In estate planning and succession processes, there are many documents involved. Deeds are one of them used to record a change of property ownership. There are different types of deeds, like quitclaim deeds and gift deeds. Quitclaim deeds transfer property ownership between family members or persons with little or no buyer protection. On the other hand, gift deeds are used to transfer ownership of property as a gift. Keep reading to learn more.
A quitclaim deed transfers ownership of un-mortgaged properties between individuals, especially family members. A person will relinquish legal claim to a property. The person releasing the legal claim to the property is known as the grantor, while the one who gets the ownership is the grantee.
A good example is when a couple that co-owns a property decides only one should own the property, they will use a quitclaim deed. This usually happens during a divorce.
When one uses a quitclaim deed, a transfer of ownership happens regardless of whether money or consideration is exchanged. In most cases, money is not involved, and the grantor relinquishes ownership rights to the grantee for reasons known to them.
A gift deed transfers property as a gift to another person. During this transaction, no money or consideration changes hands. The person who legally owns the property (donor) gifts it to another person (recipient) out of love and affection.
For the gift deed to be valid, it must be signed by the donor and two witnesses. Please note that the recipient should not be one of the witnesses. But note that the laws governing gift deed transactions vary from state to state.
Gift Tax Liability
Whether you use a quitclaim or gift deed to transfer property ownership without consideration, you are making a gift. The IRS imposes federal gif taxes on gift transactions. With this law, the grantor pays gift tax on the property’s fair market value. But they can claim part of their lifetime exemption to minimize their gift tax liability.
Nevertheless, it is vital to note that gifts between spouses are not taxed. So if you are gifting your spouse or allowing them to own the property through a gift deed or quitclaim deed, you will be exempted from paying federal gift tax.
Quitclaim and Gift Deeds Considerations
The deed you use for the transaction depends on when you want the transaction to take effect. If you use a quitclaim deed, the gift transaction will take effect once the deed is signed. And note that quitclaim deeds are irrevocable, so once signed cannot be changed or revoked.
You can decide when the property transfer takes effect when you use a gift deed. If you specify the gift transaction takes effect immediately, that will happen. Alternatively, you can provide a specific date in the future or after your death when the transaction takes effect.
Are you looking to transfer property as a gift? If you do, we can help by providing quitclaim deed and gift deed form templates to effect the transaction. All you need is to fill out and sign the necessary form, and your gift transaction will take effect immediately or as specified in the deed.
You may download sample quit claim deed form for any state of US here- https://forms.legal/free-quitclaim-deed-form/