Beneficiary Deeds in Colorado: What You Need to Know
For more than 20 years, Colorado has allowed the use of beneficiary deeds (sometimes called “transfer-on-death deeds” in other states). These deeds have become a popular estate planning tool because they let you transfer real estate directly to someone else when you pass away — without going through probate.
As helpful as they can be, beneficiary deeds are not the right fit for everyone. Here’s a plain-language overview of what they are, how they work, and some important cautions to keep in mind.
What Is a Beneficiary Deed?
A beneficiary deed is a document you sign and record during your lifetime that names a grantee-beneficiary to receive your property when you die.
You, as the owner/grantor, retain full ownership and control during your lifetime — you can live in, sell, or refinance the property.
The deed only becomes effective when you pass away.
You can revoke it at any time by recording a revocation of the beneficiary deed..
If you wish to name a new beneficiary (replacing the current beneficiary, you are required to record a revocation of the current Beneficiary Deed and record your new Beneficiary Deed.
If you sell your real property, the Beneficiary Deed becomes a moot issue.
This makes a beneficiary deed a flexible, straightforward way to make sure real estate passes to the right person without going through probate court.
Why They Can Be Helpful
Avoiding probate: Property passes directly to your beneficiary, often more quickly and at lower cost.
Simplicity: You don’t need a trust to accomplish a straightforward transfer of real estate.
Control: Unlike a gift during life, you keep full ownership until your death.
Risks and Limitations
While beneficiary deeds are appealing, they can carry hidden risks:
1. Medicaid eligibility
For the owner/grantor: Having a beneficiary deed in place will make you as the owner ineligible for Medicaid long-term care benefits, because the property is still considered yours until death. Medicaid cannot place a lien on your property after your death if you have recorded a beneficiary deed.
For the grantee-beneficiary: Once the property transfers, it becomes part of the beneficiary’s assets. If that person is receiving Medicaid or other needs-based assistance, suddenly owning real estate could cause them to lose eligibility.
2. Claims against the property
The person receiving property under a beneficiary deed takes it subject to all existing liens, mortgages, or claims. In Colorado, anyone with an interest in the property must record it within four months of the owner’s death — otherwise, they may be barred from asserting their rights. If claims exist and are properly recorded, the beneficiary may be responsible for resolving them.
3. Insurance issues
Unlike title insurance (which usually transfers to the new owner), homeowner’s insurance does not automatically carry over. A beneficiary who inherits through a deed must obtain their own coverage immediately to avoid gaps in protection.
4. Special cases: minors and trusts
A grantee-beneficiary must be legally able to hold title to property. Naming a minor child can cause complications, since children under 18 can’t sell or mortgage property without a conservatorship. Similarly, naming a trust requires careful drafting so that the trust actually exists and can accept the property when the time comes.
When a Beneficiary Deed May Not Be the Best Choice
If Medicaid eligibility is a concern.
If you want to protect a minor child or family member with special needs.
If your estate plan is more complex, such as blended families or unequal distributions among children.
If you wish to name more than one beneficiary, and the beneficiaries will likely not agree on the use and disposition of the property. This is a recipe for trouble.
In these situations, a trust or other estate planning tool may offer more flexibility and protection.
Final Thoughts
Beneficiary deeds are popular in Colorado because they can be practical, flexible, and cost-effective. But they are not one-size-fits-all. Because these deeds can also expose property to claims, affect Medicaid eligibility, and create complications with minors or trusts, it is important to get legal advice before using one.
If you’re considering a beneficiary deed, I’d be glad to walk you through whether it’s the right option for your goals and your family. Fill out our contact form and I’ll be in touch!
