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      Act 1918 of 2005 ("the Act") is intended to allow owners of Arkansas real estate to pass title to that real estate on their deaths directly to their chosen beneficiaries, without making the real estate the subject of probate proceedings, as a devise by will ordinarily would. To do this, the Act creates a new term and type of conveyance, the "beneficiary deed." It permits a grantor to execute and record a deed to an interest in real estate to a third party, but to expressly state that the conveyance becomes effective only upon the grantor's death at a time when the grantee has survived the grantor. The device is not limited to conveyance of fee title, but is applicable to any interest in real estate, including a lien and the debt which it secures.

Free to be . . .
     In the meantime, the grantor is free to lease, encumber and otherwise deal with the real estate, as if the beneficiary deed did not exist, so that the grantee may get the real property subject to mortgages and other liens created at any time prior to the grantor's death. The grantee is not required to join in any such lien instruments, but is in a position similar to that of a devisee of the property under a will, for those purposes.
A lack of trust . . .
     These results, of course, could already be achieved by use of a trust, wherein the trustee would take title to the real estate. The sponsor of the legislation, Rep. John Verkamp, has responded that such trusts are too expensive for people of modest means, who also are reluctant to use trusts because they are perceived as appropriate only for wealthy people. Retained life estates do not serve the purpose, he maintains, because they are not subject to revocation, while beneficiary deeds are, as are wills and trust agreements.
     Rep. Verkamp also draws a parallel to typical payable-on-death provisions in bank deposit accounts of all kinds, and also to uniform transfer-on-death statutes for securities accounts, a version of which was enacted in Arkansas in 1993 as the Uniform TOD Security Registration Act, codified as Ark. Code Ann. § 28-14-101-112 ("TOD Act").
An apparent preference . . .
     The property conveyed remains subject to the claim against the grantor's estate in favor of the Department of Human Services provided for in Ark. Code Ann. § 20-76-436, in the event the other assets on the grantor are insufficient to pay the DHS claim and other claims, but apparently on a preferential basis. For example, if the net assets of the estate are sufficient to pay 80% of the claims of the general creditors of the estate without the deeded property, but 100% with it, the Act appears to say DHS can collect its remaining 20% from the value of the deeded property, but it is silent as to the other creditors.
     The TOD Act simply says transfers-on-death under its provisions do "not limit the rights of creditors . . . against beneficiaries and other transferees under other laws of this state." Ark. Code Ann. § 24-14-109(b).
     New Mexico's very brief statute says essentially the same thing. (N.M. Stat. Ann. § 45-6-101-B). Missouri's very comprehensive statute (RSMo § 461.003-461-081) says claims are collectable out of the value of the property conveyed by beneficiary deed only after applying the remaining assets of the estate. (Arizona, Colorado, Kansas, Missouri, Ohio and New Mexico have statutes creating a similar type of conveyance, but none appear to take Arkansas' approach to DHS claims.)
Delayed reactions . . .
     The Act emphatically denies that any legal or equitable estate whatsoever is created in the grantee by the recordation of a beneficiary deed. It allows the conveyance to create (upon its effectiveness) standard estates in real estate, such as tenancies by the entirety, joint tenancies and tenancies in common. As with wills, successor grantees may be named, in case the initial grantee does not survive the grantor, and the grants may be otherwise conditioned---for example, the initial grantee might receive the property only if he has reached the age of 30 at the time of the grantor's death.
     Husbands and wives and joint tenants may also execute and record such deeds, but execution by all of the owners of interests is not necessarily required. For example, should a wife execute and record a beneficiary deed to real estate owned jointly with her husband, the deed would still be effective on her death if she were pre-deceased by her husband. Conversely, were she to pre-decease him, the beneficiary deed would lapse because she would have no title to pass at her death. Trustees of trusts can be grantees, even if the trusts are revocable, so long as they are not revoked prior to the grantor's death.
Out with the old . . .
     The statute appears to make the well-established concepts of delivery and consideration irrelevant to such deeds, in a major departure from the common law. Only recordation prior to the grantor's death makes the beneficiary deed effective, and delivery to the grantee would be irrelevant without that recordation. No consideration is required for such conveyances and presumably no revenue stamps.
     (The statute itself does not mention consideration, although the other states' statutes do. However, the form of deed set out in the statute does not, so, by inference, it is not required, which would be another profound departure from the common law of centuries past. Careful drafters should not rely on inferences, of course, especially since the form is required to comply "with other applicable laws….")
