Real property is transferred by deed. Most popular of the deeds are the quit claim deed, the warranty deed, and the beneficiary deed. Understanding the basic distinctions can give you the power to ask the right questions and find the best deed for you.
A quit claim (“QC”) deed transfers whatever interest in real property the seller owns. If the seller owns nothing, then the QC deed transfers nothing. Safer than a QC deed is a warranty deed.
With a warranty deed, the seller guarantees that he owns the property. The best guarantee is supported with a title policy issued by a title company. A title company researches a property’s ownership history. If the seller owns the property, the title company will issue an insurance policy. The insurance policy will pay legal expense if any problems with ownership later arise.
Both a QC deed and a warranty deed are effective immediately and cannot be revoked later. On the other hand, a beneficiary deeds only become effective after the owner’s death and can be revoked and changed any time before the owner dies. With a beneficiary deed, ownership does not change until the owner dies.
Before death, people are often concerned with paying for long-term care. To protect the home, some people want to give the home to a family member. Giving the home can cause tax and Medicaid issues. Additionally, those people no longer own their home and cannot sell it, mortgage it, or otherwise access the equity in the home. Reserving a life estate—the right to live in the home—guarantees a place to live but the majority of the equity belongs to the new owners.
Using a beneficiary deed does not help with Medicaid planning but allows the owner continued control of the home and the home’s equity. Additionally, as relationships change over time, it gives the owner the flexibility to adapt gifts to current situations.
Deed selection is important. If everyone is using the same definitions, the best result is easier to find.
Karen Baim Reagler is an estate planning attorney in Hot Springs, Arkansas. She helps people plan for the things people own for the people and organinzations they cherish.