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Are You the Heir to a Beneficiary Deed?

Four generations smiling together, one benefactor with three beneficiaries.

Being named a beneficiary may come as a surprise, or it may be expected. Depending on your relationship to relatives and other property owners, being an heir comes with a few responsibilities.

If you’ve been named a beneficiary, here’s what you need to know to honor your predecessor’s wishes and protect your future property from any surprises.

What is a Beneficiary Deed?

Many times, property owners choose to name a beneficiary by executing a transfer-on-death (“TOD”) deed, or “beneficiary deed” in order to avoid probate. As its name suggests, a TOD deed can only be administered after the decedent is gone. If a will or revocable trust contradicts a beneficiary deed, the beneficiary deed stands.

How it Works

While your benefactor is still alive, he or she retains full ownership of the property. Unlike other means of conferring real property, a beneficiary deed can be changed by the owner anytime while still living. When the day comes that the courts step in to assess what belonged to your predecessor, property under a TOD deed is outside of probate, meaning it is not disclosed to the courts and never becomes public knowledge.

One benefit of this property transfer method (over, say, a will or revocable trust) is that if you’re struggling financially and unable to satisfy your current debts each month, no collections organization may identify your interest in the property while you wait to inherit.

What to Do

  • Involve your lawyer. The execution of such a deed is a little tricky legally, so it’s important you urge your predecessor to discuss the administration of his wishes with his estate planning lawyer. Likewise, phone your own adviser to get guidance on your involvement of the process.
  • Explore alternatives. After discussing options with your attorney, you may decide a TOD deed is not the best route to take as a beneficiary. If you’re a spouse, for example, look into executing a quitclaim deed with “rights of survivorship” in the verbiage as a less complicated option.
  • Be sure you’re not merely added to the property deed. Sometimes, to avoid the hassle, property owners make the mistake of simply adding a name to their property deed. The assumption is that when they’re gone, you’ll inherit. Unfortunately though, that won’t give you rights to the entire property, only a portion.
  • Get your financial act together. When your predecessor passes, you don’t want to be in the awkward position of needing cash so badly that you must sell the property immediately. TOD deeds usually require a minimum of four months before being sold. This gives anyone the chance to record a claim they may have against the property. So now is the time to get current and develop good habits. If you need help making payments on your debts, call a non-profit debt counselor to advocate on your behalf, long before inheriting a property and the responsibilities that accompany it.
  • Be ready. Preparation for the inevitable may seem morbid, but it’s not; it’s wise. Keep a file of important documents handy, like current insurance policy statements, wills, trusts, tax returns, portfolio statements, bank account information, and stock certificates. This is a chore you won’t want to have on your “to-do” list when grieving the loss of a loved one, so do what you can today to get organized.

Being a good beneficiary means showing your benefactor that you respect the gift of his hard work and will honor his legacy. It may take a little organization and thought, but in the end, it’ll all be worth it.

Image Source: Flickr


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