Beneficiary Deeds in Colorado - Part I: Overview of Legislation - Estate and Trust Forum
| Publication year | 2005 |
| Pages | 79 |
| Citation | Vol. 34 No. 6 Pg. 79 |
2005, June, Pg. 79. Beneficiary Deeds in Colorado - Part I: Overview of Legislation - Estate and Trust Forum
June 2005
Vol. 34, No. 6 [Page 79]
Estate and Trust Forum
Beneficiary Deeds in Colorado - Part I: Overview of Legislation
by Carl G. Stevens, James G. Benjamin
This column is sponsored by the CBA Trust and Estate Section.
Column Editor:
David W. Kirch, of David W. Kirch, P.C., Aurora - (303) 671-7726, dkirch@qwest.netAbout The Authors:
This month's article was written by Carl G. Stevens, Lakewood, an attorney with Brant, Stevens & Graf, LLC - (303) 238-9700, carlstevens@qwest.net; and James G. Benjamin, Greenwood Village, an attorney with Benjamin, Bain & Howard, LLC - (303) 290-6600, jgbenjamin@bbhlegal.com. The authors were members of the joint committee that drafted the legislation discussed in this article.
The authors gratefully acknowledge the late R. Sterling Ambler, who wrotean outline on which this article is based. Sterling was a long-time CBA member and chaired the joint committee that drafted the beneficiary deed legislation. Sterling passed away shortly after enactment of the statute.
Beneficiary deeds are revocable before death but transfer any real estate interest at death without probate. Colorado's beneficiary deed act protects third parties with interests in the real estate, allows probate if needed for claims, and prohibits use by Medicaid recipients. Part I provides an overview of the legislation. Part II, which appears in this issue in the Real Estate Law Newsletter column, addresses practical applications.
A beneficiary deed, sometimes called a "transfer on death deed," provides a means of transferring title to real estate at death without a judicial probate. This concept is deceptively simple to describe. However, its implementation becomes complicated when creditors' rights and the establishment of marketable title are taken into account.
Colorado's beneficiary deed statute, which is codified in CRS §§ 15-15-401 et seq. ("Statute"), is a hybrid of probate1 and real estate law that usually - but not always - allows the transfer of real estate without a probate proceeding. Because there are exceptions to its use, the practitioner should be aware of several rules before using the beneficiary deed technique.
Part I of this article reviews the background of the beneficiary deed legislation. In addition to describing the basics of drafting beneficiary deeds, it provides practical suggestions for using this method and compares it with other nonprobate transfers. Part II of the article, which appears in this month's Real Estate Law Newsletter at page 103, provides a real estate perspective of the new legislation and gives practical tips for using the beneficiary deed process.
History of the Statute
House Bill 04-1048, which authorizes beneficiary deeds, was signed into law on May 12, 2004 and took effect on August 4, 2004.2 The Statute was the result of many hours of consideration and discussion among members of the Colorado Bar Association Trust and Estate and Real Estate Sections,3 as well as considerable negotiation with the Colorado Attorney General's office and the Colorado Department of Health Care Policy and Financing ("DHCPF"). DHCPF wanted to ensure that this technique did not alter or impede the state in its efforts to recover from the estates of Medicaid recipients.4
"Beneficiary deed" is a new term in Colorado law. However, the Statute fleshes out the "deed of gift" method of nonprobate transfer of real estate fleetingly mentioned in CRS § 15-15-101. Prior to enactment of the Statute, some Colorado attorneys used CRS § 15-15-101(1) to create various forms of beneficiary deeds containing different conditions and limitations. The new Statute does not invalidate these deeds;5 it also allows for other methods of transfer. The Statute applies to beneficiary deeds executed by an owner who died after August 4, 2004.6
Although the beneficiary deed system is a relatively new concept for most practitioners in Colorado, several other states previously enacted statutes permitting such transfers of real property.7 The drafters of the Statute drew from other states' statutes8 and added language to deal with Colorado concerns. (See accompanying sidebar, "Key Features of Colorado Beneficiary Deed Statute.")
