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Can a person use a Beneficiary Deed to transfer her house when her house is titled in her name as trustee of her living trust?

Arizona Revised Statute §33-405 allows any property owner to sign a beneficiary deed having the effect of transferring ownership of real property to the designated beneficiary at the owner’s death. It is not uncommon for people to hold legal title to their houses in their own name as trustee of their revocable trust. In one instance a woman wanted to make sure her house went to her designated beneficiary “no matter what she did with her trust,” and thus provided for the beneficiary in her trust and also signed a beneficiary deed to make sure the transfer was effective immediately upon her death.

The Arizona Court of Appeals ruled that because a trust doesn’t die and because the beneficiary deed statute requires the property owner to die in order to effect the transfer at death, a “beneficiary deed” is an improper tool for property owned by a trust. In re Estate of Augusta A. Ganoni, No. 1 CA-CV 14-1240, Filed May 28, 2015 (Arizona Court of Appeals). In Ganoni, the Court of Appeals failed to answer the question, however, as to whether a “Trust” is the owner of property. Under the facts, Ganoni transferred bare legal title to her revocable living trust to avoid probate, but retained equitable title (all ownership rights to use, sell, gift, mortgage, etc) as the sole beneficiary of her trust, and retained unrestricted rights to return of the property to herself as the sole settlor of her revocable trust. Under these facts, is the transfer of bare legal title tantamount to the transfer of ownership?

Indeed, the Court of Appeals answered this very question just a month earlier in Pinnamaneni v. ROC, et al., No.1 CA-CV 14-0006, Filed April 9, 2015 (Arizona Court of Appeals). As part of its analysis the Pinnamaneni Court considered the question of who owns property where the person is the sole settlor, sole trustee, and sole beneficiary of a revocable trust – facts identical to the Ganoni case. The Pinnamaneni Court resolved that the person who is the sole trustee, beneficiary, and settlor retained absolute control over property with legal title in that person’s name as trustee of her revocable trust, and that the person (and not the trust) is the “owner” of the property.

In Ganoni, the Court of Appeals did not recognize its own ruling in Pinnamaneni holding that the person, not the trust, is the owner of trust titled property, nor did the Ganoni Court analyze or contrast the Pinnamaneni holding; in fact, the Ganoni Court entirely ignored its own case law stating exactly the opposite of the Ganoni Court’s conclusion.

The Appellant in Ganoni, Whitney Sorrell, indicated that he will seek an appeal to the Arizona Supreme Court to reconcile the Arizona Court of Appeals that published two opposing rulings within 60 days. Sorrell’s argument, which was not discussed in the Ganoni Court’s opinion, is that when a person owns a house and for probate avoidance purposes transfers bare legal title of the house to herself as trustee of her revocable trust, and she is the sole trustee, the sole beneficiary, and the sole settlor of her trust, a transfer of ownership has not transpired; rather, ownership remains with that person just as described by the Pinnamaneni Court.

In other words, consider Mr. Smith an Arizona resident who is too ill to travel. Mr. Smith owns an antique car and transfers legal title into the name of Mr. Jones, his agent and attorney-in-fact, for the purpose of selling his car at an antique car auction in New York. Does the act of transferring bare legal title of his car to his agent for the limited purpose of transacting business on behalf of Mr. Smith mean that Mr. Smith actually transferred “ownership” of his car to Mr. Jones? Certainly Jones could not keep the car for himself, or sell the car and keep the proceeds, or gift the car to his sister, or decide to not sell the car and instead adopt it as his every-day use vehicle. Jones cannot do any of these things because Mr. Smith owns the car. Transferring bare legal title does not constitute the transfer of ownership.

Likewise, the Pinnamaneni Court recognized this limitation in the transfer of bare legal title to a person as trustee of his or her own revocable trust, and ruled that such a transfer is not tantamount to the transfer of “ownership.” However, the Ganoni Court, without acknowledging the Pinnamaneni ruling and without analysis of any kind about ownership of trust titled property, made a legal conclusion that the trust “owned” the house for which it held bare legal title. This legal conclusion directly contradicts the ruling in Pinnamaneni, and constitutes an excellent legal issue for our Arizona Supreme Court to consider.

The Tucson law firm Fleming and Curti, PLC, suggested in its June 1, 2015 article (Trust-Owned Property is Not proper Subject of Arizona Beneficiary Deed, June 1, 2015, V. 22, No. 20), that perhaps Ganoni’s lawyer violated an Arizona ethical rule, citing Model Rules of Professional Conduct, and ethical rule 1.8(c). In doing so, Fleming and Curti, PLC mischaracterized the evidence of the case, evidence that is clearly detailed in the briefs to the Court and available to the public. The facts are crystal clear that Ganoni asked Sorrell to make the transfers to himself and Sorrell properly refused to do so on several occasions. Ganoni then, without Sorrell’s involvement or knowledge, sought a referral to another lawyer. After counsel, the third other lawyer prepared the documents Ganoni desired. In fact, the record clearly indicates that the other lawyer used both a beneficiary deed and a trust amendment because Ganoni was “emphatic” that she wanted to make sure the house was transferred to Sorrell “no matter what she did with her trust.” The record clearly supports that Sorrell had no involvement in the counseling or drafting process and was unaware as to any specifics, other than the knowledge that Ganoni had sought the counsel of another lawyer to complete the transfer of her house — a transfer for which Ganoni was emphatic. Because of the facts of the case, there was never a hint that Sorrell acted unethically, nor did any Judge or attorney involved in the case consider this an issue based on the facts. For this reason perhaps Fleming and Curti, PLC was irresponsible in its reporting that such may be the case

About the Author Whitney L. Sorrell, JD, CPA, MBA

Whitney Sorrell is a former IRS Revenue Agent turned tax attorney and CPA.  Mr. Sorrell’s law practice focuses on business organizations and federal tax planning, IRS dispute resolution, asset protection planning for small business owners, and estate planning for nigh net worth individuals.

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