Estate Planning: Trust May Be Better Than Quit Claim Deed

Q: My mother is thinking about looking into a quit claim deed for her property. I have 3 siblings and am wondering if she goes forward with this will my siblings and I then have the responsibility to pay the yearly property taxes?

A: By using a quit claim deed, your mother will sign over whatever ownership and financial interest she holds in the property to whoever is named on the deed. If that’s you and your three siblings, then as long as the deed is prepared correctly and filed with the county recorder of deeds office, you and your siblings will indeed be financially responsible for the property.

That means, you’ll have to pay not only the annual property tax, perhaps even the mortgage payment, homeowner’s insurance premium, and the maintenance and upkeep for the property.

But, you’ll also own it — or, whatever interest your mother held in the property. If you and your siblings decide it’s time for your mother to live with one of you, or in a nursing home, you would, as owners, have the right to sell the property or otherwise dispose of it.

The real question you should be asking your mother is, “Why now?” Why does she want to deed the property to you at this point in time?

If the answer is that she can no longer afford to maintain the property, and needs all the income she has simply to buy food and medicine, then you and your siblings should see a local estate attorney to talk about the various options she may have, including creating a trust that would name her four kids as the beneficiaries of the trust.

The house could be put into the trust, and when your mother dies, you would inherit the house as part of her estate. You would save a bundle on taxes by structuring the transfer of ownership that way instead of having her give you the property now with a quit claim deed.

If your mother wants to stay in the property, but can’t afford it, you can also look into getting a reverse mortgage. She would receive either a lump sum of cash or a monthly check from the equity that has built up in the house. The loan would not need to be paid off until the house is sold — presumably after your mother has died.

Finally, consider talking to your mother about either selling or renting the property. She would be able to take up to $250,000 in profits tax free if she sells while she is still using the house as her primary residence. If she rents the property, and doesn’t have a mortgage, she should be able to increase her monthly income substantially.

July 16, 2004.


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