Know the difference between deeds.
Many people come to my office looking to pass their home to their loved ones and avoid probate. I’ll often get questioned about whether a quitclaim deed or a beneficiary deed is the best mechanism for avoiding probate.
A quitclaim deed (or a warranty deed) conveys the interest of the property owner to someone else immediately. Just like the sale of any other piece of property, the house belongs to the grantee the moment that the deed gets filed with the recorder of deeds.
A beneficiary deed lists one or more beneficiaries who will receive the real property upon the death of the owner or owners as long as they own the property when they pass away. Unlike a quitclaim deed, the beneficiary has no immediate interest in the property and cannot prevent the sale of the home during the lifetime of the owner or owners.
I recommend a beneficiary deed as opposed to a quitclaim deed for my clients for several reasons:
When a parent gives his or her interest in the home to a child or jointly titling it with the child by way of a quitclaim deed, it opens the door for potential creditors of the child to try and file an action for the home. If the child is married and is getting divorced, for example, the court may view the home as marital property. If a beneficiary deed is used instead, the creditors cannot attach to the property during the life of the parent.
There can be tax consequences to transferring the property during the parent’s life that wouldn’t exist at the death of the parent. By conveying interest to the child in a quitclaim deed, the child may not get the benefit of a step up in basis and the parent may need to file a gift tax return for the transfer. If a beneficiary deed is used, as long as the value of the parent’s property is less than the federal estate tax limit (5.49m in 2017), there are most likely not going to be any tax consequences to the child receiving the home at the death of the parent.
If a parent gives part or all of his or her interest in a house to a child during the parent’s life by a quitclaim deed, the child now has control of part or all of the home. If there is a quarrel, the kid can kick the parent out of the home. I’ve never had a parent think that his or her kid would ever do that. It may not even be the choice of the child, but a choice of their spouse or significant other. A beneficiary deed, however, won’t forfeit any of the parent’s control during his or her lifetime.
Thank you for taking the time to read this. If you have questions about the content above and how it may relate to a legal matter you’re facing, please visit the contact page or submit a questions below.