You have probably heard it many times before from many people, from financial advisors and tax preparers to the register of deeds and even some attorneys, that all you need to do to transfer your property to your kids or your trust, is to use a quit claim deed. Unfortunately, these statements are often accompanied with additional advice that the deed needn’t be recorded until after your death.
I have seen these scenarios blow up on numerous occasions. And when they do, the result is usually not pretty. They property does not always go to the intended recipients and legal fees eat up a good chunk of the value of the real estate. The cost to fix these blow-ups are typically much, much more than it would have been to do it properly in the first place, and without the use of a quit claim deed.
I have found that most people who use quit claim deeds to transfer their property, do not even know what a quit claim deed is or does. If you use a quit claim deed to convey real estate, all you are saying is that you that if you have any interest in the property, you give it to someone else. You do not have to own anything. Anyone can legally give a quit claim deed to anyone else for any piece of property.
For example, you could quit claim deed the Birchwood Mall to your best friend. But that doesn’t transfer any interest in the mall if you didn’t have any in the first place. When you use a quit claim deed, you make no promises or warranties that you have any interest in the property you are conveying. With a quit claim deed, if you own 100% of the property, you convey 100% of the property. However if you do not have any interest in the property, you convey nothing.
Quit claim deeds may cut off title insurance. When you purchased your home, most likely you received a title insurance policy. The title insurance policy protects you from future claims from anyone who says they have some interest in or lien on your property and that they had the interest or lien before you bought your property. Most title insurance policies that I have reviewed, have a provision that says your title policy coverage continues after you deed away your property, so long as you give a warranty of title.
The way you provide a warranty of title is by transferring your property by a warranty deed. If however, you transfer your property to your kids or your trust using a quit claim deed, you have not given a warranty of title. Your title insurance terminates. So, if somebody claims an interest in your property after the fact, you do not have a title insurance company paying to fix it. You are on your own.
Unrecorded quit claim deeds often get lost, mislaid, destroyed or stolen. I have had quite a few new clients over the years that have come into my office after they have lost unrecorded quit claim deeds. They knew that there was an unrecorded quit claim deed at one time as part of their estate plan, but they now cannot find it. Sometimes they believe that it was shredded with other old legal documents.
These unrecorded quit claim deeds also come up missing after death. I have had quite a number of cases in which the children are certain that Mom or Dad did a quit claim deed for the home, but it cannot be found after Mom or Dad’s death. Now the home needs to be probated. The unrecorded quit claim deeds that seem to come up missing the most often are the deeds providing for unequal shares to the kids, and coincidentally, the first person in the house after the death was a child who was going to get a smaller or no share in the property. That child then claims that he or she never saw any deed. Now the property has to go accordance with the will which typically provides for equal shares to all the kids.
A missing unrecorded quit claim deed does avoid another problem. If you have a quit claim deed conveying your property to your kids and you do not deliver it to the kids or record it at the register of deeds during your lifetime, the deed expires with you. Upon your death, the deed is void and it is not valid to transfer title. That does not stop a lot of people from recording these deeds after death. You would be recording a void deed, but if nobody knows this, the deed gets recorded anyways. This could be a problem with the chain of title in the future, if it is discovered that the deed was not delivered during your lifetime.
In one unrecorded quit claim deed case I have seen, one son had a photocopy of a deed allegedly signed by Dad leaving the entire house to that son. The original deed was never delivered to the son nor recorded and could not be found after Dad’s death. The other kids swore that Dad destroyed the original deed long ago and did not intend for his home to go accordance with the photocopy and wanted it to go in accordance with his will, equally to all children. Long story short, the son with the photocopy of the deed ended up with the house.
You probably got the hint that I don’t like quit claim deeds and you would be right. I don’t like quit claim deeds and I rarely use them. About the only time anymore that I will use a quit claim deed is when we need to transfer a partial interest in property such as an easement or an interest in a land contract. In most all other instances, I use a warranty deed. When I am deeding property to a trust, I use a warranty deed and I record it. When I am deeding property from a parent to a child or other relative, I use a warranty deed.
If you want a transfer of your property to take effect upon your death, there is a special warranty deed that you can use. It is a certain type of transfer on death deed called a ladybird deed, which does get recorded. The property is owned by you during your lifetime, you have full access. You can do whatever you want with the home during your lifetime. However, the remainder that is left after your death gets conveyed with the title warranted to your loved ones.
In most instances, a recorded warranty deed is better than either a recorded or unrecorded quit claim deed.
By Matthew M. Wallace, CPA, JD
Published edited July 29, 2012 in The Times Herald, Port Huron, Michigan as: Quit claim deeds are not a good decision