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.

Avoiding Probate With A Beneficiary Deed

The probate court system can be avoided if you would like your family or a friend to receive your real property at your death, but you do not want to share title while you are living. A Beneficiary Deed in essence is a "pay on death designation" for real property.

Under A.R.S. Section 33-405, the owner or owners of property can designate "grantees" or recipients of real property which is effective only on the death of the owners.

The Beneficiary Deed is fully revocable until the last owner dies by recording a Revocation of Beneficiary Deed. Therefore, co-owners need to realize that when one dies, the surviving owner could revoke the Beneficiary Deed.

Unlike other deeds, the Beneficiary Deed or the Revocation of Beneficiary Deed will only be effective once it is recorded. The owner retains control. The owner does not need to consult the beneficiaries or be concerned about their creditors (unlike joint tenants).

The Beneficiary Deed is a great tool for people 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 you want to leave your real property to more than three people, to minors or to adults with special needs receiving government assistance.

Having Your Will With IRAs and 401Ks

Wills and Trusts generally will not govern the distribution of your IRA’s or 401k’s. The designated beneficiary form directs who will get your qualified retirement plan after you die. Qualified retirement plans include IRA's and any plan created by ERISA, such as a 401k or a 403b retirement account.

If your "Estate" is listed as the designated beneficiary or if there is no designated beneficiary, then your heirs will have to open a probate in order for your retirement account to be distributed. Also, if you list your "Estate," then your retirement account benefits may need to be paid out in a lump sum, instead of over time to your desired beneficiaries. Therefore, it is preferable to list the specific designated beneficiaries, either the people or your trust.

The benefits of a qualified retirement plan can be distributed through a revocable Trust, over time, as long as certain precautions are taken. First, the named designated beneficiary must be the Trustee of your revocable Trust. Then, the revocable Trust must be valid under state law and become irrevocable upon the death of the participant. Also, the beneficiaries have to be identifiable from the trust agreement and a copy of the trust agreement needs to be provided to the administrator before the distributions are made.

Listing the trust as a designated beneficiary is very important if you plan to leave any of your qualified retirement account to a minor. A minor, under the age of 18, cannot receive more than $10,000 unless the court appoints a conservator. A conservatorship are more expensive and troublesome than a probate.

If you are married, then normally your spouse must be the initial beneficiary and your Trust, or others, can be the contingent beneficiary. Federal law requires spousal consent if you want someone other than your spouse to be the beneficiary of your 401K or other ERISA qualified retirement account.

With regard to your IRAs, federal law does not require a spouse to consent to the distribution of the IRA to someone other than the spouse. However, since Arizona is a community property state, a spouse does have a community property claim to one-half of any contributions that came from earnings of the participant spouse.

Therefore, if you desire to distribute your IRAs to someone other than your spouse, you need to get a spousal waiver. Your children or your trust cannot receive the entire IRA or the 401k, if your spouse does not consent -- even if the IRA or 401k existed prior to your marriage.

IRA’s and 401K’s are great for charitable giving as part of an estate plan, because qualified charities do not pay income tax. There are lots of opportunities for qualified retirement accounts and some pitfalls. Thus, be sure your designated beneficiaries are correctly listed.

To Probate or Not to Probate

Probate is the court process which is necessary to distribute assets titled in the name of a deceased person. Probate is not necessary when assets are held in "joint tenants with right of survivorship" or "community property with right of survivorship." The "right of survivorship" term is contractual language which requires the real property or financial account to be transferred to the surviving joint tenant or spouse.

The Probate Court is part of the Arizona Superior Court system. It is charged with the responsibility of verifying that the assets of a deceased person are distributed to the proper recipients. The court identifies those persons by looking at the decedent's Will. If the person does not leave a Will, then the Arizona Revised Statutes sets out a distribution plan, called intestate succession.

Intestate succession provides that a decedent's spouse receives all of the decedent's property, unless the decedent had children who are not children of the current spouse. In that case, the children get half the decedent's sole and separate property and all of the decedent's half of the community property.

If a person dies without a spouse, children or even grandchildren, then the assets will go to the person's parents, and if they are not living, then to the person's siblings, and if they are not living then to a person's grandparents or then aunts and uncles.

Probate is only necessary if a person dies with real property titled in his or her name which exceeds $100,000 or personal property (including stocks and bank accounts) which exceeds $75,000 or expects to receive a wage of more than $5,000 after death. Otherwise, probate is not necessary and the assets can be transferred by affidavit under A.R.S. §14-3971.

The monetary limit does not apply to assets which are held in trust, as "right of survivorship" or with designated beneficiaries, like qualified retirement accounts, life insurance, or pay on death accounts. Those assets automatically pass to the designated beneficiary or joint tenant and probate is not necessary. Similar to accounts with designated beneficiary forms, property will pass outside of the probate process if a beneficiary deed is recorded.

There are two types of probate: formal and informal. Formal probate requires immediate involvement of a judge or commissioner, such as when there is a dispute about whether a Will is actually the Last Will and Testament, or as to who should be appointed personal representative (or executor). Formal probate could also be necessary if the Will did not waive the need for the Personal Representative to post bond. The personal representative is the title we use in Arizona for the executor of a will or estate.

Informal probate is a simpler procedure, initially involving only the court registrar. Just three days after the decedent's death, the designated Personal Representative can file an application to be appointed and obtain Letters of Personal Representative, giving authority over the decedent's assets.

If there is no will and no designated Personal Representative, then A.R.S. §14-3203 sets out the order of who has priority to be Personal Representative; such as the surviving spouse, then certain heirs, the Arizona Veteran's Service Commission and then any creditor but only after 45 days has passed from death or then a public fiduciary.

Once the Personal Representative is appointed, assets are collected. The personal representative must wait four months for any creditor's claims, then the assets can be distributed according to the Will or statutory intestate succession.

The four month period only begins to run once the Personal Representative publishes notice that the probate has been opened. The publication must run weekly for three consecutive weeks in a newspaper of general circulation in the county. However, if the creditor is known or should be known to the Personal Representative, like a credit card holder or a health care provider, then written notice must be sent to such a creditor. Then, then creditor has only sixty days to file a claim.

These are just highlights of the duties of the Personal Representative. The court provides an Order which lists the other duties when the probate is opened. However, most people serve as a Personal Representative only once in their life and are inexperienced. An attorney can provide experience and guidance through the different aspects of probate, including referrals of appropriate services which can make the process easier.