Q: My husband passed away last year from cancer at age 55. We have two grown children who are not married, ages 26 and 20, and I would want them to inherit my estate. My estate includes life insurance from their Dad, our home, and personal property.

I have made a will, and would like for them to avoid probate. Currently, the life insurance monies are in four separate certificates of deposit with different banks. I have signed a transfer on death with the children as beneficiaries of that money.

My financial advisor has suggested I check into a “quit-claim deed” for our home. I’ve done some research, and I would want to stay in the home for my lifetime. Exactly how would that work and what do you think? Do you have any other ideas? Thank you for you time and help.

A: My condolences on the loss of your husband at such a young age. I lost my father when he was 49, and that loss changed everyone’s life in our family.

I’m glad you have made out a will. That’s an important first step. Naming your children as beneficiaries of the cash was a smart idea.

But when it comes to transferring ownership of the property, I don’t think you need a quit claim deed. Financial advisors talk about quit claim deeds as if they are a panacea. In fact, they often cause considerable problems for both the homeowner and the homeowners-to-be.

First, using a quit claim deed to transfer ownership of your home to your children could trigger a taxable event according to the Internal Revenue Service. You’re allowed to give your children up to $11,000 per year without any restrictions on that cash. Once you get above that amount, you will have to file a gift return with the IRS and there may be other important tax considerations.

Since you want to live in the home for the rest of your life, and perhaps even want to retain financial control, you should consider setting up a trust. With a revocable trust, you can name your children as beneficiaries and when you die the house will bypass probate and pass directly to them. There are other types of trusts that would slowly transfer ownership of the home to your children over the years.

The good news about a revocable trust is that you retain complete control over the property. If you want to sell it, you can. And, while it’s hard today to imagine how or why that would happen, life has a funny way of surprising you when you least expect it.

Let’s talk about taxes for a moment. If you die this year you can pass down $1.5 million tax free to your children. That number will grow until 2010, when the estate tax will disappear altogether. But in 2011, under current tax law, the estate tax comes roaring back. If your estate will exceed $1.5 million this year, you might want to figure out what you can do to minimize any taxes you may owe.

You need to sit down with an estate planning attorney to discuss all of your options. However, I’m quite sure the one option that he or she won’t recommend is to use a quit claim deed.

Published: Jul 22, 2005