I take that back . . .
     As noted above, unlike conveyances with retained life estates, beneficiary deeds may be revoked in the same manner that they are created---that is, by executing and recording a revocation prior to the grantor's death. They may also be revoked under the Arkansas statute by executing and recording another beneficiary deed to someone else or by an absolute conveyance, to a third party or the original grantee. Again, it is the date of recordation that controls, not of execution or delivery.
     And the same rules apply as to other estates. For instance, in the husband and wife situation, suppose both executed and recorded a beneficiary deed. While he was still alive, he executed and recorded a revocation. If he pre-deceased her, the revocation would be of no effect, but if she pre-deceased him, the revocation would be effective without her execution. Revocation by one of the statutory procedures is the only effective method. It cannot be effected by will or other unrecorded writing.
Duly noted…
     In the case of a mortgage securing a note, the debtor would continue to treat the grantor as the creditor during the grantor's lifetime, but the note would not pass through probate and the debtor would have to recognize the grantee as the creditor upon the grantor's death.
     As noted, the Act provides forms of the beneficiary deed itself and also the revocation. Presumably, additional provisions could (and probably should) be included as well, so long as the basic elements and recitations are retained, but litigation on both points seems inevitable.
The "good" news . . .
     From his review of the statutes of the other six states and commentaries on them, Rep. Verkamp listed the benefits of the device as follows: (a) the expense and effort of probate are avoided; (b) the expense (which he estimated as $1000 or more) of preparation of trust documents is avoided; (c) there is no ongoing expense and effort of trust administration; (d) there are no restrictions on use or disposition of the real estate; (e) there is no gift tax on transfer; (f) the grant can be switched to a different grantee; (g) the grant can be revoked.
The not-so-good news . . .
     Lawyers Susan M. Ciupak and Joshua Forest, on the other hand, commenting on the Arizona version of the statute in the October 2001 issue of the Arizona Journal of Real Estate & Business, noted drawbacks in that state's version of the legislation (which the Act most nearly resembles): (a) the property remains in the grantor's taxable estate; (b) it cannot be used as a trust can to deal with an inheritance by minor children; (c) it is very cumbersome, both for granting and revocation, when there are multiple owners; (d) like the Arkansas version, the statute does not permit a restriction on revocation on the part of a survivor, even in contradiction of an earlier promise or understanding; (e) because of the need for possible revocation, there is an increased chance for errors in the process, especially with multiple owners; (f) it may not be clear to title researchers and others viewing the records that the interest does not exist until the grantor's death; (g) a beneficiary deed grantee may be mistaken as a remainderman; (h) revocation by only one co-owner may leave uncertain the extent of the revocation; (i) revocation by a non-granting co-owner may cloud the grantee's interest; (j) subsequent addition of a party as owner (for example, a second marriage) after granting of a beneficiary deed may call into question the grantee's rights; (k) there is no requirement of filing the death certificate or otherwise proving the death of the grantor; (l) a potential conveyance by a beneficiary deed to unborn grantees brings into question the validity of entire transfer, who holds the property in the interim and the potential application of the Rule Against Perpetuities; (m) there is potential uncertainty pertaining to whether the conveyance by beneficiary deed transforms a joint tenancy with right of survivorship into a tenancy in common; (n) there is potential confusion concerning the delay or failure to record, and subsequent grants of beneficiary deeds; (o) there is potential for litigation concerning the subsequent recording of a prior grant of beneficiary deed, as the legislation provides that the last recorded grant prevails; (p) whether a foreclosing party must give notice of foreclosure to a grantee beneficiary. Most of these drawbacks also clearly apply to the Act.
Grant, bargain and confuse . . .
     The very nature of the device appears to engender confusion. In Pippin v. Pippin, 154 S.W.3rd 376 (2004 Mo.App.), decided December 2, 2004, a couple essentially tried to use a beneficiary deed to achieve the same result as a deed with a retained life estate. Because the magic words regarding effectiveness on death were not included, the conveyance was not valid as either form of conveyance. Even conventional deeds with retained life estates have been rich sources of litigation in Arkansas. See, for example, King v. Slater, 96 Ark. 589, 133 S.W. 173 (1910) and Whetstone v. Hunt, 78 Ark. 230, 93 S.W. 979 (1906).
