There are a few different methods that can allow you to transfer property and change ownership. One such method, called a quitclaim deed, lets homeowners quickly transfer a property title. This information can be useful for a number of reasons, including as part of an Estate Planning strategy for yourself or a loved one.
Quitclaim deeds are a common but occasionally misunderstood legal tool, and they can be used in several situations. They are known to be one of the quickest methods for transferring property ownership -- but there are a few things to be aware of first. Keep reading to learn everything you need to know about quitclaim deeds and when to use one.
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What is a Quitclaim Deed?
A quitclaim deed is a type of legal document that transfers real estate or land ownership from one individual to another. They are commonly referred to as “quick claim” deeds because of the fast nature of the transactions. In cases where a quitclaim deed is used there is no need for a title search or title insurance, and the property is transferred in as-is condition.
How Does a Quitclaim Deed Work?
A quitclaim deed works by allowing one property owner to sign ownership over to another through a legal contract. The process is completed through the creation of a quitclaim deed form, which should include a description of the property, the date of the transfer, and the names of the individuals exchanging the title. The original property owner, called the grantee, can then sign the deed form to transfer ownership to the new owner, called the grantor.
Quitclaim deeds almost always need to be notarized, and in some states a witness is also necessary. The deed should then be filed with the county clerk to ensure the change in ownership is publicly recorded. The exact process can vary slightly depending on the state the property is located in, but this is generally how a quitclaim deed works.
Who Needs a Quitclaim Deed & When to Use?
Quitclaim deeds can be used in a number of different situations, though they are most common when transferring property between family members or spouses. For example, after a divorce one spouse may sign a quitclaim deed to officially sign over ownership of the home.
In Estate Planning, quitclaim deeds can be used to transfer real estate into a Living Trust. It is often important to gain Trustee approval before moving real estate into a Trust, as quitclaim deeds do not impact existing mortgages. If you are interested in learning more, read our guide on how to transfer real estate into a Living Trust.
Quitclaim deeds can also be used to quickly reissue a real estate title in case mistakes were made during the initial transaction. Common examples include spelling errors or missing signatures on the title, which can be corrected through the use of a quitclaim deed.
What are the Advantages of a Quit Claim Deed?
Effective Way To Transfer Titles: Quitclaim deeds can quickly transfer a property title between family members, avoiding the need for a real estate attorney or agent.
Gift Tax Benefits: Quitclaim transfers are often treated as gifts for tax purposes, allowing family members to avoid paying the taxes associated with a traditional real estate sale.
Easy To Use: The forms used are easy to understand and often only require a notary and witness signature to legalize.
New Owner Can Avoid Liens: Quitclaim deeds do not transfer mortgages or tax liens on the property. This means the previous owner is still financially responsible for money owed on the house.
Property Skips Probate: When a quitclaim deed is used to transfer a property before the original owner passes away, the property can avoid going through probate. This is most common in situations of a terminal illness or other health condition.
What are the Disadvantages of a Quit Claim Deed?
No Protections For The Transaction: Unlike warranty deeds, a quitclaim deeds does not offer protections for the new property owner. There is no way to guarantee that the property is owned free and clear, and that there are no easements or restrictions. In some cases, the grantor may be withholding other information as well. In these cases, there is not much the buyer can do unless the deed was fraudulent.
Responsibility Placed On The New Owner: The new owner can opt to complete a title search before signing a quitclaim deed to protect themselves from difficulties. Essentially, it is up to the grantee to ensure the information on the property is correct before agreeing to the new deed.
For these reasons, it is advised to only use quitclaim deeds when transferring property between family members or trusted individuals. A quitclaim deed would almost never be used during a typical real estate sale, as there is no guarantee that the previous owner has disclosed all of the relevant information about the property.
Other Commonly Asked Questions About Quitclaim Deeds
Quitclaim deeds are a relatively common tool within Estate Planning, as they facilitate a quick property transfer. Keep reading to learn the answers to other commonly asked questions about quitclaim deeds.
Does a Quitclaim Deed Avoid Probate?
A quitclaim deed avoids probate because property ownership is transferred while the grantee is still alive. Therefore, ownership has already been transferred by the deed before the grantee’s Estate Plan goes into effect.
Does a Quitclaim Deed Expire?
A quitclaim deed does not expire because it permanently transfers ownership from one party to another. That being said, the new deed must be filed with the county clerk’s office to record the official transfer.
If the new deed is not recorded, it can create legal and financial challenges.
There is not a set deadline to file the new deed, though it is typically recommended to do so as soon as possible following the transfer. Without an official public record, there may be difficulties transferring the mortgage. There can also be difficulties if another family member makes a claim to the property -- which could only be settled by looking at the official deed on file.
Does a Quitclaim Deed Need to be Notarized?
A quitclaim deed does need to be notarized before it can be filed with the county clerk. Depending on the state, a witness signature may also be required.
Is a Quitclaim Deed Considered an Inheritance?
A quitclaim deed is not legally considered an inheritance. Instead, the property transfer is viewed as a gift in terms of the law. This is because the property owner signs the deed while they are still alive, rather than transferring ownership through a Last Will and Testament.
There are some cases where a person who owns property via a quitclaim deed may pass away and leave the property to an heir. In these cases, the property would technically be an inheritance. For legal purposes, the initial quitclaim deed would not be significant unless another ownership claim arose on the property.
What are the Tax Implications of Quitclaim Deeds?
The tax implications of a quitclaim deed are best summarized by the federal gift tax rules. Because no money is changing hands at the time of transfer, the property is considered a gift from the grantor to the grantee. The gift tax implications would be the responsibility of the grantor, and the value of the home would impact their lifetime gift tax exemption.
During the tax year that the quitclaim deed is issued, the grantor would report the transfer on their tax forms. A property would almost certainly exceed the $15,000 gift tax limit per recipient, but there is a lifetime exemption of roughly $11.5 million to be aware of. Consult with your financial advisor and Estate Planning team so you can choose a tax-forward strategy when it comes to managing your finances.
There are also a few points to be aware of in terms of tax liens and property taxes when it comes to quitclaim deeds. If there are any liens or other taxes owed on the property, the grantor will be required to pay them before the title can officially be transferred. Once the quitclaim deed is successfully filed, property taxes would become the responsibility of the grantee moving forward.
Quitclaim Deeds & Estate Planning - Get Started Today
Quitclaim deeds can be a useful tool in Estate Planning for a number of reasons. Not only do these documents allow properties to avoid the probate process, but they can also be used to supplement the asset in a Trust. Quitclaim deeds can save families time and money when a property needs to transfer hands, as long as the necessary requirements are meant.
While quitclaim deeds are known for their speed and efficiency, they are still legal documents and certain regulations must be followed. Further, there can be various tax implications of transferring a property or land through a quitclaim deed. If you are curious whether a quitclaim deed might be useful to you, reach out to our team today.
There are several ways to transfer property to a loved one, and a quitclaim deed is just one option available. This legal tool can be used to fund a Trust, transfer a property to a loved one, or to assist in settling a divorce. Always remember to follow your state’s requirements and reach out to our team with any questions.
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