Don’t take a good deed for granted.
When buying a house, the deed is the County Recorder’s evidence that the home was transferred from the previous owner or homebuilder to the new owner(s). A deed is a document that is signed (and notarized) by previous owner that includes different language to identify any transfer taxes, exemptions from fees, the parties involved, the legal description of the property, and sometimes other information.
It might seem like a deed is a pretty straightforward document, but there are a lot of things to consider and do correctly for several reasons so that the deed is recorded properly, taxes are not impacted incorrectly, and things will be handled correctly if the property is transferred in the future.
First, the deed needs to be precise and accurate to make sure it’s going from the right people (same names and authority) to the correct buyers. For instance, the names of the parties should match their legal identification. Furthermore, the attorney or professional drafting the deed should be researching previous deeds to ensure that the chain of title is clean and has no inaccuracies.
Second, the vesting on the deed needs to be accurate. This is a BIG one because this has huge impacts if something happens to the new owner (e.g. death, divorce). Here is a good chart that goes over some of the differences in how to hold title.
How title is held matters for a few reasons.
This dictates what happens to your interest in the property if you pass away. For instance, Joint Tenancy and Community Property with Right of Survivorship require that if you pass away, your interest is automatically transferred to the other owner(s) of the property. Instead of going through the probate court proceedings, the other owner can have an Affidavit of Death filed with the County Recorder to process the change. (Note: However, this may not be the best option because if something has happened to all the owners, the property would have to go through the probate court process.)
Vesting can have an impact on the tax basis for the home when it is sold. This is an in-depth discussion that you can have with an attorney or CPA.
Having your home deeded to you as a trustee of your trust is the best method because the trust accounts for who your home goes to in different scenarios (and any restrictions), provides for ideal tax treatment if the house has been sold after you passed, and eliminates the need for the home to go through the probate court process. This is because the County Recorder is aware that a valid legal document exists that governs your wishes regarding home ownership.
Third, it is vital that the deed reflect the appropriate fees and exemptions. Depending on the reason for a new deed, there may be reassessments on the property taxes for the home, documentary transfer taxes, or other fees. For instance, putting your primary residence into your revocable living trust is an excluded reason for property tax reassessment and there should be no other fees incurred (other than the recording fee). If you are buying a new home, giving an interest in your home to someone else, or gaining an interest in a home from someone else, then there may be different fees and reassessment to be aware of.
Fourth, the new deed needs to have the correct legal description and assessor’s parcel number (APN) for the house. Did you know that your home address is not how it is legally identified? Your home is actually identified by a legal description and depending on when your home was built, where it was, as well as a variety of factors, the legal description may be very different. If the legal description on the deed is incorrect, then it doesn’t apply to your specific home.
Fifth, the deed needs to be notarized. The notarization process is an assurance that the transferors’ identities were verified.
As an Estate Planning attorney, I regularly review previous deeds and draft new deeds for my clients. Each deed can be so different and it’s crucial to do research on how the deed previously was written, as well as give guidance to clients on what the new changes do. When creating a trust, it is absolutely necessary that any real estate you own is deeded to the trust. If you have an Estate Plan created and do not take funding the trust (for deeds, bank accounts, and other assets) seriously, then your assets are still subject to the probate court process.
Consequently, we take this process seriously and make sure that the deed reads correctly so there will not be taxation issues, probate, etc. We will make it a priority to educate clients on these issues and answer their questions about real property ownership and transfer.
Here’s a great article from the real estate professional’s perspective on why your real property deed should be in a trust.
On a personal level, my husband and I just bought our first home and it was so smooth being able to put the home directly in the trust. Many people ask if they need a trust when they haven’t bought a home yet and my experience validates how much easier it is to have the trust already and then go through the home search and purchase process.
Since we already had our trust established, we were able to handle all of our escrow paperwork with the trust as the owner, the trust as the homeowner’s insurance and title insurance holder. Going through the signing appointment thus went without a hitch. In fact, the signing agent from the title company kept remarking that we made such a good decision putting the home into the trust right away. She also mentioned that not many young couples buy their homes directly into the trust, but that this is the best choice for a variety of reasons. It was affirming to hear someone outside of the Estate Planning field note that trust ownership was ideal from their professional perspective as well.
When our homes are often the largest asset that we own, it is just good sense to ensure things are handled appropriately for us and also for our loved ones in the future. I hope that this post reiterates that deeds are powerful instruments and you should seek a professional to draft and execute these important documents. Lastly, trust ownership of a deed is a great way to protect your home to make sure that it goes to those you love without added stress or hassle of a court proceeding.
Updated: February 19, 2020
In 2016, California allowed for Transfer on Death (TOD) deeds to be executed. These do not convey any present ownership interest to a beneficiary, but designate who a property owner wants to inherit the title when they pass away. Though it is a good idea to think of who you would have to have future ownership of the home, there are some serious concerns with using a TOD deed. For one, should your title be held with another person, the TOD deed will not take effect; it can only be utilized if there is only one person on the title who passes away. Second, should something happen to your beneficiary before you and no further planning has taken place, the property will still go through the probate process. Third, if your beneficiary is a minor when you pass away, there are problems because they cannot hold title to real estate; if your beneficiary is a young adult, then they would be inheriting a property potentially before they are mature enough. Fourth, title company insurance policies may not cover your heirs and claims can be denied should the proper coverage not exist for the property. There are significant reasons to speak to an attorney and your title company to understand the consequences of a TOD deed and how it functions; in general, holding your property in a trust is a much safer way to ensure your property goes to the people you choose at the correct time.