Over the more than 12 years that I’ve been writing this column, I have offered up numerous reasons why a non-lawyer should not write and/or execute his or her own deed.
Examples include the fact that adding someone not presently on the title is interpreted as an irrevocable gift of a portion of the value of the property. Too bad if you decide later it wasn’t a good idea. You can’t take their name off the title without their signature.
Inheritability of title between co-owners is also an issue; that is, joint tenancy versus tenancy in common. It is not easy to know what is best or how to draft language that will guarantee that it works the way you want, in THIS state.
Drafting issues also apply to the operative language of a deed. It is always possible that the deed itself may fail because of a poor choice of words or mistakes in execution or delivery.
Many other issues pop up. Suppose you own a piece of property that you plan to leave to your children. Perhaps you put it in your will or maybe you created a joint tenancy with the right of survivorship. Then one day, based on reading you’ve done about life estates, Lady Bird deeds, or some other novel idea, you decide that you’d rather not make your kids wait for you to pass away or go through probate. Based on your reading, you’re convinced you know how to write it, so you do.
Do you realize that you may have just cost those kids you were going to leave the property a big capital gains tax bill should they decide to sell the property?
The issue is the difference between “carryover” basis and “stepped-up” basis. In your kids’ hands, the larger their basis in the property, the less capital gains tax they will owe. Usually in gift gives the receiver carryover basis (a low basis) meaning they will end up paying tax on the increase in property value over their time holding the property, plus the gains while you, the giver, held the property. If the property is inherited or passes at death by joint tenancy, the receiver enjoys a stepped-up basis that is the (usually much higher) value of the property at the date of death.
We recently saw a situation where careful plans to let their heirs inherit a valuable piece of real estate were accidentally tossed out the window by the impulsive decision to execute a deed. The difference in capital gains tax now, when the heirs need to sell the property came to over $200,000. Not a small matter!
The moral of the story?
TALK TO A REAL ESTATE LAWYER!