How to Gift Real Estate Property to a Family Member

A real estate transfer to family can have potential tax consequences, depending on gift and estate tax laws, as well as other implications that include Medicaid eligibility rules.

Transferring real estate can be difficult and cost you money in taxes, if you don’t do it the right way. So, if you want to gift real estate property to a family member, you’ll need to understand different types of property deeds and weigh the benefits and risks associated with this type of move. For help with estate taxes and gifts, consider talking with a financial advisor.

Understanding the Transfer of Real Estate

The transfer of real estate is a legal process that involves a change in ownership or title from one party to another. This is typically done through the actualization of a property deed for real estate, personal belongings, or financial assets.

A real estate transfer to family can have potential tax consequences, depending on gift and estate tax laws, as well as other implications that include Medicaid eligibility rules (typically there is a look-back period during which any asset transfers, including real estate, may affect eligibility for Medicaid benefits and potentially result in penalties or delays to qualify for long-term care coverage).

You may consider consulting an estate planning attorney or another professional to help you understand the legal requirements and document the transaction so that the transfer is fully compliant.

How to Transfer Property to Family

Legal requirements will vary based on location and the specific circumstances of the real estate transfer. Here are five general steps to help you plan ahead:

Conduct a title search to uncover any issues.
Draft a deed in compliance with local laws.
Have the current owners sign the deed in front of witnesses.
Obtain a notary’s acknowledgment of the deed’s execution.
Record the deed with the appropriate government office.

Risks of Transferring Real Estate

The transfer of real estate within a family is a multifaceted process that involves both tax and legal requirements.

Transferring real estate carries both legal and financial risks.

Your first concern in the process will be to make sure that the deed and title are clear, meaning that the property is free of liens and other legal encumbrances.

Second, you will have to figure out the transfer taxes. These are typically levied based on the property’s sale price or assessed value and are imposed by state or local governments at the time of transfer or the recording of deeds and other legal documents.

Mishandling paperwork or overlooking due diligence can lead to legal disputes, financial loss, delays in transactions, or even the loss of property rights.

Types of Deeds to Use When Transferring Property to Family

When transferring property to a family member, here are three types of deeds to consider:

Warranty deeds: Offering the highest level of protection, warranty deeds come with a guarantee from the grantor of a clear, unencumbered title. This assurance is particularly valuable in intergenerational transfers, when parents could pass down the family home to their children, or another family member.

Quitclaim deeds: Known for its simplicity and speed, quitclaim deeds transfer whatever interest the grantor has without any warranty of title validity. They are especially beneficial for informal intrafamily transfers, such as when the property is gifted or ownership is restructured within a trust. A common scenario might be when siblings agree to transfer a share of a family estate to one another, prioritizing expedience over formal guarantees.

Grant deeds: This type of deed can change ownership with the promise that the property has not been transferred to someone else under the grantor’s tenure. It doesn’t cover defects from before the grantor’s ownership, but the grant deed can assure that property has been free from encumbrances during their period of ownership. This could be a solution when family members wish to have some assurance but are willing to accept certain historic title risks.

Bottom Line

You may consider consulting an estate planning attorney or another professional to help you understand the legal requirements.

The transfer of real estate within a family is a multifaceted process that involves both tax and legal requirements. You may consider working with a legal professional to ensure that you have completed all the necessary documentation and are compliant with relevant rules and regulations.

Tips for Estate Planning

Whether you want to transfer property to a beneficiary or manage your estate effectively, a financial advisor who specializes in estate planning can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you plan on going through the estate plan process on your own, make sure you understand the potential dangers of DIY estate planning.