Need Quitclaim answers fast!
I am new to investing, and not sure that all I have read is correct so I am coming to you guys again. This is a personal situation, and I want to make sure that I am guiding my own family in the right direction.
My granny had my aunt designated as the executor of her estate when she dies. My aunt has since become terminally ill, so granny had aunt's son (granny's grandson) designated the executor of her estate.
The family is trying to protect granny's property in case something should happen and she was put into nursing home. We are trying to make sure that the state couldn't take her farm.
I suggested a quitclaim deed. Is it legal and binding if granny signs her deed over to her grandson, and would that protect her from anyone outside of him trying to take away her farm? She is the only one on the title. Also how would this effect the greedy people that will be coming out of the wood work seeing dollar signs that aren't really there. Property isn't worth much more than sentimental value, and we are trying to keep it in the family, but have some shady characters who would rather have cash, and don't want the state to have it either.
Can you guys help?
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Hi Button,
Received your email. I really am not qualified to give advice on this subject. However, you might try posting on the legal forum.
Another consideration is that your granny must have used an attorney to twice designate the executor of her estate. It is to that attorney who I would pose the question about the quitclaim deed.
Hope this helps.
wgheisler
Also, ask the attorney what the effect would be if granny put the farm into an irrevocable living trust and designated some family member (perhaps yourself) as trustee. The trust document would specify the disposition of the farm upon granny's death (regardless of any challenge to her will) and avoid probate as well.
An estate lawyer would probably be able to tell you how best to protect granny's assets from a nursing home lien (or Medicare/Medicaid) if granny becomes a permanent resident.
I'm curious about this one, too... I've often thought of having my parents sign a deed over to me, putting it in a safety deposit box, and only using if something should happen to them... if I record the deed dated a prior date, I'm the owner of the house without having to jump through the probate hoops. Naturally my parents would trust me enough to do this, but I've wondered if there is anything "wrong" with doing this. Just because a deed isn't recorded, doesn't mean it's no good, so if I only used it in the worst situation, wouldn't that save a lot of trouble? Seems too simple, I guess, otherwise everyone would do it.
I'll be interested to hear if you get any attorneys to post with an answer.
First, granny can give a deed to anyone she wants, but watch out for two possible problems by: (1) the IRS for gift taxes, and (2) the state for back Medicaid amounts.
If the property is worth more than $11,000 and granny has already used up her $650,000 one-time unified credit (i.e., exemption from gift taxes), any gift over $11,000 would be subject to a tax of 35%. Ouch!
Even if you get past the gift tax problem (which is rather easy to do), if: (1) granny gave a property for "less than full or adequate consideration," and (2) granny incurs nursing home expenses (that the state pays) within 5 years of the transfer of the real estate, the state could come in and argue that the son is holding the property in "constructive trust" for granny. This would allow the state to permit the state to attach a medicaid lien on the property which would have to be paid when the property is later sold. A constructive trust is a fictitious trust; no trust document is necessary. It is a legal fiction whereby a court rules that a person, although they are on title, is not really the beneficial owner of the property but is merely holding title for the benefit of another person (e.g., granny).
The better approach is, as DaveT mentioned, to contact an estate planning attorney. You should talk with one that is also experienced in elder law. The attorney may recommend granny set up a medicaid trust. In addition to preventing the state from attaching a medicaid lien on a constructive trust theory, the medicare trust would prevent son's creditors from putting a lien on the property. A medicaid trust is a type of spendthrift trust.
One poster was wondering whether signing a deed and putting it in the safe deposit box is a viable option. I would not recommend that since if it is held in the granny's safe deposit box and you record the deed after granny's death, the transfer would be ineffective since it would be considered a "testamentary transfer." (i.e., a transfer on death which needs to meet the requirements for executing a proper Will in your state). Moreover, even if the testamentary transfer issue does not arise because of your state laws, you would take the same tax basis as granny had. If granny willed the property to her beneficiaries on her death (i.e., the medicaid trust will designate the contingent beneficiaries), the tax basis in the property will increase to the FMV. Thus, if you received the property by inheritance (and not by gift), and you sold the property immediately thereafter, you would have little or no capital gain taxes to pay.
Hope that helps,
Taxjunkie