Most homeowners can get an answer to that first question in about five minutes: pull out your property tax bill and check whose name — and which trust, if any — is listed as owner. If it matches your current estate plan, your title is likely in good shape. As for quitclaiming the house to a child now instead of through your estate plan, the short answer is usually not, or at least not without weighing the consequences a quick form doesn’t warn you about.
Estate planning attorney Heather Johnston brought these issues to our attention in a CFP® continuing education course about “title” — the legal right of ownership in a property, and how that right is documented. Get it wrong, and the ramifications can be serious.
The tax bill test
Technically, title to your home changes hands the moment a deed is validly signed and delivered — recording it with the county just puts the world on notice. But practically, the recorded deed is what you, your heirs, and any title company will actually rely on. If it isn’t right, or no longer matches your estate plan, that gap stays invisible until someone needs it to be right.
If your home is meant to be held in a living trust, the property tax bill, or your online account with the county recorder’s office, should show something like: [Your Name(s)], Trustee(s) of the [Trust Name], dated [date], or John Smith and/or Jane Smith, trustees of the Smith Family Trust dated 7/11/2010.
If you don’t have or want to use a trust, for whatever reason, it is still important to verify that the records reflect the current deed’s true owner(s) and their interest. In California, and 8 other states, a husband and wife should almost always own the property as “community property” according to Johnston.
On your tax bill, look for anything different than what you intend. If you see anything else — your name outright with no trust reference, an old name, a deceased spouse still listed, an ex-spouse, a trust name that doesn’t match your current plan — that’s your signal to dig further. It doesn’t mean something is broken, but it does mean it’s worth confirming rather than assuming.
The bigger risk: “Let’s just do a quick quitclaim”
According to Johnston, quitclaims are one of the worst ideas she sees implemented. The public seems determined to avoid attorney fees in favor of a five-minute form that can:
- Wipe out the heirs’ stepped-up cost basis had they inherited the property instead
- Trigger a property tax reassessment
- Count against your lifetime gift and estate tax exemption, and require a gift tax return
- Void your title insurance, if you have an owner’s policy — coverage generally follows the original owner, not a later transfer made by gift
- Cancel or raise your homeowner’s insurance
- Leave you personally liable on a mortgage you no longer control, and possibly trigger a due-on-sale clause forcing you to pay it off immediately
- Hand your house to a child’s creditor in a bankruptcy or lawsuit, a divorcing spouse in a settlement, or the wrong beneficiary entirely if that child dies before you and the house passes through their estate instead of yours
That last bullet covers two of what Johnston calls “the three Ds” — divorce and death. The third, disability, is easy to miss: if your child later becomes incapacitated and needs to qualify for means-tested government benefits, owning the house outright can work against them, or leave a conservator managing an asset you never intended for that purpose. Together, these are the risks families think about least and regret most. Once your name comes off the deed, you no longer control what happens to that asset if your child’s life goes sideways.
None of this depends on the deed being recorded. Signing and delivering it is enough to trigger these consequences — a quitclaim sitting unfiled in a kitchen drawer has still changed who owns the property, whether the county ever finds out or not.
Gifting property to a child may be the right move, but don’t do it without qualified advice. An attorney can lay out your legal rights while an Enduring Wealth Advisor® can help you understand the potential financial consequences.
A three-question mini-audit
When you’re reviewing your financial situation, especially in light of estate planning questions, ask three questions:
- Is there a deed – recorded or not – that reflects who actually owns this property today?
- Has anything changed since that deed was signed — a refinance, a name change, a move in or out of a trust?
- Would a transfer trigger a property tax reassessment, gift tax reporting, a basis adjustment, or a title/homeowner’s insurance problem?
If any answer gives you pause, that’s a phone call to an estate planning attorney.
Where we fit in
As Certified Financial Planner® professionals, we’ll incorporate your real estate into your broader financial and estate plans. We’ll work to align all your assets (and liabilities) with the goals you want to pursue, and we’ll coordinate that work with your tax and legal professionals to help you understand the consequences of any decisions you make.
Give us a call if that’s the kind of relationship you want with your financial advisor.