Non-Probate Transfers

Arizona law on nonprobate transfers has three parts to it; they are:  General Provisions (Article 1), which incorporates the Uniform Nonprobate Transfers on Death Act, as well as providing a framework for addressing and resolving creditor claims in the context of trust administration; Accounts (Article 2), which is Arizona’s adoption of the Uniform Multiple-Persons Accounts Act; and Securities (Article 3), which is Arizona’s adoption of the Uniform TOD Security Registration Act.

Article 1 – General Provisions – Incorporating the Uniform Nonprobate Transfers on Death Act

When a person leaves property to someone by a written bequest, that written bequest must conform to certain formalities to be held a valid disposition.  Arizona law removes from the scope of probate, and therefore the formalities, certain enumerated documents which enable a person to name one or more beneficiaries to receive their property on their death.  For this reason, these documents are often referred to as “will substitutes.”  Pursuant to statute, these documents include “any insurance policy, contract of employment, bond, mortgage, promissory note, certificated or uncertificated security, account agreement, custodial agreement, deposit agreement, compensation plan, pension plan, individual retirement plan, employee benefit plan, trust, conveyance, deed of gift, marital property agreement or other written instrument of similar nature.”  Pursuant to statute, the instrument must contain specific language in reference to a number of issues.  Also, this law does not limit the rights of creditors under other laws of Arizona, and Arizona courts have made clear the remainder of the probate code’s provisions apply to will substitutes in the absence of express contrary intent.

Creditors’ Rights 

Arizona law sets forth the circumstances in which the recipient of assets subject to certain nonprobate transfer designations is liable to the allowed claims and statutory allowances of the decedent’s probate estate.  Nonprobate transferees protected by other statutes or case law and surviving joint tenants of real estate are exempted from liability under this section.  An allowed claim must be established, and creditors must take care in establishing a claim on its own behalf as doing so may constitute a conflict of interest transaction.

Once the claim is allowed, the statute sets forth the order of classes of nonprobate transferees from whom the claim will be satisfied.  Next, the statute addresses how to go about paying the claim.

Arizona law also provides trustees of non testamentary trusts a framework to address creditors of the decedent, without opening a probate estate.

Article 2 – Accounts – Arizona’s Adoption of the Uniform Multiple-Persons Accounts Act  

During life, owners of accounts may add other persons to their accounts for a variety of reasons such as reflecting lifetime ownership between more than one party, to pass assets at death to another person, or to enable a third person to conduct transactions for them.  Accounts are owned by the parties during their lifetimes in accordance with their respective net contribution to the account.

Article 3 – Securities – Arizona’s adoption of the Uniform TOD Security Registration Act 

Article 3 is intended to allow owners of securities to register title in a form transferable upon death.  This includes the securities themselves as well as mutual funds, and the brokerage accounts that hold them.

For a beneficiary designation to apply, the registration must be for a “security” that is owned by a single person or by multiple persons (as joint tenants with rights of survivorship or community property with rights of survivorship, but not as tenants in common).  Pursuant to statute, a “security” is defined as “any share, participation or other interest in property, in a business or in an obligation of an enterprise or other issuer and includes a certificated security, an uncertificated security and a security account.”  A “security account” includes reinvestment accounts, brokerage accounts, cash balances in those accounts, cash equivalents, and investment management or custody accounts held with a trust company.

Pursuant to statute, the beneficiary becomes the owner of the security, and may register the security in his or her own name, upon the death of the owner (or the last to die of multiple owners), and providing proof of the death and complying with the registering entity’s requirements.  Multiple beneficiaries take their interests in the security as tenants in common.  If there is no surviving beneficiary then the security becomes part of the estate of the deceased owner (or the last to die of multiple owners).

Arizona’s Beneficiary Deed to Real Estate

An ideal tool for those with a modest-sized estate in which the residence is the primary estate asset, the beneficiary deed is similar to payable on death accounts in that it allows for the transfer of real estate on the death of the owner to whomever the owner designates as beneficiary, thereby avoiding probate.

Pursuant to A.R.S. 33-405, a beneficiary deed is “[a] deed that conveys an interest in real property, including any debt secured by a lien on real property, to a grantee beneficiary designated by the owner and that expressly states that the deed is effective on the death of the owner transfers the interest to the designated grantee beneficiary effective on the death of the owner subject to all conveyances, assignments, contracts, mortgages, deeds of trust, liens, security pledges and other encumbrances made by the owner or to which the owner was subject during the owner’s lifetime.”

In addition, the statute allows for multiple beneficiaries who may take title in any recognized form, and may designate a successor grantee beneficiary, which should be indicated in the event a beneficiary predeceases the owner of the property. A beneficiary deed may also be used to transfer an interest in real property to the trustee of a trust, even if the trust is revocable.

ADVANTAGES

A beneficiary deed allows for the avoidance of probate.  Arizona allows for the transfer of real estate by affidavit, however, pursuant to statute the value of all the real property in the estate, less liens and encumbrances as of the date of the decedent’s death, cannot exceed $100,000. The use of a beneficiary deed to transfer real property will avoid the need for a probate proceeding in cases where the equity in the property is in excess of $100,000.

A beneficiary deed does not carry with it the disadvantages associated with adding someone as a joint tenant.  Many aging parents are using the technique of adding their adult child or children as joint tenants to avoid a probate proceeding upon their death. However, this can result in unintended tax and other consequences. Should their child become involved in a lawsuit (divorce, tort action, or bankruptcy), the property on which that child’s name has been added is subject to those proceedings.

A beneficiary deed is easily revoked.  A beneficiary deed is easily revoked by the owner, or if there is more than one owner by any of the owners who executed the beneficiary deed, by executing and recording the revocation as provided by law in the office of the county recorder in the county in which the property is located.

A beneficiary deed is an effective tool for transferring property in the case of unmarried couples.  An unmarried couple does not enjoy the benefits a married couple does in the event the relationship ends, and it’s often difficult to determine the property rights of those involved. Particularly in cases where property has been purchased solely with the assets of one party, it might be more appropriate to place one’s partner on the deed as a beneficiary rather than a co-owner.

DISADVANTAGES

In the case of joint owners, the surviving owner can defeat the purpose of the beneficiary deed.  In cases where there are joint owners of property, and they have executed and recorded a beneficiary deed, upon the death of the first joint owner to die, the surviving owner can revoke the beneficiary deed. It’s for this reason that the use of a beneficiary deed might be problematic for couples with prior marriages and children from those prior marriages, as there is no provision in the statue for an irrevocable beneficiary designation.

There is the possibility of conflict in the event multiple beneficiaries are named.  In cases where multiple beneficiaries are named, there is the potential for disagreement as to how the property should be managed and whether the property should be kept in the first place or, alternatively, sold. The use of a revocable living trust might be the better alternative to manage these issues.

There are issues with the use of a beneficiary deed when leaving property to minor children.  Due to the numerous issues involved with leaving assets to minor children, a child’s trust (either testamentary or living) should be named as the beneficiary of the beneficiary deed.

There are possible estate tax issues when using a beneficiary deed to transfer property on one’s death.  Using a beneficiary deed to transfer property on one’s death precludes the use of the property to fund a credit shelter trust, because the property does not pass into the trust until the death of the surviving spouse.

Although extremely popular and an effective estate planning tool in some situations, due to the drawbacks, the use of a beneficiary deed is not recommended for every estate plan, and the advantages and disadvantages of using a beneficiary deed should be considered carefully before executing and recording one as part of one’s estate plan.

Transfer of Automobiles 

Arizona authorizes the transfer of automobiles by a transfer on death provision attached to a vehicle title.

 

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