed beneficiary deed or revocation of all beneficiary deeds or revocations recorded before the owner’s death controls, regardless of the order of recording. If there is an effective beneficiary deed in place at the owner’s death, the owner’s will does not control disposition of the property, regardless of the date of the will.
An owner of an interest in real property in joint tenancy may execute and record a beneficiary deed, but the deed is only effective if the joint tenant-owner is the last joint tenant to die of all the joint tenants. If the joint tenant-grantor is not the last joint tenant to die, the beneficiary deed is not effective at his or her death, and the grantee-beneficiary does not become a joint tenant with the surviving joint tenants. The law specifically provides that a beneficiary deed does not sever a joint tenancy.
The grantee-beneficiary named on a beneficiary deed effective at an owner’s death does not immediately receive marketable title. The grantee-beneficiary’s interest is subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens and other interests affecting title to the property, regardless of when they were created, as long as notice of the interest is recorded within four months after the owner’s death. After this four month period, the grantee-beneficiary can pass marketable title to a purchaser of the property. However, the grantee-beneficiary may remain accountable for the proceeds of the property to persons interested the owner’s probate estate for up to three years. If the probate assets are insufficient to cover claims by creditors, by a surviving spouse or children for statutory allowances, or a Medicaid recovery claim, the personal representative (executor) may bring a proceeding against the grantee-beneficiary to recover a share of the equity in the property, to the extent necessary to discharge the claims. The personal representative must begin such a proceeding within one year after the death of the deceased owner. Other persons whose claims against the grantee-beneficiary might be brought as late as three years after the owner’s death can be barred earlier, if the owner’s death certificate is recorded in the real property records.
The beneficiary deed statute specifically provides that a person cannot qualify for Medicaid assistance if the person has a beneficiary deed in effect. To ensure that a revocation can be made should a person require Medicaid assistance, any person executing a beneficiary deed should also execute a power of attorney specifically authorizing an agent to execute and record a revocation of any beneficiary deed, if necessary for purposes of qualifying for Medicaid.
The beneficiary deed will certainly be used with increasing frequency in Colorado, now that the legislature has provided such extensive guidance. The real estate and estate planning and administration departments at Frascona, Joiner, Goodman and Greenstein can prepare such deeds for you, and answer your questions about using a beneficiary deed in estate planning, about the rights of a grantee-beneficiary in a real estate transaction, or about the rights of estate creditors or beneficiaries in property affected by a beneficiary deed.