Quitclaim deed question please

[AngelaK]

Hi everyone. I'm Angela. I'm 60 years old and just retired. My social security and retirement equal about $2,000 a month. I have a house that I owe $30,000 on, and was last showing about $90,000 in equity.

I've just started working at a retail store part time, 30 hours a week as a cashier.

I owe the IRS about $20,000, and I owe my credit cards about $60,000. I am currently paying my credit card bills via a debt consolidator. I have not yet started paying the IRS. No liens have been filed on my house.

Okay, here's my questions please.

If I quitclaim deed my house to my son, and then if I pass away, will my son get to keep the house? Or will the credit card companies and the IRS take it? My health is bad, and I want to leave my son something.

I'm really in a mess. I've just spent all day today reading through the forum, so I hope that I am posting this in the right area. There's so much to read in this forum, so full of helpful posts. Thank you.

[DeadManCrawling]

Angela,

Welcome to the site. There are a few issues with your plan.

The QC idea MAY work, if no creditor sues you during the next 10 years, and you live that long. Otherwise, the lookback period for real estate transfers is 10 years, which could cause problems. The IRS is well versed at any attempt to avoid them, and will not be fooled.

Depending on the state you live in, your home may already be protected against everyone but the IRS. What state are you in?

I hope you have a long life, but you are wise to think about what happens after, for your son. Things get murky in some areas of probate, but you may wish to look into a Ladybird Deed, if available in your state. This is a very powerful legal method of ensuring that your property passes to your son, not your creditors.

The IRS is a monster in its own right, and much of what you read online, here and elsewhere, simply won't apply or stop the IRS. Your best bet might be to work out a settlement or payment plan. There are ways the IRS can lose, but most of them depend on a number of years passing, and whether you filed a tax return during the years concerned.

I am sure others will pop in to add to this, but if you could provide details to some of my questions, that might help them answer you.

[Pandora]

Quit claiming only transfers the rights that you have in the property, it does not guarantee that the property will be your son's outright - creditors can make claims against it. You need to ensure you/your son has enough funds available to pay off the mortgage if you quit claim it (life insurance proceeds?) since you owe on it, unless you have a death benefit that pays the house off when you pass. Perhaps you need to look at a General Warranty Deed or even putting the house into a Trust. In a trust, your son would save alot of money on taxes.

An estate planning attorney would be best to advise you on what will be best for your situation.

Also - review your state's laws on how property passes - is it real estate will pass by survivorship to a spouse or other person under the terms of the deed of ownership or some other means? Some states, like VA, you have the option to probate or not.

At any rate - like the poster above - I'm sure you'll be here for quite a while 60 is young...

[LadyInTheRed]

In a trust, your son would save alot of money on taxes.

This is a common misconception about trusts. Most trusts do not save on taxes.

[Pandora]

This is a common misconception about trusts. Most trusts do not save on taxes.

No - it depends on what kind of trust is created, and yes it would save on taxes depending on the trust. Recipients of a trust can take advantage of the estate tax exemptions, something that can't be done when assets are held in joint ownership. When property is quit claimed, the tax basis is the amount the previous owner paid for it, so later if sold, taxes would have to be paid on all the profit that exceeded the org. purchase price. However put in a trust - the property is valued at the date of death. Of course - if the house was purchased 30 years ago, the value vs. today's price could be lower, but the tax benefit of getting to claim its exemptions, is still there.

Also most inheritances cause probate fees, which are very costly. If you add in provisions to a trust, the recipient will not have probate costs, which could be costly depending on the estates worth.

So it depends on how you look at it.


ETA: here is a great site for anyone considering a trust - it explains in detail how all the different trusts work and what they are. http://www.livingtrustnetwork.com/in...of-trusts.html

[LadyInTheRed]

No - it depends on what kind of trust is created, and yes it would save on taxes depending on the trust.

As I said, "most trusts", by which I mean most trusts that people actually create.

Recipients of a trust can take advantage of the estate tax exemptions, something that can't be done when assets are held in joint ownership. .

Estate tax exemptions are applicable to jointly owned property. Besides, most estates do not pay estate tax. As the law currently stands, people who die this year pay no estate tax and people who die next year have to have $1,000,000 dollars in assets, after deducting debts and expenses of administration, before they have to pay any federal estate tax. The future of the law is uncertain right now. It is expected that congress will pass legislation to return the estate tax exclusion closer to the 2009 level which was $3.5 million. I really doubt the OP will have any estate tax concerns regardless of whether legislation is passed.