Philosophy of Legislation
In general, the drafters believed the beneficiary deed primarily would be used: (1) for simple small estates, as a probate avoidance device; and (2) as a means of funding revocable living trusts in situations where clients might want to engage in periodic refinancing of a home. Many mortgage companies refuse to finance homes held in trust. The use of the beneficiary deed should eliminate the need to transfer homes in and out of trusts solely for refinancing. In addition, the drafters had in mind the following primary objectives and philosophies.
1. The Statute would be creditor-neutral. In other words, creditors of the decedent were not to be deprived of any rights they might have had if the property had been in a probate estate.9 This provision is similar to the provisions with respect to payable on death and jointly held bank accounts in Probate Code Parts 2 and 3 of Title 15.10
2. Bona fide purchasers from and secured lenders to the grantee-beneficiary after the death of the owner are to be protected.11
3. The beneficiary designation is to be revocable and may be changed by the owner at any time during his or her lifetime without the consent or joinder of the named grantee-beneficiary.12 The grantee-beneficiary has no property interest until the death of the owner.
4. The owner is to have the freedom to deal with the property as he or she sees fit while living.13 There is no need for the grantee-beneficiary to join in any transaction that may affect the title to the property.
5. The Statute is intended to be available for use in cases of smaller estates for probate avoidance where the only reason for a probate would be to distribute a residence or other real property that was held in the owner's name. Nevertheless, it also may be used to add a piece of real property to an existing trust.
6. Time limits are to be placed on the ability of persons to object to the transfer after death, the purpose of which is to accelerate the ability to determine marketability of title.
Key Features of Colorado Beneficiary Deed Statute
The Statute, CRS §§ 15-15-401 et seq., adds rules for nonprobate transfer of title to real property. The rules:
Define terms
Require recording of the beneficiary deed prior to death
Allow the owner to maintain lifetime control of the property by changing or revoking a beneficiary designation prior to death
Create a mechanism for protection of the decedent's creditors
Prohibit use as a Medicaid planning technique
Set forth criteria for marketability.
Beneficiary Deed Basics
Understanding the beneficiary deed process should help practitioners see how the Statute fits into practice. Following is a summary of the basics of how a beneficiary deed works.
Definitions and Scope
Although the Statute has only six definitions,14 they are integral to understanding the Statute. Following is a summary of those definitions, which are set forth in CRS § 15-15-401:
Beneficiary Deed: This is defined as a deed subject to revocation and effective on death. It also includes within its terms conveyance of any interest in real property; thus, the beneficiary deed also may be used for conveying interests such as deeds of trust or leases.15
Deed: A "deed" is defined simply as any "conveyance of real property."
Grantee-Beneficiary: This is the person or entity that is to receive the property on death of the owner. It includes the term "successor grantee-beneficiary," which is separately defined.
Owner: An owner is simply the grantor of the beneficiary deed. It is defined because the term "grantor" alone might otherwise be viewed as: (1) restricting the types of interests in real estate that can be conveyed by a beneficiary deed; or (2) vesting a property interest in the grantee-beneficiary at the time of execution and recordation, as opposed to at the time of the owner's death.
Successor Grantee-Beneficiary: This is the person or entity that takes the interest if the primary beneficiary does not survive the owner.
Transfer: As a verb, "transfer" is defined to mean "to convey." As a noun, "transfer" refers to the conveyance.16
Suggested Statutory Forms
The Statute includes suggested forms for the beneficiary deed and revocation.17 These forms are not mandatory; they were included as aids to the practitioner and with the recognition that this technique is certain to attract a number of do-it-yourself laypersons.
The drafters wanted a form in the Statute that would include a warning about the need for recording prior to death of the owner to create an effective beneficiary deed, because this is a departure from Colorado law regarding other deeds. The legislature added two other warnings to the...
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