“I don’t have to worry about probate because I have a quit claim deed.” You have probably heard this statement from family or friends or have said it yourself.
You may attempt to do your own mini estate plan by having a quit claim deed of your home from yourself to your children or others with instructions to record the deed after your death. This deed could have been drafted ten, twenty or more years ago. Very often this deed is kept in your dresser drawer so that it could be easily found after your death. If you did not seek counseling from a knowledgeable estate planning professional before your deed was prepared, you may not accomplish your wishes.
Unfortunately, these deeds often never get recorded. The deed can be lost or mislaid or never found. Often times it is suspected that a family member who had access to the house and who would have received a smaller share of your estate if the deed was recorded, entered the house and destroyed the deed. If the deed cannot be found, what you want to happen does not happen and your home ends up going through probate anyway.
Your beneficiary could also find the deed and record it before your death so that he or she would still get your home if you change your mind. You would have to sue your child to void the deed after it has been recorded.
You may have given your intended beneficiary a copy of your unrecorded deed. If you change your mind or have a falling out with your beneficiary, you would destroy the deed so that the house could go in accordance with your will. If your beneficiary has a copy of the deed, he or she could record the copy of the deed with an affidavit stating that the deed was lost and could still end up owning your house.
Also, if you use a quit claim deed to transfer property to family members, you void any title insurance protection that you may have had when you purchased your home. If in the future, a defect on the title to the property is discovered, your family may have to file a quiet title lawsuit at their own expense to clear the title to your property.
Next is the question about the validity of the deed itself after your death. Deeds are generally considered effective upon delivery to the person receiving the property or upon recording at the register of deeds office. If the deed is not delivered to the person receiving the property nor recorded before your death, there is an argument that that deed expired with you and is no longer effective to transfer the property after your death.
In order to avoid this situation, you may have delivered the deed during your lifetime to a third party trustee who holds the deed with instructions to record the deed after your death. This could be a problem for several reasons. Sometimes the family does not know about the deed and does not inform the trustee of your death, then your deed never gets recorded. The deed also may get lost, destroyed or mislaid when it is being held by this third party. Sometimes the trustee may have died and his or her files could be put in storage or get destroyed.
There are several ways to avoid the pitfalls of the dresser drawer deed. Firstly, just don’t do it! Keep your home in your own name. Have detailed instructions in your will and probate your home in accordance with those instructions. Although you would have probate fees, your home would be distributed in accordance with your instructions and probate can generally be concluded within a year.
Secondly, if you wanted to avoid probate and have beneficiary protection from divorces, remarriage and other creditors, you could have a revocable living trust into which you deed your property. The trust would have specific instructions as to how you want your property distributed after you are gone.
One more method to avoid the pitfalls of the dresser drawer deed and avoid probate is to record a transfer-on-death deed. Using the same statute as payable or transfer on death designations of your bank accounts, a transfer-on-death deed is simply a revocable beneficiary designation for your home. Since the transfer is effective at death, it is not considered a current transfer of any interest in your home. Therefore the transfer-on-death deed does not uncap the property for property tax purposes and your home is still an exempt asset for Medicaid, is still your homestead for homestead property tax exemption and is still your principal residence for federal income tax capital gains exemption. Since the beneficiary designation is revocable, you can change your mind and change the deed.
By: Matthew M. Wallace CPA, JD
Published edited November 16, 2008 in The Times Herald newspaper, Port Huron, Michigan as: Dresser-drawer deeds can be dangerous