What’s All The Fuss? Can’t you just put our parent’s home into our names?
Would that life were so simple that one DEED would fit all such transactions!!!!
But if no one has told you today, please be assured that drafting a correct and appropriate deed to pass down real estate titles between generations is anything but simple! It is certainly not a job for a person not licensed as an attorney! In fact the legislature and Supreme Court of Virginia have been very clear since the creation of the Commonwealth that only Attorneys can legally draft deeds for other parties. (You can always draw a deed for yourself at risk of falling into the category of the attorney who has a fool for a client!)
Most importantly, to prepare an effective deed, you must know EXACTLY how title is held to the property. Do you know that? A copy of the historical deed is a great starting point, but many things can happen to the title after that. Do you really know?
Once we do know who holds title, then we prepare to transfer title to real estate from one generation to the next we have 10 main concerns (and of course dozens of smaller concerns):
- How will this transfer affect the rights of the older generation to continue living in the house or to rent it out?
- Is there a will(s) for the older generation and who will inherit the property under the will, and does anyone know where the original will is kept? If no known will or appropriate Power of Attorney, do all the current owners have “mental capacity” to sign a will, or a deed, or a Power of Attorney?
- If there is no Will, is there possibly a Trust? Who will inherit under the Trust? If neither, do you know who will have the right to take the property under law if the older generation is “intestate”?
- How will this transfer affect the eligibility of the older generation for Medicaid, senior citizen real estate tax exemption or deferment?
- How will this transfer affect the younger generation’s tax basis in the property and how much tax will have to be paid when the inherited property is sold?
- How do the Grantee’s (younger generation) want to take title together and when?
- Should a member of this younger generation unexpectedly die before all of the older generation, who is it intended should receive their share in their place?
- Is anyone on the list (either Grantor (older generation) or Grantee (younger generation) likely to have a title issue such as a judgment or income tax lien that might be filed against the title if it goes into their names personally? Similarly, will suddenly owning a valuable additional asset personally affect a Grantee’s eligibility for college tuition assistance for themselves, or their kids (FAFSA)? Is any Grantee going through a divorce which could be complicated by the gaining of a new valuable assets prior to the finalization of the divorce?
- If you decide not to record a deed during the life(lives) of the older generation, but let the court system sort out who inherits the property, is there a person in the family who lives locally who can handle “probate” or “administration” to clean up the title issues?
- Who is to be responsible for ongoing maintenance, taxes, rehab (if any), marketing (if any) of the real estate and more importantly, who is responsible for providing for the final care of the older generation and will the equity in the property be used for that purpose?
Each type of possible transfer of title will have slightly different outcomes and answers to those 10 main questions/concerns, but the top 5 list for options to transfer title are:
- Simple deed. Older Generation to Younger Generation. Conveys title immediately. All deeds require some basic elements, like mental capacity, clear description of the property, etc.
- Life Estate Deed. Same thing, but reserves to the older generation the right to live in or derive rent from the property until they all have passed on to their greater abode in eternity.
- Transfer on Death Deed. A new statutory deed created by the Virginia legislature which can be revoked until death by the older generation, but at least makes the transfer automatically upon death and avoids probate on the value in this property.
- Convey the title to the house by the Will – which is effective on death. This is good for the “step up on tax basis” you get but awful for having to take the house through probate, suffering delays in closing for up to a year or paying a bond or extra title insurance premium to be able to sell it within a year of the death of the last of the older generation.
- Convey the title to the house into a Revocable Living Trust (RLT) or other trust for the older generation right now. This avoids probate if done properly and lets the Trustees (presumably the older generation, while they are able to serve, and then the younger generation later) to sell the house anytime between now and eternity without title delays.
Each one of these types of conveyance will have advantages and disadvantages as well as different consequences for the 10 main concerns. Each one will have some different costs of recordation. Some like the TRUST give you a great cost savings later, but can cost you expenses in excess of $1,000 to create, execute and “fund” the trust now. All are worth discussing among the generations and with the family tax advisor(s).
We love helping the generations to transfer titles and avoid the heartache of title problems that arise when procrastination sets in. Our record so far for titles we helped clean up was a property that ended up divided among 72! family members by the time we were hired to help the family sell the property. Needless to say, it took over a year and several thousands of dollars to track down all heirs, (and all their creditors), and obtain their signatures to “clean up the title”. Call us to help with your real estate title challenges BEFORE the pie is all sliced up 72 different ways!