When someone dies without a will, their estate is considered intestate and will be distributed amongst the decedent’s heirs according to intestate succession laws. In Arizona, the surviving spouse will always receive 50% of the decedent’s estate; the remaining 50% usually passes to the surviving spouse as well, unless the decedent has any children from a separate relationship. In that case, the remaining 50% would be given to the decedent’s other children.
The process of transferring assets typically occurs through probate court, though some assets can transfer to beneficiaries outside of probate. Unfortunately, probate can be tedious and costly, so it’s ideal to avoid the process if possible.
Generally speaking, there are five ways that ownership of real property can transfer from the decedent to an heir. Three of the scenarios can take place outside of probate, while two would require probate court. The determining factor will be the ownership structure of the real property in question.
If the Property is Held in Tenancy by the Entirety
Tenants by the entirety is a form of joint ownership excusively available to a husband and wife. Each party has a right of survivorship over the property, meaning the property will pass to the surviving spouse automatically when the first spouse dies. Probate would not be necessary.
If the Property is Held in Joint Tenancy
Joint tenancy is another form of joint property ownership where all parties have equal shares and enter into the agreement simultaneously. Unlike tenancy by the entirety, however, the joint-owners do not need to be married. The agreement is typically initiated at the time of purchase, and all owners will be listed on the title and deed. As with tenancy by the entirety, joint tenants also have rights of survivorship. Upon the first owner’s death, the surviving owner(s) will inherit the decedent’s share equally, without probate.
If the Property is Held as Tenants in Common
In the previous two forms of ownership, the joint-owners are required to share equal ownership interests; with tenancy in common, the owners may control differing interests (e.g. one owner has 70%, the other has 30%). The percentage of ownership is usually based on the amount of capital each party contributes to the purchase price of the property, but that doesn’t always have to be the case.
Tenants in common do not have rights of survivorship. When one of the owners dies, their share of the property will belong to their estate. Ideally, the share will pass to a beneficiary mentioned in the decedent’s will through probate. In the absence of a will, the decedent’s estate will be subject to the state’s intestate succession laws, and would be transferred through probate.
If the Property is Titled Individually and the Decedent Executed a Transfer-on-Death Deed
This type of ownership is gaining in popularity as it allows an owner to transfer property outside of probate without having to give the beneficiary interest during the owner’s lifetime. The deed will transfer ownership of the property to the designated beneficiary when the owner dies, but until then the owner maintains full power and control over the property. The owner does not need to report the deed as a transfer of wealth subject to gift taxes, and the beneficiary’s creditors cannot reach the property—both of which can be huge complications when discussing traditional joint property ownership.
If the property in question has a properly executed and recorded transfer-on-death deed, the title can transfer to the designated beneficiary outside of probate. As a caveat, however, the beneficiary may be required to wait four months before selling the property, in order to allow time for creditors to submit a claim on the decedent’s estate in probate court. Consult with an estate planning attorney to see if this or other restrictions may apply.
If the Property is Titled Individually, and There is Not a Transfer-on-Death Deed
In this final scenario, the property can only be transferred through probate. Without a will or deed to direct the property, it will be included with the decedent’s estate and will be divvied up amongst the heirs according to the state’s intestate succession laws (discussed previously under tenancy in common).
How to Transfer Property Outside of Probate
If the property in question is held as tenants in the entirety, joint tenancy, or with a transfer-on-death deed, all you need to do is submit a copy of the death certificate to the title company. This process usually only takes a matter of weeks—significantly faster than probate, which can take four months or more.
How to Transfer the Property Through Probate
First, you’ll need to initiate probate. File a petition with the county court where the decedent lived or owned property, and include a list all of the potential heirs to the estate. If there is a family member or trusted advisor who would like to serve as the estate’s administrator, indicate that in the petition. If there is a dispute over who should serve as administrator, the court will appoint a neutral third-party administrator to handle the estate’s affairs.
Once probate is opened and an administrator has been appointed, the administrator will assess the estate’s assets and liabilities. If there are enough liquid assets (cash, bank accounts, securities) to cover the estate’s liabilities (bills, debts), the administrator can execute an administrator’s deed to the heirs in equal shares (or pursuant to court orders). The property would be titled as tenants in common, and the heirs would be free to jointly retain the property, to sell it in entirety and split the proceeds, or to sell their personal interest.
Alternatively, if there are more liabilities than there are liquid assets, the administrator will petition the court for a sale of the property to cover the liabilities. The court will usually order a sale of the property free of claims or liens, under the requirement that proceeds of the sale will be paid to the court. The court will then use the proceeds of the sale to satisfy the estate’s liabilities, and distribute the residual estate value to the appropriate heirs.
Call Arizona Estate Attorney Dave Weed at (480)467-4325 to discuss your case today.
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