How to transfer home ownership to a family member. Before transferring home ownership to a family member, talk with an estate planner and real estate attorney to determine the costs and savings.
Q: My brother and I own a home together. We are both on the loan as well as the deed. We originally lived in the home, but over time we met our respective spouses, got married and moved out of the home.
Our mother now lives in our home and continues to pay for all expenses. She is 68 years old and we are thinking about adding her to the deed through a quit claim deed to save on school taxes on the property tax bill.
Is this a wise thing to do? What are the consequences of doing so if any?
A: More commonly, our readers want to know whether it is a good idea for a parent to transfer ownership of the home to his or her children and not the other way around. There are quite a few issues for you to consider if you decide to bring your mom into ownership of the home with the two of you including a number of estate tax, property tax, mortgage refinance, and estate planning issues for you to consider.
We’d like to address the issue of your property tax bill first. In some states, you have to own your home and occupy it as your primary residence to qualify for certain property tax benefits. We’ve seen cases where the benefits of owning a home and using it as a primary residence reduce the real estate tax bill on the home by up to 70 percent.
Some states fund their school system through a mix of property taxes and state income taxes. If you live and work in one of these states, you end up paying your share for the schools through property taxes and your state income taxes. However, if you don’t live in the state and own a home there, you might not pay state income taxes in that state. To avoid having out-of-staters not pay for the schools in that state, the state increases the amount that those out-of-staters owe on their in-state real estate holdings.
The home your mom lives in probably falls into this category, and perhaps adding her to the title would help reduce your taxes. Before you make any changes on the title to the home, you should also investigate a couple of issues relating to the transfer of title in your state.
The first big issue is to determine how difficult and how costly it will be for you to add your mother to the title of the home. Some states make it more difficult than others to change names on title and some require quite a bit of information to avoid paying hefty transfer taxes or fees. You will need to call your local recorder of deeds or other office that handles the recording of deeds in your county to see what their requirements might be to accomplish the transfer.
Once you have that information, you can determine if having your mom on the title to the home is still worthwhile. Depending on your mom’s current or future health issues, the insurance she has and other assets she owns, being on title could complicate her ability to qualify for Medicaid. If the home – or part of the home – is in her name, Medicaid may consider her interest in the home as an asset to be tapped first before receiving Medicaid assistance. If she isn’t required to sell her interest in the home, Medicaid may put a lien on the title so that it is repaid once the home is sold.
You should also think about the future transfer of title to the home. If your mom doesn’t have a will, she should have one written to make sure her interest in the home transfers back to the two of you when she dies. You could also have her interest in the home held in a living trust. A living trust allows her to own an interest in the home but also enables you to avoid probate of the home and other assets in the living trust when she dies.
Is your mother wealthy? If she has a sizable estate to pass on when she dies, adding her to the title could increase her estate, and you would then run the risk of having to pay increased estate taxes.
When you consider all of these issues, you will have to weigh the benefits you get from the reduced property taxes to the costs involved in transferring title to your mom and other surrounding estate issues.
The best advice we can give you is to sit down with an estate planner and a real estate attorney in your area to see whether there is a significant benefit to you both in moving forward with the transfer of an interest in the home. If you decide to move forward with the transfer, you then must find out if the proper document to use to give her an interest in the home is a warranty deed or a quitclaim deed. Some jurisdictions frown upon the use of quitclaim deeds to transfer any interest in real estate.