Estate Planning
Colorado’s new beneficiary deed law became effective on August 4, 2004. The law applies to beneficiary deeds recorded by owners who die after that date, and governs not only beneficiary deeds created after that date under the new statutory guidelines, but also to the older “transfer on death” deeds previously authorized in Colorado. The new law answers many of the questions about these deeds left open by the general “transfer on death” law, paving the way for increased use of the beneficiary deed in Colorado.
Beneficiary deeds can help avoid the need to probate smaller estates. Colorado’s probate code allows successors to an estate to collect the estate assets by affidavit, rather than a full probate procedure, if the estate consists only of personal property with a value not exceeding $50,000.00. No such procedure is available in Colorado to clear title to real property at death. However, the new beneficiary deed law now provides Colorado practitioners with extensive guidance for use of the beneficiary deed to pass marketable title to a “grantee-beneficiary” at death, without the need for probate administration.
The new statute carefully defines the interest of the grantee-beneficiary in order to protect the rights of other parties interested in the property. First, during the lifetime of the owner who grants the beneficiary deed, the grantee-beneficiary has no legal right or interest to the property whatsoever, and the owner retains full power and authority with respect to the property without the need to notify or obtain the consent of the grantee-beneficiary for any purpose. This provision alone provides an advantage over the common practice of adding an intended heir as a joint tenant on property; there is no gift tax issue, and no potential for exposure of the property to the joint tenant’s creditors, because the grantee-beneficiary receives no interest in the property until the owner dies. The beneficiary deed also provides an alternative method to transfer real property to an owner’s trust at death, avoiding issues with lenders that might occur when mortgaged property is transferred to a trust during an owner’s lifetime.
Under the new law, to be of any effect a beneficiary deed must be recorded before the death of the owner. If not recorded, the property will pass to the beneficiaries of the owner’s probate estate, and the grantee-beneficiary on the beneficiary deed will receive no interest in the property. A beneficiary deed can be revoked during the owner’s lifetime by recording a revocation of the deed, or by recording another beneficiary deed executed after the revoked deed. A subsequent beneficiary deed revokes all beneficiary designations in their entirety, even if the subsequent deed doesn’t convey the owner’s entire interest in the property. At the owner’s death, the most recently executed beneficiary deed or revocation of all beneficiary deeds or revocations recorded before the owner’s death controls, regardless of the order of recording. If there is an effective beneficiary deed in place at the owner’s death, the owner’s will does not control disposition of the property, regardless of the date of the will.