Beneficiary Deeds Explained
A beneficiary deed allows you to transfer property to a person or a group upon your passing. This allows your property to avoid the costs and time delays associated with probate court. The deed does not transfer any interest in the property until the last of the owners to pass and you can sell or transfer the property at any time.
Why is a Beneficiary Deed So Important?
Your house is likely the most expensive purchase you will ever make. Your home and loved ones need to be protected upon your passing. A beneficiary deed does just that. With a beneficiary deed, you can designate who you want to have your house once you pass. It is considered a non-probate transfer and does not require any administration by the court. This is very important for 2 reasons.
Your estate will be smaller. In Missouri, your probate expenses are tied to the value of your estate. If the portion of your estate that needs to be administered in probate court is less than $40,000.00 in value, it will most likely be significantly cheaper and quicker for your loved ones.
Your house will go to your loved ones immediately. It will not require months of probate administration or an order from the probate court to move into or sell the property. If you leave your house to a loved one who already owns a home or doesn’t desire to live in yours, this allows him or her to sell the property as quickly as possible, minimizing associated costs.
How is a Beneficiary Deed Recorded?
When I discuss beneficiary deeds with my clients, they often have several common questions about them.
Do I keep the deed?
Does it have to be taken to the courthouse?
Can you do this for me?
In order for a beneficiary deed to avoid probate and legally transfer your house to your loved ones upon your death, it has to be recorded with the recorder of deeds in the county you reside in. This is a process that your attorney should be familiar with and offer to do for you. Once the deed is recorded, it will be stamped (letting you know that it has been recorded) and should be returned to you.
I do not advocate attempting to create and file your own beneficiary deed, even if you’ve found a form or template online that you believe to be legally acceptable. While they may seem simple, there are important details and significant ramifications to beneficiary deeds.
How Do I Know If My Deed Has Been Recorded Properly?
In Missouri, all deeds for real estate must be properly recorded with the county’s recorder of deeds in order to be legally valid. I often have clients bring me deeds which haven’t been properly recorded with the recorder of deeds. They don’t realize that the deeds haven’t actually conveyed the property to them.
Prompt recording is very important when it comes to creating a beneficiary deed. A beneficiary deed will transfer real property to one or more beneficiaries upon your death, but only if it is properly recorded. Unlike a warranty deed or quitclaim deed, a beneficiary deed must be recorded before the grantor (owner of the property) passes away. It is always unfortunate when I have to tell people that their parents or loved ones tried to avoid probate and leave them real property but were ultimately unable to because the beneficiary deed was never recorded.
Recorded quitclaim deeds, warranty deeds and beneficiary deeds will all have a sticker, stamp or seal which indicates that they have been filed with the recorder of deeds. This marking will typically be near the top on the first page of the deed.
From what I’ve seen, when a quitclaim deed, warranty deed or beneficiary deed goes unrecorded, it is often because a person tried to create the deed without consulting an attorney or because the hired attorney or title company that was used did not record the deed for them. When you hire an attorney, it is very important to make sure that you know who is responsible for recording the deed. If you retain my services, I will make sure that your beneficiary deed, quitclaim deed or warranty deed is properly recorded and that you receive a copy of that deed for your records.
Beneficiary Deed v. Quitclaim Deed
Many people come to my office looking to pass their home to their loved ones and avoid probate. I’ll often get questioned about whether a quitclaim or beneficiary deed is the best mechanism for avoiding probate.
A quitclaim deed (or a warranty deed) conveys the interest of the property owner to someone else immediately. Just like the sale of any other piece of property, the house belongs to the grantee the moment that the deed gets filed with the recorder of deeds.
A beneficiary deed lists one or more beneficiaries who will receive the real property upon the death of the owner or owners as long as they own the property when they pass away. Unlike a quitclaim deed, the beneficiary has no immediate interest in the property and cannot prevent the sale of the home during the lifetime of the owner or owners.
Here are the 3 reasons I recommend a beneficiary as opposed to quitclaim for my clients:
When a parent gives his or her interest in the home to a child or jointly titling it with the child by way of a quitclaim deed, it opens the door for potential creditors of the child to try and file an action for the home. If the child is married and is getting divorced, for example, the court may view the home as marital property. If a beneficiary deed is used instead, the creditors cannot attach to the property during the life of the parent.
There can be tax consequences to transferring the property during the parent’s life that wouldn’t exist at the death of the parent. By conveying interest to the child in a quitclaim deed, the child may not get the benefit of a step up in basis and the parent may need to file a gift tax return for the transfer. If a beneficiary deed is used, as long as the value of the parent’s property is less than the federal estate tax limit (5.49m in 2017), there are most likely not going to be any tax consequences to the child receiving the home at the death of the parent.
If a parent gives part or all of his or her interest in a house to a child during the parent’s life by a quitclaim deed, the child now has control of part or all of the home. If there is a quarrel, the kid can kick the parent out of the home. I’ve never had a parent think that his or her kid would ever do that. It may not even be the choice of the child, but a choice of their spouse or significant other. A beneficiary deed, however, won’t forfeit any of the parent’s control during his or her lifetime.
I recommend that EVERY homeowner have a beneficiary deed in place to protect his or her loved ones. It is an inexpensive way to protect a valuable and important investment while estate planning. If you have an questions regarding deeds or any kind or the content you just read, please contact me here or submit your question below.