Arizona Beneficiary Deeds & Trusts: Creating Life Interests in Real Property at Death
May 17, 2011
Arizona beneficiary deeds and trusts are versatile and flexible methods of creating interests in property, however, the following discussion is limited to creating life estates in real property.
On occasion, a decedent may desire to permit another to use real property after the death of the decedent but only for as long as the other person is alive, thereby restricting the other person (life tenant) from directing the transfer of the property at the life tenant's death. Although there are a number of different methods to create a lifetime interest in real property at a person's death, two of the simplest and most flexible methods are beneficiary deeds and trusts.
A deed is the legal means of transferring real property from one owner to another. A deed generally becomes effective when it is executed, however, Arizona law provides for a special type of deed, called a beneficiary deed, that that will not become effective until the death of the grantor. Moreover, a beneficiary deed may convey either a fee simple absolute, i.e. an interest not subject to divestment, or a fee simple defeasible, i.e. an interest that is subject to divestment.
In order to create a life interest in real property at death via a beneficiary deed, the owner of real property executes the beneficiary deed currently, but it will not become effective until his/her death. If the grantor wishes to create a life estate, the deed specifies that a life tenant will posses a life estate in the property and that the property will be transferred to a successor beneficiary upon the life tenant's death. Because a beneficiary deed does not become effective until the grantor's death, it can be either directly revoked during the life of the grantor.
A trust is an centruries-old legal concept whereby a third party (trustee) holds property for the benefit of another (beneficiary) at the request of the property owner (grantor, settlor, or trustor). Specifically, a grantor transfers ownership of his/her property to the trustee for the benefit of the beneficiary or beneficiaries. The trustee is required to act as a fiduciary, i.e. cannot use the property for him/herself to the detriment of the beneficiary or beneficiaries, and is liable if he/she does not so act.
In order to create a life interest in real property at death via trust, the owner of real property transfers the property to a trust for which he/she would be both the trustee and beneficiary, the life tenant would be the successor trustee and contingent beneficiary, and a second successor trustee and second contingent beneficiary would also be specified. Such a trust may be either revocable (the grantor can revoke the trust prior to death) or irrevocable.
This brief overview of some important considerations associated with life interests in real property, revocable trusts, and beneficiary deeds is by no means comprehensive. Always seek the advice of a competent professional when making important financial and legal decisions.