Arizona Beneficiary Deed Form

What is an Arizona Beneficiary Deed?

An Arizona beneficiary deed form—also known as an Arizona transfer-on-death deed form or Arizona TOD deed form—is a type of deed authorized by statute to pass Arizona real estate to designated beneficiaries on the death of an owner. An Arizona beneficiary deed for works the same way as a TOD designation on a bank account. The owner simply designates someone to inherit the property when the owner dies. During the owner’s life, the owner retains complete control over the property and can revoke the beneficiary designation.

Other Names for Arizona Beneficiary Deed Forms

Arizona is one a handful of states—including Arkansas, Colorado, and Missouri—that use the term beneficiary deed to refer to a deed that designates a beneficiary to inherit property at death. Most other states use the term transfer-on-death deed or TOD deed to refer to the same instruments. Illinois uses the term transfer-on-death instrument and Nevada uses the term deed upon death. These terms all refer to the same type of deed form.

A few states recognize a deed form called an enhanced life estate or lady bird deed. Like a beneficiary deed form, a lady bird deed form is used to avoid probate at death without sacrificing control during life. But lady bird deeds are not authorized by statute and differ in significant ways from beneficiary deeds. Even though beneficiary deeds serve the same purpose as lady bird deeds, they are not the same deed form and shouldn’t be confused with each other.

Benefits of Beneficiary Deed Forms

An Arizona beneficiary deed form has several benefits that make it a popular estate planning tool:

• Probate Avoidance. Most people who create a beneficiary deed do so to avoid probate. Probate can be a time-consuming and expensive legal proceeding. Property that passes by a valid beneficiary deed skips the probate process and passes directly to the beneficiaries without court involvement.
• Retained Control. A property owner who signs a beneficiary deed form keeps complete control over the property during his or her life. The owner can sell, mortgage, or rent the property without involving the named beneficiaries. If the owner changes his or her mind, the owner can simply revoke the deed or name different beneficiaries. This retained control distinguishes beneficiary deed form from the older life estate deed form.
• Local Tax Benefits. Because the beneficiary deed does not become effective until death, the owner is treated as continuing to own the property during life. This allows the property to continue to qualify for local tax benefits like homestead exemption or other favorable tax status.
• Federal Tax Savings. The owner’s retained control over the property means that the gift to the beneficiaries is not a completed gift during the owner’s life. This means that no gift tax is owed if the property is transferred by gift. It also means that the property will qualify for the full basis step-up at the owner’s death, effectively erasing any capital gains.
• No Legal Fees. The benefits described above can all be achieved with a living trust. But living trusts are more complex and can cost thousands of dollars. A beneficiary deed provides a lower-cost alternative with many of the same benefits.

Requirements for Arizona Beneficiary Deed Forms

An Arizona beneficiary deed form must meet several requirements that apply specifically to beneficiary deed forms:

• The deed must convey an interest in Arizona real estate to a grantee beneficiary designated by the owner;
• The deed must expressly state that the deed is effective on the death of the owner; and
• The deed must be recorded in the office of the county recorder of the county where the property is located before the death of the owner (or, with multiple owners, before the death of the last surviving owner).

An Arizona beneficiary deed form must meet all of the requirements that apply to other Arizona deed forms. These requirements include correct formatting, font, and page margins, as well as substantive legal requirements.

A deed that meets these requirements will transfer the owner’s interest to the beneficiary effective on the death of the owner. The transfer is subject to any debts or other encumbrances affecting the property (meaning that any debts will continue to be enforceable against the property after the property passes to the beneficiary).

How to Get an Arizona Beneficiary Deed

Arizona beneficiary deed forms were created by statute. It is important that each beneficiary deed meet the requirements of the statute, as well as the requirements of other provisions of Arizona law that affect transfers of real estate and recording of instruments.