Quitclaim deed during divorce is not recommended today
Q: I divorced 20 years ago and my ex signed a quitclaim deed for the house, which I kept and still live in. Will there be any problem with this when I sell? Will there be a problem when I die (I have a will)? I am asking because a friend said the quitclaim deed will be a problem to my ownership and control of the house in selling or if I die. I had a lawyer in the divorce and the quitclaim deed was his recommendation, so I trusted it removed my ex from any claim regarding the house.
A: In answer to both of your questions, “No, not usually.” A quitclaim used in the process of divorce is usually not a problem. They have been used commonly in the past (not the best choice from a title insurer’s standpoint), but it is not like using a quitclaim to convey title to a third party. A quit- claim deed doesn’t even represent that the owner has title, and many of the defenses of a bona fide purchaser are not available, so title companies don’t like to insure them. In a divorce, it is an explainable event under the circumstances. Today, we recommend a special warranty deed. It represents that the owner (ex-spouse) didn’t encumber the title during their ownership.
Q: My personal home is titled in a trust. When I die, will my heirs get a step up in the value to the day of my death? Since the home is titled in a trust, if I sell it out of the trust, will I owe capital gains taxes over what I paid for it? I have lived in the house for more than five years, but it has been titled in the trust for more than four years.
A: You need a good CPA. This is a tax question, but we can share some general rules. The trust document is what controls. If the trust is a revocable trust, there is a step-up in basis, if it is an irrevocable trust, there is not. Capital gains tax will have to be paid on the sale. A CPA, however, can look at all of your tax issues and give you excellent advice. Seek one out.
QQ: I am a Realtor. I represent the seller in a closing that occurred last week at a major title company in Houston. The buyer showed up to close the buyer’s part, but the seller, who lives out of state, will close next week. Prior to the buyer’s signing their closing documents, I informed the closer that I would like the closer to explain to the buyer that the buyer does not own the house until the transaction actually closes and funds. The closer said, I do not do that. What? If not the closer, then who? Isn’t it the closer’s job to describe what constitutes a closing?
A: The closer’s job is to oversee the execution of documents, record documents, and receive and distribute funds. They are not there to give advice on the parties’ legal rights. The contract defines when possession takes place (closing and funding). That document controls.
Q: My wife and I purchased our home 39 years ago for $500,000. We’ve just resold it for $1,700,000. Do I have to pay taxes on this resale?
A: Congratulations on your resale. Yes, you have a lot of tax liability. You have an exclusion of $500,000 as a married person, but you have to pay capital gains tax on the excess. The bad news: you are now rich, since you earned more than $400,000 this year. Your capital gains is now up to 20 percent. New federal legislation (the Affordable Care Act) adds another 3.8 percent to that, and there is a new Medicare tax of 0.9 percent. Your new tax liability is now 24.7 percent above the exclusion.