When property is quit claimed, the tax basis is the amount the previous owner paid for it, so later if sold, taxes would have to be paid on all the profit that exceeded the org. purchase price. However put in a trust - the property is valued at the date of death. Of course - if the house was purchased 30 years ago, the value vs. today's price could be lower, but the tax benefit of getting to claim its exemptions, is still there

. Actually, the unlimited stepped up basis does not apply this year. It may or may not exist next year. Assuming there is a step up in the future, it's not putting the house in a trust that accomplishes the savings. It's whether you make a lifetime gift or testamentary gift that makes the difference. Putting the property in a revocable trust won't accomplish what the OP is trying to accomplish (keeping it from her creditors), but when the property passes to the beneficiary at her death, the basis will be stepped up if the law allows it at the time. If she puts it in an irrevocable trust, it will get carry over basis as of the date of the gift to the trust, so you have the same basis issue as if she just quitclaims the property to her son. She will also use part of her unified estate/gift tax exclusion when making the gift, so it will only save estate tax if the property appreciates and she has a large enough estate to pay estate tax. Any savings in estate tax will only be on the difference in value between the date of gift and the date of death and the savings will be reduced by any capital gain tax payable.

Also most inheritances cause probate fees, which are very costly. If you add in provisions to a trust, the recipient will not have probate costs, which could be costly depending on the estates worth.

The avoidance of probate is one of the main reasons most people create living trusts. But, the probate fee is not a tax.

So it depends on how you look at it.

Only if you call a probate filing fee a tax. Actually, the attorney fees to prepare a trust are probably more than the probate fee, but there are advantages to avoiding probate other than filing fees. Privacy and speed, for example. Also, the ability for a successor or co-trustee to step in and manage your affairs if necessary while you are still living. I still stand by my original comment: MOST trusts do not avoid taxes. The wealthy do use certain types of trusts to decrease estate tax. Many of those trust rely on transferring assets that they expect to appreciate, using less gift/estate tax exemption at the time of the gift than will be used at the time of death when the asset is worth more. The downside to that is that you transfer your basis along with the gift so the value doesn't get stepped up at death. But, estate tax is at a higher rate than capital gains tax. Before any trust will help avoid estate tax, you have to have a large enough estate to be taxable. Most people don't.

[Pandora]

If you knew what I was inferring to (which from the sounds of your post response above - you clearly did) then there was no need to "call out" my statement of a trust in the first place, correct???? I never stated ALL trusts... did I? No - and clearly there IS a tax benefit and savings that a trust creates. Regarding probate being a tax - I never stated that probate was a tax - I believe I stated "Also..." on both accounts of mentioning probate - which means "in addition..." by my last account of the defintion. Obviously you have the same affliction that someone else on this board has , and its not the first time, so lets rectify this yet again - for the last time - dont put words in my mouth.

So stand by whatever you desire - but all that typing you just did - for the benefit of I dont know who - is the exact same thing I stated and provided in the link - and stated go see an estate attorney in the very beginning. Been there done that, thanks, I know how it works, which is why I mentioned it from the get go.

Certain things dictate what can and cannot, what should and should not be done regarding a trust - whatever kind of trust you set up - and quit claiming is not the "do all be all end all" answer as it does not guarentee the right of ownership without the possibility of a creditor making claims against the property.

[LadyInTheRed]

I can't tell you how many times I've raised the issue of estate tax to a family member of a decedent and they say, "but the property in the trust isn't taxable, right?" In most cases, the answer is "wrong". Many people believe that putting assets in any trust will avoid estate tax. Your statement that "in a trust, your son would save a lot of money on taxes" is most likely not true and helps perpetuate the myth that assets in a trust escape estate tax. It could also cause anyone who reads it to think they should worry about estate tax when they have no need to. We don't know enough about the OP to know for certain, but based on what we do know, I doubt she has $1M in assets.

I didn't put any words in your mouth. Part of your response to my statement that most trusts don't avoid tax was to point out the savings in probate fees. Many do view such fees as a form of tax. Based on your response, it wasn't a stretch to think that you may also have that view.

My only "affliction" is a desire for people to receive accurate information. When I see information I believe to be inaccurate or misleading, I try to correct it. "All that typing" was for the benefit of anyone reading your response to my post in order to correct additional incorrect information and to add to and clarrify the information you provided. It's not personal. Part of the value of this forum is that there are people of so many different experiences and areas of knowledge, that there is usually somebody to speak up when somebody with the best of intentions says something that believe is inaccurate.

