A Good Deed for Avoiding Probate
How to hold title to property is a fundamental question facing the purchasers. The title will affect whether the property will need to go through the probate court process if one of the property owners dies.
The most basic way to avoid probate when more than one person is purchasing real property is to hold the title as "joint tenants with right of survivorship." If one owner dies, the remaining owner(s) will receive title, simply by recording a death certificate of the deceased owner. The last owner living will receive the ultimate title.
Each of the joint tenants are able to sell their interest either together or separately. If a joint tenant sells his partial intereast separately, then the joint tenancy will be transferred to a "tenancy in common." As a result, that share will not pass to the surviving joint tenant but to the heirs of the deceased owner and probate will be necessary.
A married couple who buys property can own it as "community property with right of survivorship." Then, the surviving spouse will receive title without going through probate, by recording a death certificate. In addition, the surviving spouse will get a step-up in basis for the entire property. With joint tenancy of right of survivorship, the step-up in basis is generally applied to the share of the property for which the deceased owner provided consideration (i.e., the money used to purchase it).
Another way to avoid probate is to record a Beneficiary Deed which in essence is a "pay on death designation" for real proeprty. Under A.R.S. Section 33-405, the owner or owners of property can designate "grantee" or recipients of the property which is effective only on the death of the owners. Upon death of the owners, the named beneficiaries can record a death certificate to transfer title.
The Beneficiary Deed is fully revocable until the last owner dies. The owners simply need to record a Revocation of Beneficiary Deed. Therefore, be careful, if you are co-owners on property and execute a Beneficiary Deed. Realize that if the co-owner survives you, the co-owner could revoke the Beneficiary Deed and frustrate your plan.
Unlike other deeds, the Beneficiary Deed or the Revocation of Beneficiary Deed will only be effective once it is recorded. The owner retains control and does not need to consult the Grantees when selling the property. Also, upon sale of the property by the owner, the the Beneficiary Deed has no effect and will not attach to any property purchased in the future.
The Beneficiary Deed is a great tool for people with small estates, or who have all other assets in accounts that have a pay on death designation or designated beneficiary. The Beneficiary Deed is not a good tool if the beneficiaires are minor children or adults with special needs receiving government assistance. Also, the Beneficiary Deed is not recommended when there are three or more beneficairies.
For the situations which are not good for a Beneficiary Deed, a Revocable Living Trust is better. With a Revocable Living Trust, the property can pass without probate and be held for the use of minors or adults who might loose government benefits if they inherited assets. In addition, if there are more than three recipients, the trust can clarify distribution if one or more the beneficiaries die but leave minor children who should receive their share.
Once a Revocable Living Trust is created, the property title would be held in the name of the trustees. For example, "John Doe and Jane Doe of the Revocable Living Trust, dated January 1, 2002." The date the trust was created becomes part of the name of the trust. If the propety is held in trust, there is no need to probate the asset because the death of the creator of the trust does not change the title of the property. The successor Trustee, named in the trust agreement, simply takes over when the initial Trustee, usually the creator of the trust, dies.
Therefore, with a well prepared deed, the court process of probate can be avoided. As a result, leagl fees can be limited or avoided all together.