Transferring real (real estate) property to an heir or beneficiary can be accomplished many ways, including Power of Attorney, Probate, Wills and Trust Estates. Power of Attorney (PoA) are instructions while living. Wills are instructions upon death. Deeds are devices to transfer property. Trusts are holding entities for assets (including real estate).
Power of Attorney (PoA) are instructions from one party (Grantor) to another party (Grantee). The person given the PoA can sell, lien, or encumber the real estate of the Grantor anytime. The Power of Attorney terminates at death. Careful to give this power to only those you have complete confidence and trust in.
Probate is a court process. Probate requires the “state” or courts to transfer the property (by court order, usually upon death) of the owner of the property, using the “probate” process. The courts are presented information (Wills, Deeds, Trusts and interested parties) and then decides what the law and instructions of the owner are/were upon death.
Probate is required in Colorado if the estate is more than $63,000 in value OR has real estate. For estates without real estate AND less than $63,000, a simple process to transfer the assets can be done with or without an attorney.
During the Probate process, no property can be transferred, sold or encumbered until the PR has the “Letters” or court orders designating what can or cannot happen. Letters are the “Letters of Testamentary” (via directions from the Will) or “Letters of Administrations” (via directions from the Court without a Will). Property transfer (sale) is usually recorded with a PR Deed prepared by the probate attorney (not title company).
When selling a property under Probate, the priority for payment is: Property held as Trustee, Expenses of Administration, Funeral expenses, Debts and taxes under Federal law, Expenses of last illness, Debts and taxes under Colorado law, Medicaid recovery, everything else (including heirs).
Wills should be drafted by an attorney and kept updated yearly as needed. The person(s) designated to carry out the instructions of the Will is called the executor or PR (Personal Representative in Colorado). If no Will, the state decides who will be the PR.
Deeds can be recorded anytime to transfer property or encumber property with other parties. Care should be used when transferring property as many tax and estate planning issues should be considered.
If a property was transferred or “Deeded”, then the type of deed used will transfer the property before or upon death. For example, a Beneficiary Deed may be useful to transfer property (or a portion of the property) from one owner to another, but must be recorded prior to death (avoids probate). Another type of deed, the Joint Tenancy, can be used to transfer ownership (while living) to the surviving spouse upon death (make sure to include “in joint tenancy”, “as joint tenants”, or “JTWROS” in the deed, these will exclude the asset from probate!)
For investment property, the Tenants in Common Deed (the default type of deed in Colorado) can be used to transfer ownership interest to heirs. (Probate required when property is/was titled as Tenants in Common.)
Deeds are useful to plan for what should happen upon death. Recording of the Deed should take place far in advance of death or illness so the courts can easily understand the desire or plan of the person granting the Deed.
Trusts (both revokable or irrevocable) are useful to avoid probate. Trusts are established during the lifetime of the owner with specific directions in the trust agreement (not recorded) address how a property should be used, who should receive the benefit and who should administer the trust (before, during and after death). The major parts of the trust are the Grantor, Trustee and the Beneficiary. Note: When using a Deed to transfer a property to a trust in Colorado, the Trustee should NOT be mentioned in the Deed or Probate will be required!!! (Mrs. Mitchell, Attorney, Ambler & Keenan, LLC, 9/5/13, “Transferring Property in Probate and Trust Estates”, CE Class, Windsor, CO). When selling a property out of a Trust, a “Trustee” Deed is used and the title company can prepare.
Estate planning is complicated and problematic with numerous issues including Medicaid, Social Security, Taxes and other issues. Competent legal and financial advisors should be consulted prior to implementing your estate plan.