     Trying to use a beneficiary deed instead of a revocable trust will at the very least limit the grantor's ability to name "the natural objects of her bounty," and thus clarify her intentions. Such clarity may also avoid a lawsuit by disgruntled heirs, as represented by another Missouri case, Jolly v. Clarkson, 157 S.W. 3rd 290 (2005 Mo. App.), decided January 28, 2005.
Breaking the Code . . .
     Additionally, the Act in Arkansas not only changes existing common law but possibly other statutes, notably Ark. Code Ann. § 4-3-201 et seq. and Article 3 of the Uniform Commercial Code in general. For example, under existing law, a mortgage essentially follows the secured note. Ark. Code Ann. § 4-3-301. In other words, if a secured note is endorsed and transferred, the lien is also transferred. It is the note that the debtor can require to be exhibited as a condition of making payments to the holder. Should a beneficiary deed be used to transfer a debt and lien, upon the death of the original creditor the grantee becomes the creditor and lien holder, but the note will neither have been endorsed nor will it have even been delivered to the grantee.
     Further, since the point of all this is to avoid probate, there will be no personal representative to endorse and deliver the note. The note could in fact be endorsed prior to the grantor's death to a third party who could present it for payment. The debtor would not necessarily even know that the grantor had died, much less be alerted to check the real estate records for a beneficiary deed and, hence, a new holder. The integrity of the record has been compromised by the Act.
     The Act attempts to deal with this, but by allowing the debtor to require proof of (a) the payee's death, and (b) non-revocation. It says absolutely nothing about exhibiting the note itself.
A question of policy . . .
     The clear trend with regard to fiduciaries is toward openness and informativeness. For example, the Uniform Trust Code requires a newly-appointed trustee to notify the principal beneficiaries of the trust of her appointment promptly after accepting it. Unif. Trust Code § 813(b)(2). That policy runs through the entire UTC, which was adopted last year in Arkansas as the Arkansas Trust Code (Act 1031 of 2005). A grantor could record a beneficiary deed to a significant real estate asset and later draft a will inconsistent with that conveyance. The personal representative collecting the assets would probably be aware of the asset, but would she run a title check to make sure there was no previous conveyance?
     The situation is not the same with a conveyance of property with a retained life estate - there has been a present conveyance, probable changes in tax bills and other opportunities for actual notice of the conveyance. Further, many if not most such conveyances involve a support deed - that is, a conveyance in return for support for the remainder of the grantor's life. Hence, the grantee is obviously going to be aware of the conveyance.
Short-changed by shorthand . . .
     Bargaining successfully for support in return for a revocable beneficiary deed, on the other hand, seems unlikely. But, the shorthand represented by support deeds also frequently results in legal wrangles, especially when combined with a retained life estate. See, for example, Rose v. Dunn, 284 Ark. 42, 679 S.W.2d 180 (1984); Seboly v. Seboly, 208 Ark. 1008, 188 S.W.2d 625 (1945); and Rumph v. Rowe, 230 Ark. 64, 320 S.W. 2d 749 (1959). Cutting corners on documentation just naturally increases costs, and careless use of beneficiary deeds can be expected to produce similar consequences.
     Circumstances can also alter results. A grantor typically has some control over when an instrument is delivered, but not necessarily when it is recorded. For example, an ailing grantor may exert her best efforts to get a beneficiary deed placed of record, but be penalized because her lawyer has left it on his desk (a potential liability issue), or the courthouse is closed. There is no such thing as constructive recording, and constructive delivery does not count.
The law of unintended consequences . . .
     The same issues hold true with regard to revocations, and with perhaps more likelihood of an unintended result. Suppose a grantor executes and records a beneficiary deed to her daughter and son-in-law to Arkansas real estate. She then retires to Oregon. Daughter and son-in-law get a divorce, so the grantor is anxious to execute and record a new beneficiary deed, perhaps to herself as trustee of a grantor trust for her daughter and grandchildren, or at least a revocation.
     Instead of having her will or trust agreement revised in Oregon (maybe even on a holographic basis), she now needs to get a new instrument (1) drafted (presumably by an Arkansas lawyer), (2) sent to Oregon for execution and acknowledgment, then (3) returned to Arkansas, where (4) hopefully it will be recorded. Remember, the Act prohibits revocation by any method other than a document recorded in the appropriate Arkansas county before the grantor's death.
