Transferring real estate with a quitclaim deed can lead to unanticipated complications.

For homeowners, their greatest individual asset is often their house.

This means they cannot afford to neglect their home when planning their estate.

While many people see the allure of DIY planning through a quitclaim deed, they may find it brings them and their loved ones added stress.

According to a Kiplinger article titled "How Quitclaim Deeds Can Cause Estate Planning Catastrophes," using a quitclaim deed as a shortcut can be risky.

An unclear quitclaim deed can lead to legal issues for heirs selling the house.

What Is a Quitclaim Deed, and Why Do People Use It?

Quitclaim deeds are relatively simple documents.

These deeds transfer the interest in a property from the owner, the grantor, to the person receiving the property, the grantee.

Families often use them to transfer real estate between family members while avoiding probate.

Although this seems straightforward, there is a catch.

There are no guarantees with a quitclaim deed.

While these deeds are easy to write and file, only the interest of the grantor is transferred.

Whatever that "interest" is.

Transfers can be complicated if the title is unclear or the grantor does not own the property outright.

What Can Go Wrong With DIY Deeds?

Without professional guidance, quitclaim deeds can undermine your estate planning goals.

What are common issues one might face?

Do You Really Own the Property?

Clarity is key when it comes to property ownership.

An heir may find out too late they lack a clear property title.

What does this mean?

Your heir may be unable to sell the home.

The title would be unmarketable if the title company determined the property transfer skipped the required probate proceedings.

The property sale will be delayed as your heir sorts through legal entanglements.

What Happens If the Person You Added to the Deed Has Financial Troubles?

Including an heir on your property can subject it to creditors or lawsuits.

How?

A parent adds an adult child to a deed to avoid probate.

This child has various financial issues through lawsuits, bankruptcy, or divorce proceedings.

Because the property includes the name of the adult child, the family home could be subject to creditors' claims.

What does this mean?

You might lose part of your home to settle your child's debts.

Yikes!

What about Insurance and Taxes?

Adding names to a deed can impact taxes and insurance.

After adding another person to a deed, the original homeowner is required to notify the insurance company.

If the insurance company is not notified, the property insurance could be deemed invalid, and the property will be uninsured.

Using a quitclaim deed to transfer a home can also lead to gift tax requirements if the value of the interest transferred exceeds the annual gift tax exclusion (i.e., $18,000 per donee).

Additionally, when your heir sells the home, there would be no step-up in basis, and your child could owe hefty capital gains taxes.

Why a Trust is Better than a Quitclaim Deed

While not a DIY solution, a trust provides greater protection than a quitclaim deed.

With a trust, you can avoid probate without losing control of your property while alive.

It can also shield your property from creditors and minimize tax liabilities for your heirs.

When a home is transferred through a trust, it will receive a step-up based on the fair market value at your death.

If your heir chooses to sell the property in the future, the capital gains tax will be significantly less.

Protect Your Property and Legacy with a Real Estate Trust

While adding heirs to deeds may seem like a quick and simple solution for transferring real estate, it comes with various potential pitfalls.

If you have a home or other properties in your estate, work with an experienced estate planning attorney to create a plan to meet your specific needs.

What are Quitclaim Deed Key Takeaways?

Changing deeds on your own can lead to unclear titling and future issues when selling the property.

Including an heir on your deed can expose the property creditors or lead to tax or insurance complications.

Although a trust requires working with an experienced estate planning attorney, it can help protect the home, reduce taxes, and avoid probate.

As with most weighty matters in life, it is better to look before you leap.

This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.

Reference: Kiplinger (Mar. 20, 2024) "How Quitclaim Deeds Can Cause Estate Planning Catastrophes"