Questions and Answers About Arizona’s “Beneficiary Deed”

MAY 7, 2001 VOLUME 8, NUMBER 45

Last week Elder Law Issues reported on Arizona’s new “Beneficiary Deed” statute. A law passed by the Arizona legislature this year creates a new, simpler way to pass title to real property, without any requirement of probate and avoiding the cost of establishing a living trust.

A number of readers had questions about the new deed form. Questions included:

When can I sign a beneficiary deed?

Most laws take effect 90 days after the legislature adjourns. Adjournment is now scheduled for Thursday, May 10. If the legislature actually adjourns that day, the new law will be effective (and beneficiary deeds will become an available choice) on August 3, 2001.

Will the recipients under a beneficiary deed receive the benefit of stepped-up basis for income taxes?

Yes. To explain: when you inherit property from another, you usually do not have to pay income taxes on the increase in value of that property during the prior owner’s life. For purposes of calculating the income tax on capital gains, your “basis” in the property is said to have been “stepped up” to its value on the date of death of the person who left it to you. Beneficiary deeds will reach the same result.

How will beneficiary deeds affect ALTCS (Medicaid) recovery rights?

ALTCS is Arizona’s long-term care Medicaid program. When it provides benefits, the program has a claim against the recipient’s estate. Under current law that claim can only be collected in a probate proceeding. Since the beneficiary deed will avoid the probate process, ALTCS’ claim will not be levied against the property. This makes beneficiary deeds particularly attractive to ALTCS recipients and their families.

It is worth noting that a different law passed by the legislature this year may undo some of this benefit. “Non-probate transfers” (including beneficiary deeds, living trusts and joint tenancy bank accounts, but not real estate held as joint tenants) may now be challenged by creditors, including ALTCS.

Why would anyone want to create a living trust now?

Beneficiary deeds will be a valuable new estate planning tool, but will not replace other options. Perhaps most importantly, a beneficiary deed will not help a married couple take advantage of the maximum estate tax exemption if their combined estates exceed the taxable level (currently $675,000).

Trusts remain a more effective way to control property after death (for a disabled or spendthrift child, for example). Trusts can be used for real property outside Arizona. Another advantage for trusts: a single amendment can change your entire estate plan, rather than requiring new deeds and beneficiary designation changes on each individual asset.

For those who already have established living trusts, the beneficiary deed probably represents a step backward. For those now considering their options for the first time the beneficiary deed may be an attractive, low-cost choice for estate planning.

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2 Responses

  1. MARY GARCIA

     /  November 8, 2016

    Hello!
    Can a beneficiary deed be done from an LLC to an individual?

  2. Ms. Garcia:

    The problem is that an entity doesn’t die. So if you create an ownership that says (converting to simple English) “transfer this property to Diane at the death of the owner” and the owner is a corporation, or an LLC, or even a partnership, it probably makes no sense.

    Talk to the lawyer who helped you establish the LLC (if there is one) about how the LLC language might reflect a comparable notion — that the LLC interest itself should transfer automatically at the death of the current member(s). Something similar to what you want to accomplish probably can be done.

    Robert B. Fleming
    Fleming & Curti, PLC
    Tucson, Arizona
    http://www.FlemingAndCurti.com

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