Saying what you mean . . .
     It is simple enough, and customary, to write into wills or trust documents provisions for bequests to pass to heirs of an individual devisee who does not survive the testator or grantor, without the necessity for them even being identifiable at that time. But, a beneficiary deed is a conveyance, and it is not clear at all that such a provision could be included in such a deed in Arkansas. In fact, it appears that the Ohio statute (ORC Ann. § 5301, et. seq.) does not allow inclusion of a grantee who cannot be specifically named, (i.e., unnamed heirs of a grantee who fails to survive the grantor), while the Missouri version (noted above) contains a lengthy provision allowing it. Again, careful drafters in Arkansas would follow the Ohio model, in the absence of case law or supplemental legislation, or risk unforeseen lapses.
     These types of issues also underline the differences between certain classes of personal property, as contemplated by the TOD Act, and real estate. Money and securities accounts are fungible and not specifically identifiable, and are also the subject of documentation maintained by a third party, such as bank or broker. Hence, not only is a transfer on the third party's records easily verifiable, it has the flexibility of a trust or will, and it gives the third party protections it obviously needs. None of these considerations apply to real estate.
     The Act ostensibly deals with the impact of divorce or bankruptcy on beneficiary deeds by saying that those events cause a beneficiary deed to "be treated as a revocable trust…" Presumably, the intention is that either event revokes the deed. But, it does not say whose divorce or bankruptcy has that impact---of the grantor or the grantee? Further, should a deed to a spouse be treated in the same manner as a joint deed to the couple's children?
Title insurance issues. . .
     Because Colorado and Arizona have some experience with this device, title insurers in those states have developed guidelines for dealing with beneficiary deeds in the chain of title, some of which are peculiar to the version of the law enacted in those states. Otherwise, the matters to be dealt with before getting a title insured that stems from a beneficiary deed are frankly not that much different than those attendant to any transfer of title, at least in those states, but Arkansas insurers may view it differently.
Looking for guidance . . .
     The statutes of the other six states have more differences than similarities. For example, Colorado specifically permits revocation by will. C.R.S. Sus. 15-15-401-409. Missouri has had a comprehensive statute since 1989, which deals in detail with the impact of divorce or failure to mention one's spouse or children, unlike the other statutes. Hence, we simply cannot look to the statutes and case law from those states for assistance in resolving the uncertainties and ambiguities in the Act.
The practitioner's dilemma. . .
     These issues (especially as exemplified by the Arizona commentators' exhaustive list) represent grave concerns for both clients and lawyers. Having been offered the beneficiary deed as a cheap substitute for a trust agreement, the client may have to use it to accomplish less than all of her aims, such as benefiting unknown heirs or providing for various contingencies.
     Shouldn't the lawyer make sure (and document) that the client understands this? It is not difficult to imagine a lawsuit by an unnamed heir claiming that the client clearly did not. And, what is the lawyer's professional responsibility in terms of making sure the client's genuine needs are met by the methods chosen?
     Most real estate lawyers have been asked by clients to draft contracts for deed, wherein the buyer gets no deed or warranties until the unpaid balance of the purchase price (which may or may not be represented by a note) has been paid off. These clients want the ability to leave existing mortgages in place and, upon default, to simply cancel the contracts and be free to sell the property to someone else, without foreclosure. Sometimes those contracts get recorded, but, even if they do not, there is a very strong argument that foreclosure is indeed necessary to clear the title, especially if the buyer has built up a substantial equity in the property, so as to render the cancellation a de facto forfeiture.
The client's best interests . . .
     Many lawyers are reluctant to draft such contracts, because the clients clearly expect to achieve an unfair advantage, but in fact may not get it. The Act may create a similar dilemma.
     At a minimum, because of the possibilities for conflict and confusion, lawyers may want to counsel clients strongly against using a beneficiary deed to transfer a mortgage and the note it secures, because there are far better and safer ways to accomplish the purpose.
     Lawyers may also want to develop short forms of single-asset trust agreements that would add very little expense to the process of preparing a deed, which in this instance would be to the trustee instead. They cannot force them on their clients, and a thorough discussion by the appropriate committees of the Association clearly should precede their development and use. But, the duty to explain the drawbacks of the beneficiary deed to their clients and to vigorously present the alternatives is just as clear.•