Insuring Beneficiary Deeds in Colorado – How This May Affect Your Next Real Estate Transaction

Did you know

When providing title insurance on a property where there is a Beneficiary’s Deed involved, there is now a waiting period of 4 months after the date of the death of the grantor of a Beneficiary Deed is because the real property is subject to claims.  There would be no coverage under the owner’s policy for these types of claims and since we will not have issued a new owner’s policy, these claims are matters for the estate to address.

A waiver of  the four month period may be granted if the underwriter is provided a letter from the Colorado Department of Health Care Policy and Financing indicating that the Department does not have a claim nor will be asserting a claim.

 

“Beneficiary Deed” –  C.R.S. § 15-15-401 et seq.

During the 2004 legislative session, the Colorado Legislature enacted House Bill No.04- 1048, also known as the “Beneficiary Deed” legislation. The new law establishes Part Four to Article 15 of Title 15 of the Colorado Revised Statute to include Section 15-15- 401 through 15-15-415. The legislation, which becomes effective August 4, 2004, also includes minor revision to existing Sections 15-11-706, 15-15-101 and 38-30-113.5 so they are consistent with terms of the new law. The new law is accessible on the internet at: Colorado Revised House Bill 04-1048

The purpose of the new law is to provide a mechanism for a non-probate transfer of real property that enables an owner of real property to convey by deed an interest in real property to a grantee that will become effective upon the death of the owner. The new

law, in part, reads as follows:

“Vesting of ownership in Grantee-Beneficiary. (1) Title to the interest in real property transferred by a beneficiary deed shall vest in the designated Grantee-

.Beneficiary only on the death of the owner. (2) a Grantee-Beneficiary of  a beneficiary deed takes title to the owner’s interest in the real property conveyed by the beneficiary deed at the death of the owner subject to all conveyances, encumbrances, assignments, contracts mortgages, liens and other interests affecting title to the property, whether created before or after the recording of the beneficiary deed…  [C.R.S. § 15-15-407]

During the lifetime of the owner(s), the Grantee-Beneficiary shall have no right, title, or interest in or to the property and the owner(s) shall retain the full power and authority with respect to the property without the joinder, signature, consent, or agreement of, or notice to, the Grantee-Beneficiary for any purpose.

The new law provides that the form of the Beneficiary Deed should contain the words “conveys on death” or “transfers on death”, or otherwise indicates the transfer is to be effective on the death of the owner(s). A beneficiary deed in substantially the form attached to this bulletin as Exhibit “A” may be used. [C.R.S. 15-15-404]

The new law provides that a Grantee-Beneficiary interest may be terminated by the owner(s) with an instrument that revokes the beneficiary deed prior to the death of the owner or the execution and recording of a new beneficiary deed prior to the death of the owner(s). The joinder, signature, consent, or agreement of, or notice to, either the original Grantee-Beneficiary or the new Grantee-Beneficiary is not required for the change or revocation to be effective.

As to a revocation instrument, the statute provides that a form of “Revocation of Beneficiary Deed”, substantially in the form as set forth in Exhibit “B”, may be used. [C.R.S. 15-15-405].

For title insurance purposes, a conveyance or a transfer by an owner to a third party purchaser for value will be, viewed as a revocation of a Beneficiary Deed. [C.R.S. 15-15- 407]

The most recently executed beneficiary deed or revocation of all beneficiary deeds or revocations that have been recorded prior to the owner’s death shall control, regardless of the order of recording.  [C.R.S. 15-15-405 (3)]

Other incidents of the new law include but are not limited to the following:

  • Multiple Owners: Grantors that hold the property as joint tenants (a person who owns an interest in real property as a joint tenant with right of survivorship).  The “Beneficiary Deed” does not take effect until the death of the last surviving owner /grantor.
  • The “Beneficiary Deed” is only valid if the last surviving owner is one of the parties that executed the deed. For example, if A and B own the property as joint tenants and only A executes the beneficiary deed, the deed is invalid and the grantee takes nothing if B is the sole surviving owner of the property.
  • Multiple Grantees: One or more persons or entities capable of holding title to real property may be designated as Grantee-Beneficiaries in the “Beneficiary Deed” to receive an interest in the real property upon the death of the owner.
  • Successor in interest to the grantee: A “Successor Grantee-Beneficiary” is a person, persons, or entity designated in a “Beneficiary Deed” to receive an interest in the real property if the primary “Grantee-Beneficiary” does not survive the owner(s).
  • Termination of the beneficial interest:
  1. The beneficial interest may be terminated by the owner(s) during their lifetime by recording an instrument revoking the “Beneficiary Deed”. (Please See Exhibit “B”
  2. The beneficial interest may be terminated by the owner(s) during their lifetime by recording a new “Beneficiary Deed” to another Grantee­ Beneficiary.
  3. The beneficial interest may be terminated, for purposes of title insurance by the owner(s) during their lifetime by a conveyance or a transfer by an owner to a third party purchaser for
  4. The “Grantee-Beneficiary” may disclaim or refuse to accept the real property upon the death of the original owner(s)/grantors.
  • Purchaser from grantee-beneficiary protected. [C.R.S. 15-15-410)

Subject to prior rights or interests of others in the land before the owner died, a bona-fide purchaser for value or a bona-fide lender for value in its dealings with a Grantee-Beneficiary shall take title free of the rights of an interested person in the deceased owner’s estate and shall not incur personal liability to the estate or to any interested person. [C.R.S.15-15-407(2))

Any recorded instrument evidencing a transfer to a purchaser from, or lender to, a Grantee-Beneficiary on which a state documentary fee is noted under the provisions of C.R.S. 39-13-103, shall be prima facie evidence that the transfer was made for value. [C.R.S. 15-15-410(2) (Note: any such sale or loan by the grantee-beneficiary does not relieve the grantee-beneficiary from obligations to other creditors and claimants under the estate of the decedent owner.)

  •  Rights of creditors and others [C.R.S. 15-15-407)

If other assets of the estate of the deceased owner are insufficient to pay all claims against the estate, then a transfer of real property resulting from a beneficiary designation is not effective against the estate of the deceased owner to the extent needed to pay all claims against the estate. A proceeding to assert liability against a Grantee-Beneficiary may be initiated under the provisions  of CRS 15-15-409.

Further, under the provisions of Section 15-15-403 the interest of the grantee-beneficiary shall be subject to any claims of the Department of Health Care Policy and Financing as a “countable resource” for recovery of medical assistance payments pursuant to section 25.5-4-301 or 25.5-4-302 and may be enforced in accordance with Section 15-15-409. [C.R.S. 15-15-407]

Rights of Creditors provided under C.R.S. 15-15-407 do not affect the protection provided by Section 15-15-410 to bona-fide purchasers or lenders for value, with respect to claims of the personal representative or estate of a deceased owner against a Grantee-Beneficiary.

policy of title insurance

Rules of Title Practice 

Sale of property: If a “Beneficiary Deed” appears in the chain of title, the deed should be shown as an exception in Schedule B of the commitment. The exception should read substantially as follows:

The interest of [state name of grantee(s)] created by “Beneficiary Deed” from [state name of grantor(s)/owner(s)] recorded            , 20_, under Reception Number                     Official Records under.the provisions of§§ 15-15-401, Et Seq., Colorado Revised Statutes.

 

An exception for rights under a beneficiary deed, may be eliminated from Schedule B of a policy, by the recording of a transfer by all the original owner(s)/grantor(s) to a third party purchaser for value or the recording of a “Revocation of Beneficiary Deed” by the original owner(s)/grantor(s).

If a transfer by the original owners(s)/grantors under the “Beneficiary Deed” appears in the chain of title to the real property, assure the following is confirmed:

  1. That it has been executed by all the original owner(s)/grantor(s) that executed the original Beneficiary Deed”.
  2. If the transfer under the “Beneficiary Deed” has been executed by less than all the original owner(s)/grantor(s), the termination of the beneficial interest will not be effective until such time as there is a transfer executed and recorded by the last surviving owner who also executed the original “Beneficiary Deed”.
  3. Refinances and other loans: If the transaction is for a loan only, the exception for the beneficiary deed may be shown in Schedule B, Part II, or an appropriate endorsement may be issued to the lender (Such as a modified Form 110.2 Endorsement).

