Deed the Home to Who? And Should You?
Deed the home to the kids? Children and parents have long battled the wisdom of allowing elderly parents to retain home ownership. The transfer of property out of parents’ names was once the “trick” to solving problems. The outdated assumption that the older generation makes unwise decisions, and that valuable property should be removed from their list of assets still stirs up family squabbles and leaves some family members with serious tax problems and questions.
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Define the need before you deed the home
“Deed the home place to me and Sis so the nursing home won’t get it when you run out of money!” When Baby Boomers were young adults, they likely heard their parents and grandparents having this conversation. It’s that old.
Estate and retirement planning, and subsequent tax laws, including the Tax Cuts and Jobs Act of 2017, have changed the tone of that conversation. In today’s tax strategy-driven world, receiving a valid deed to the “old home place” could be a tax catastrophe.
What could possibly happen?
When real property changes hands, the IRS is interested. Very interested. Unless you fully understand the reason for the transfer of ownership and the effect on your taxes, you could find yourself hit with a crushing tax liability. Some red flags the IRS watches for and the tangled red tape you could find wrapped around your taxes could include:
- Owning property that, when you decide to sell it, leaves you with a tax consequence based on the original purchase price.
- You could find yourself having title to the property without knowing what your interest is. Meaning, you have a piece of the pie, but how many pieces are there?
- If the property existed under old Homestead protections, what changes can you expect?
- You and your siblings all have title to the land. Come time to pay property tax, who pays?
- What makes gifting the property better from one direction than the other?
- Who hires the contractor when the roof needs repair? Who pays? Who gets a deduction?
- Ever wonder why some families set up trusts?
Deciding to do the deed or not deed the home
Your desire to protect your home and keep things simple for your children is understandable. Aside from the obvious (I always prefer that my clients keep control of their assets for as long as possible), there are some important tax issues you should consider before deeding away real estate while you’re living. Justin Elrod, The Elder Law Practice of Justin S. Elrod, PLLC
Is “deed the home” the same as getting “title to the home”?
The transfer of property requires some kind of written document, usually a deed, which is much like a sales receipt. If valid, it shows that on a particular date you bought or were gifted interest in a specific real property. A deed is a written document. Title is not a document. If you own an interest in real property as conveyed by a legal deed, you hold title. Simply put, you own interest in a real property.
Define the deed before you deed the home place
These three most common types of property deeds transfer ownership of real property from one person to another.
- Grant Deed: Seller transfers ownership to the buyer and sets out certain promises, such as the title hasn’t already been transferred to someone else, carries a lien, etc., except as noted in the deed.
- Quitclaim Deed: Transfers the owner’s rights to another person, and is commonly used between family members. It is also used when a title search reveals a cloud or question relative to ownership. This could include an heir of a previous owner possibly having some claim to the property. A quitclaim deed only transfers the signing seller’s remaining interest, if any.
- Warranty Deed: Transfers owner’s property to another with assurances that the transferring party owns the property free and clear and if something turns out to be wrong the buyer will be compensated by the seller. A warranty deed can also make other promises and can address specific problems with the transaction.
Always. Your tax strategy should be viewed from many directions. You need options that give you the flexibility to adjust with changing life issues, business decisions and the current tax laws. That’s what we do for you.
The bottom line
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