I didn't disagree with you that a trust might be helpful for asset protection purposes (that depends on many factors, including her state's laws), that the OP should see an attorney to explore that option or that a quitclaim deed is probably not the best way to accomplish her goals. Both you and DMC made those points well.

[Pandora]

Your statement that "in a trust, your son would save a lot of money on taxes" is most likely not true and helps perpetuate the myth that assets in a trust escape estate tax. It could also cause anyone who reads it to think they should worry about estate tax when they have no need to. We don't know enough about the OP to know for certain, but based on what we do know, I doubt she has $1M in assets.

You're correct - she probably doesnt have 1M in assets - however - again, you've misread what I wrote. I never stated estate taxes only - I stated "your son would save on taxes" which is a general, not a specific, I did also state "depending on the trust" in my subsequent response to yours - and...there is a savings to certain taxes in certain trusts, period. You dont know if the son is married and neither do I - again, generalized statement I made in the beginning. I happened to list an example of one type of tax that could be saved upon in a trust - the estate tax - to your comment of "trusts dont save in taxes" but by no means is that the only tax around, wouldnt you agree? We will never escape taxes - as old Ben Franklin (I believe) put it "only thing certain in life is death and taxes..."

I didn't put any words in your mouth. Part of your response to my statement that most trusts don't avoid tax was to point out the savings in probate fees. Many do view such fees as a form of tax. Based on your response, it wasn't a stretch to think that you may also have that view.

Yeah you did put words in my mouth and you're doing it yet again above. You assumed that I stated probate was a tax and I did not, ever. Your reference to "many do view such as a form of tax..based on your response...etc" - the assumption was made by yourself that you presumed to believe, yet again, that you can read my mind and know what that statement intended. Misread. Again - could it not have gone the other way..as I had written it and subsequently explained it to you in my prior post? Right.

My only "affliction" is a desire for people to receive accurate information. When I see information I believe to be inaccurate or misleading, I try to correct it. "All that typing" was for the benefit of anyone reading your response to my post in order to correct additional incorrect information and to add to and clarrify the information you provided. It's not personal. Part of the value of this forum is that there are people of so many different experiences and areas of knowledge, that there is usually somebody to speak up when somebody with the best of intentions says something that believe is inaccurate.

Again - misread and poor belief on your part. I never gave inaccurate or misleading information and to say I did is poor on your part. To type another response further trying to tell me I'm wrong yet again and not reading and understanding what I wrote except from your own point of view and desire to be "right", led you here again. Notice your use of "Part of the value of this forum is that there are people of so many different experiences and areas of knowledge, that there is usually somebody to speak up when somebody with the best of intentions says something that believe is inaccurate." it was YOUR belief I was incorrect as you did not comprehend what I wrote and the intent it was written in, therefore again, that was your preconceived notion. I dont like being called out saying I'm giving incorrect or misleading information on something that I'm not. I chose to generalize - you chose to go in-depth, I gave non-specific examples to your first basis of "misconception" - you took it further with more detailed specifics, but you based it on the OP's limited personal information, whereas I did not. At that point my comments were directed towards yours and yours alone - not the OP's, and thats where you made the mistake. I'm not going to explain in detail how the vast variety of trusts work, the benefits in detail over the non-benefits in detail, thats why I provided a general statement and brief (very brief) antedote to your comment that it was a "misconception" - because its not. I figured since people on this forum can read, they could read the link I provided and learn more in-depth details for their situations, should they so desire.

My only "affliction" is a desire for people to receive accurate information.

As far as the "affliction" - yes you do because when I had posted about a month or so ago regarding a question I had about my own mother's estate and some other issues (here http://www.bkforum.com/showthread.ph...utor-of-Estate) you again made assumptions to my post thinking I did not know how wills or trusts worked or even probate. If I have a question that I am unsure about - I will ask, trust me - as I never declared to "know it all" but to presume as you've done here and in the past, is wrong on your part LadyInTheRed, sorry.

I didn't disagree with you that a trust might be helpful for asset protection purposes (that depends on many factors, including her state's laws), that the OP should see an attorney to explore that option or that a quitclaim deed is probably not the best way to accomplish her goals. Both you and DMC made those points well.

I'll agree with that, no you didnt disagree for that purpose, you're correct, and yep, a quit claim isnt the magic document that everyone thinks it is.


With all the above out and being said - I hold no ill will towards you LadyinTheRed - you have provided me along with many others very knowledeable information. So please, in the future, please ensure you read something from a different point of view because it just may be that its not intended the way you're perceiving it. I'm not going to "hash out points further" - I believe its all been stated and corrected at this point. We're good.

Have a good day