“I Want to Quit Claim My Property to a Relative.” No You Don’t.

I regularly receive calls from potential clients who have a lot of misunderstandings about what Quit Claim Deeds are, how they work, and when they should be used. “Quit-Claiming” a property to someone else is rarely as simple as people think, and often doesn’t accomplish their goals anyway.

Quit Claim Deed is simply one type of deed that can be used to transfer real estate from one person to another. It can be used for either a sale, gift, or for other particular transfers such as transferring property to a trust, or between spouses in a divorce.

Perhaps the most common type of real estate deed is a Warranty Deed. This is the deed generally used in a routine sale between an impartial buyer and seller. With this deed, the seller provides a warranty that they actually own the property, and that there are no undisclosed liens, encroachments, claims, or other clouds on the title. It is generally accompanied by the seller purchasing a Title Insurance policy to insure this warranty.

With a Quit Claim Deed, on the other hand, the seller simply transfers away whatever interest they may have in the property, and they give the property “as is”.  The seller may not actually even own all of the property, or the property might have various encumbrances on it. A Quit Claim Deed would work perfectly well when, for instance, one spouse wants to add the other spouse’s name onto the deed of the home they live in, but it would be inappropriate if a buyer were purchasing the property from an unrelated party.

So, when a potential client tells me they want to “quit claim” a property to someone else, my first questions are who the recipient is, and whether the transfer is a gift, sale, or some other kind of transaction.

If you are “quit claiming” a property from yourself to someone else, you are not simply “putting their name on the deed.” You are actually transferring ownership of the property to them. For instance, if an elderly parent quit claims their home to an adult child, the parent is actually giving up all rights to that property. The child can then evict them, sell or leverage the property, or have creditors put liens on the property. If you intend your child to own your property after your death, simply quit claiming a property to them is rarely an effective estate-planning strategy.

Also, if you are not receiving payment from the recipient for the fair market value of the property when you use a Quit Claim Deed, then you are really gifting the property to that person. Unless this transfer is to a spouse, or otherwise specifically exempted, you will likely have to file a Federal gift tax return if the value of the real estate is over $15,000. The recipient also loses the potential step-up in basis that they would receive if they obtained the property as an inheritance.

If you have a mortgage on the property that you are trying to gift, then you face additional complications. As a general rule, a mortgage potentially becomes due in full when the property is transferred. So if you are gifting a property to an adult child, for instance, you either need to pay off the mortgage, or have the recipient re-finance the property or formally assume the loan.  They cannot simply take over the payments.

Drafting a Quit Claim Deed itself is relatively simple. You will need the full legal description of the property as well as the parcel ID number. However, before the deed can be recorded with the Register of Deeds, you always need to obtain a Transfer Return Receipt from the Wisconsin Department of Revenue. This can now only be done online. To complete the Transfer Return, you will need various information including the Social Security Numbers of both parties, the value of the property, and acreage of the property.

You will then need to pay a fee when you record the Deed. There will always be a $30.00 recording fee with the county Register of Deeds. And unless your particular transfer is exempt, you will also have to pay a 0.3% ($3 for every $1,000 of value) as a Transfer Tax. Examples of exempt transfers are transfers to many revocable trusts, to spouses, or to children. You then submit the Deed, along with the Transfer Return Receipt and the applicable payment, to the Register of Deeds.

Quit Claim Deeds are relatively common documents. However, they are not right for all transactions, and thought should be used before using one to transfer property to a friend or relative.

For questions, or to obtain assistance using a Quit Claim Deed, contact Lippow Law Offices, LLC.