Property Inheritance Saves More Taxes Than Quit Claim Deed

Added September 25, 2008 by Ilyce R. Glink

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Summary: Learn about property estate planning including repair and maintenance duties. Is using a quit claim deed or an irrevocable trust a better option? Inheriting property saves more on taxes than signing a quit claim deed.

Q: My mother-in-law is 93 years old. In her will, she is leaving her home to her three sons. Her home is in need of major repairs, probably to the tune of $15,000. My husband and I are the geographically closest to her residence and will have the responsibility of the repair and sale.

Would it be to everyone's benefit to quit claim the house to my husband or perhaps put it in an irrevocable trust that names him as beneficiary?

A: Didn't you say that the house is being left to her three sons? Why should your husband be made the sole owner of the property? That doesn't seem fair.

But assuming your motives are pure, there are a number of ways to handle this. One would be to put the home in a trust. It can be a revocable trust naming all three sons as the beneficiary of the trust.

For tax purposes, it would be much better tax-wise if your husband and his siblings inherit the property rather than receive it by quit claim deed. If they inherit the property, even through a trust, they will inherit it at the property's value on the day of your mother-in-law's death. If she gives them the house using a quit claim deed, they will receive it at her cost basis. When they sell, there could be large capital gains taxes to pay. If they inherit the property and then sell it, they shouldn't have any taxes to pay.

But your question seems to be about shouldering the burden of repairing the property. If the property needs $15,000 in repairs, the estate could reimburse you for those expenses. If there is no cash in the estate, but putting in $15,000 of repairs would return $30,000 of increased sales price, then your husband should either front the cash (if you have it) and be repaid out of the sales proceeds exactly what he put in before the profits are divided, or each of the siblings could contribute $5,000 toward the repair costs, which your husband would oversee.

Typically, the executor of the estate would oversee the disposition of assets. Is your husband the executor of his mother's will? If not, who is and what does that sibling think of the situation?

But if you decide to put in that money now for repairs, make sure you have something in writing from your mother-in-law to make sure everyone understands what's happening. You need to make sure you are repaid that money when the home is sold.

You can talk to an estate planning attorney or estate planner more about this issue and how to set up the trust for the home and to document the repayment of the $15,000 for the repairs.

Sept. 28, 2008.

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