Elimination of a beneficiary deed as an exception. You may rely on:

  • A properly executed and recorded transfer to another third party purchaser by all the original owner(s)/grantors under the original “Beneficiary Deed”.
  • The recording of an instrument revoking the “Beneficiary Deed” by all the original owner(s)/grantor(s) under the original “Beneficiary Deed”. (See Exhibit “B”.)

You are required to run the general index (GI) to determine whether a” Beneficiary Deed” may have been posted to the GI. There exists the possibility that the plant may post the “Beneficiary Deed” interest to the GI, especially if the “Beneficiary Deed” was recorded without a legal.

You may rely on a “Beneficiary Deed” to pass title to the named Grantee-Beneficiary if:

  1. The record does not disclose a transfer by the original owner(s)/grantor(s) to another Grantee- Beneficiary and the owner(s)/grantor(s) have passed away.
  2. The record does not disclose a “Revocation of Beneficiary Deed” signed and recorded by original owner(s)/grantor(s) in their lifetime.

If multiple owners/grantors appeared on the “Beneficiary Deed”, you must determine that the all the original owners/grantors including the last surviving member of the original owners/grantors that signed the “Beneficiary Deed”, have passed.

Evidence of the death of the original owner(s)/grantor(s) is For purposes of title insurance, evidence of the death of the original owner(s)/grantors may be evidenced by the recording of a certified copy of death certificate attached to an affidavit of death (similar to an affidavit of death of joint tenant). [C.R.S. 15-15-413]

You may rely on a “Beneficiary Deed” to pass title to and insure the named Grantee-Beneficiary if:

  • The matters described in “a.” through “d.” of paragraph “6.” herein above have been completed or
  • An exception in Schedule B of the commitment and policy is included for:

 

Any claim of the Department of Health Care Policy and Financing for Recovery of Medical Assistance Payments Pursuant to Section 26-4-403 or 26-4-403 .3 by reason of the death of the decedent named below who was a former owner/grantor of said land under “Beneficiary Deed” recorded——-

Decedent:                                  _

An exception in Schedule B of the commitment and policy is included for: The lien of any Colorado Estate Tax (C.R.S. 39-23.5-101 et. Seq.) by reason of the death of the decedent named below who was a former owner of the land. Decedent [state name of decedent owner(s)].

An exception in Schedule B of the commitment and policy is included for: The lien of any Federal Estate Tax (Title 26 USCA- I.R.C. 2037) by reason of the death of the decedent named below who was a former owner of the land. Decedent [state name of decedent owner(s)].

You may rely on a “Beneficiary Deed” to pass title to and insure a bona-fide purchaser or lender of the named grantee-beneficiary if:

  • The matters described in “a.” through “d.” of paragraph “6.” herein above have been completed or
  • A requirement in Schedule B Section I of the commitment is included for:

the release, satisfaction, or evidence of non-applicability of: The lien of any Colorado Estate Tax (C.R.S. 39-23.5-101 et. Seq.) by reason of the death of the decedent named below who was a former owner of the land. Decedent [state name of decedent owner(s)].

  • A requirement in Schedule B Section I of the commitment is included for the release, satisfaction, or evidence of non-applicability of: The lien of any Federal Estate Tax (Title 26 USCA- I.R.C. 2037) by reason of the death of the decedent named below who was a former owner of the land. Decedent [state name of decedent owner(s)].

 

 

Summary
Insuring Beneficiary Deeds in Colorado - How This May Affect Your Next Real Estate Transaction
Article Name
Insuring Beneficiary Deeds in Colorado - How This May Affect Your Next Real Estate Transaction
Description
There is now a 4 month waiting period Insuring transactions where a Beneficiary Deed is involved. Find out how this may affect your next transaction.
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First American Title Company
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