The Quit Claim Deed – a useful tool or potential nightmare?

Too often I have clients come in the office seeking a Quit Claim Deed to transfer property to a loved one, or to simply add a family member to their property.

Generally, I avoid the use of Quit Claim Deeds whenever possible, unless the facts and circumstances require it. In my opinion, there are far greater tools to use to reach the same goals that clients are seeking as a result.

What is a Quit Claim Deed?

A Quit Claim Deed is a form of Deed used in FL to transfer title in property. However, a Quit Claim Deed makes no promises about the owner’s title whatsoever. It simply transfers whatever interest the owner had in the property. 

When to use a Quit Claim Deed?

There are few instances when a Quit Claim Deed may be proper. Generally, they are used in divorce proceedings where on spouse is giving title to property to another spouse as part of the dissolution of marriage agreement. I also recommend them when transferring property between spouses, or adding a spouse’s name to a deed. Quit Claim Deeds are also proper when removing a family member or co-owner from the property title.

3 Reasons not to use a Quit Claim Deed

I generally do not recommend using a Quit Claim Deed as an estate planning tool, again, except for if the scenario in questions is as those mentioned above.

1. Ownership Control:

The first reason I advise against using quit claim deeds as opposed to other options like an Enhanced Life Estate Deed or Trust, is that once you give someone ownership in your property via a Quit Claim Deed, there is no way you can take that back. The new owner or co-owner now has all the rights and ownership interests in the property, and if you want to sell the property, they will need to agree to the sale.

Further, if the new owner now wants to the sell the property, and you do not want to sell, they can petition the Court for a Partition of the property, wherein the court sells the property and distributes the proceeds between the owners. This is less than desirable as property in a partition does not sell for full value that could be sought via private sale, and further partitions are costly.

Not only do you lose full ownership and control, you are now also subjecting that property to legal exposures of the new co-owner, discussed further below.

2. Homestead – Protection from creditors:

I would avoid using a Quit Claim Deed to add a child to your property, especially if the property is your homestead.

The Florida Constitution provides several benefits to a person’s primary residence in Florida, assuming the person qualifies for the protections.

One of the protections offered to a person’s Homestead is protection from forced sale by creditors. There are certain creditors which may force the sale of the homestead, for example: the government if taxes are owed, a mechanics lien if a contractor was hired to perform work on the homestead property, an HOA or Condo Association is owed fees, or the Mortgage holder from the purchase money mortgage given on the property. However, beyond those specific types of creditors, other debts cannot force the sale of homestead.

The issue arises where a parent adds a child or friend to their property via Quit Claim Deed. They do not realize that if their new co-owner doesn’t file for homestead that they are not protected from their new co-owner’s creditors. Further, if the new co-owner does file for homestead, property taxes are likely to increase.

Let’s take a look at this quick example:

Mary wants to add her son, John, to her Homestead property. She prepares and records a Quit Claim Deed in the county where the property is located. Mary now owns the property with John. John gets a judgment against him for a debt unpaid, or some other occurrence. John’s creditor files a Lien against the property, and for John’s failure to pay, files for a residential foreclosure to recover the debt owed. Mary’s property will be foreclosed, with the proceeds from the sale being used to pay back John’s debt and any surplus to be given to Mary and John, assuming they filed their claim for the surplus.

This example shows how a simple Quit Claim deed may cause more turmoil than any positive benefit.

Instead, Mary could have used an Enhanced Life Estate Deed, colloquially referred to as a Lady Bird Deed, to keep property title in her name, with 100% ownership in her name, and only a remainder to her son, John, upon her death. During her lifetime, John has no vested interest in the property, since his interest is subject to Mary’s life ownership, and if Mary chooses to dispose of the property, John’s interest is terminated. There are there advantages to an Enhanced Life Estate Deed which are discussed in another article, here.

3. Tax Implications:

When a person sells property, they will have to pay an income tax on the gains made as part of the sale. Meaning, if you purchase property for $100,000.00 and sell it for $150,000.00, there will be income tax liability as the $50,000.00 of gains made in the sale. If you add a family member to a deed, and they later sell the home, they will also be liable for those same gains on the property. Their ‘tax basis’ is the same as the purchaser of the property.

On the other hand, where a person inherits property, they generally inherit the property at a “stepped up” tax basis. What this means is that if you inherit property at the value on the date of death of the property owner. And if the property is sold, the only realized gain will be the amount of the sale less the date of the death value of the property

Conclusion – Useful tool or potential nightmare?

So now I ask you the reader what you think about the Quit Claim Deed. Is it a useful tool? Or is it a potential nightmare? As with most things, both can be true at the same time!

As always, we recommend that if you are considering using a Quit Claim Deed, first review the matter with a Florida Real Estate and Estate Planning Attorney so that all the implications mentioned above, and more, will be considered in deciding whether the Quit Claim Deed is the property tool for the job, or is just going to be a nightmare in the making.

SEEK ADVICE!

If you are reading this post because you having issues relating to any of the above, contact our office at 305.224.8900 for a free consultation and let one of our attorneys review the matter at hand in order to protect your property rights.

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein. All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

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