Q: My partner and I have owned a home for 10 years. She was diagnosed with cancer about 18 months ago. She’s in remission now, but her doctors have told her it would be a good idea to get her things in order – just in case.
She wants to sign a quit claim deed to me to avoid any hassles that may come up in the event of her death. We both have agreed that if something would happen to one or the other the other gets the house free and clear but because our state doesn’t see us as a couple so we would have to buy out the other owner’s half of the house. Or, it would go into probate (I think).
We have been together for 16 years and she has two adult sons in their 30s, but everybody in her family and mine knows what we both want. I was thinking that we both needed to sign a quit claim deed just in case I would die before her. After all, you never know.
A: I’m sorry your partner is sick. But doing a quit claim deed probably isn’t the best choice for you, since it could set up a taxable event.
I’ve written extensively about why quit claim deeds are a bad idea in many situations, but especially compared with inheriting the property. When you inherit property, you receive it at its stepped-up basis – what the property is worth on the day you inherit it. If you receive property via quit claim deed, it’s a gift. And you will receive it at the cost basis your partner purchased it.
For example, let’s say the property is worth $300,000 today, but when you bought it ten years ago, you paid $100,000, or about $50,000 each. If you inherit your partner’s property, you get it tax free. If she gifts it to you with a quit claim deed, you’ll get her half at the $50,000 value, not the $150,000 it’s worth today. When you sell it, you may owe taxes.
Given the current market conditions, if the value of the home is at or less that the value it was when it was purchased, you may be able to transfer title between the two of you without federal income tax consequences. But if you obtain full title to the home now, and something happens to you before your partner dies, your partner may be out of luck.
How do you hold title to the property? If you hold title as joint tenants with rights of survivorship, you may automatically receive her interest in the property at its current market value. If you are tenants in common, you won’t.
You and your partner need to set up an appointment with an excellent estate attorney immediately to make sure you both have the paperwork (wills, powers of attorney, trusts, etc.) so that everyone’s wishes are known and the documents back up what you want to do.
Although you say that your partner’s children are grown adults and understand what you’re doing, she should have a conversation with them so they know what her intentions are with regard to her property and her home. If she intends to leave everything to you, her kids should know about it now, so that they have a chance to ask her directly about it and find closure with that decision. She needs to respect them and their need to have something from their mother as much as she needs to respect you in the process.
If the laws in your state don’t automatically work for your situation, you should move on this tomorrow and work with an estate planner to set up your wills, trust or other documentation to meet your needs.
Some people try to use quit claim deeds to avoid paying creditors and think that they may get rid of liens on their properties, but in reality, you need to remember that a quit claim deed transfers whatever interest you have in a property to someone else. A quit claim deed won’t get rid of your obligations that are independent of the ownership of the property and it won’t help solve most estate planning tax issues and it won’t solve other estate planning issues that can only be addressed by a properly drafted will, living trust or other properly prepared document.
In one case a homeowner wanted to get rid of his home by using a quit claim deed to avoid paying a lien. Read the story about how a Quit Claim Deed Won’t Remove Lien.