When using trusts in your estate plan, it is essential to fund the trust. Transferring your real estate from personal ownership to the Trust is essential to avoid the expensive and time-consuming probate process.
To retitle your real estate in the trust’s name involves recording a deed with the local recording authority.
Retitling your real estate in the trust’s name ensures that the trustee has the authority to manage, sell, or transfer your real estate property should you become incapacitated or die.
Types of Estate Deeds Used To Transfer Real Estate Property Into a Trust
Several types of real estate deeds can be used to transfer real property into a trust’s name.
Examples of these deeds include:
- Quitclaim deed
- General warranty deed
- Special warranty deed
1.- Quitclaim Deed
With a quitclaim deed, a person transfers their property rights in a parcel of property to the buyer, whether a person or a trust.
By drafting and signing a quitclaim deed, a property owner states that whatever rights they have to a property, they are transferring to a buyer.
A quitclaim deed is unique because it does not address some issues covered in general and special warranty deeds.
When the property owner (transferor) creates and signs the quitclaim deed, they make no promises that they actually own the property.
Instead, they are transferring their legal interest in the property; property interests are transferred after the deed has been recorded with the local recording agency.
Suppose the recipient of the property interests (transferee) finds out that the transferor did not own the property.
In that case, they cannot bring a claim against the transferor unless they can prove that the transferor intended to defraud the transferee.
If the transferor thought they owned the property, but a problem with the title meant that they did not own the property, the transferee has no legal recourse to make the transferor liable for the error.
Quitclaim deeds are still commonly used to transfer real property into a family trust.
The thought behind this is that the quitclaim deed transfers any property interest that a person may have to the trust, which means that the trust can hold and manage the property interest if the person becomes incapacitated or dies.
Title insurance covers any past title defects when a purchaser assumes ownership of a property.
2.- General Warranty Deeds
With a general warranty deed, the transferor is assuring the transferee that the property is free from any legal encumbrances such as mortgages or liens and that the title is free from any defects.
With a general warranty deed, the transferor assumes liability for any costs associated with mistakes they made when making this assurance.
In most cases, the transferee will insist that a deed transferring property to them, especially from a non-family member, be a general warranty deed.
A transferee assumes much more risk when receiving property rights using a quitclaim deed than they do with a general warranty deed.
Title insurance policies may discontinue coverage on a parcel of property that has been transferred with any deed, other than a warranty deed.
The transferor may need to purchase a new insurance policy to cover the transfer or use a warranty deed, even when transferring property interest to a trust, business entity, or family member.
They may be left with no title insurance to protect against past defects if they don’t.
3.- Special Warranty Deeds
Like a general warranty deed, the transferor assures the transferee that the property is free from mortgages, liens, and other legal encumbrances.
However, unlike the general warranty deed, the transferor is not making any assurances or warranties about title defects before the transferor took possession or title to the property.
A special warranty deed provides more protection than a quitclaim deed, but not as much as a general warranty deed.
Since the warranties are limited, there is the possibility that by transferring property interests to a Trust, family member, or business entity using a special warranty deed, the property’s title insurance can be voided.
It is important to talk with your attorney about the type of deed that is most appropriate in your situation.
If you are very confident that there are no liens, mortgages, or other legal encumbrances on your property and plan to keep the property in the family for an extended period, then a quitclaim deed may be appropriate.
If you are unsure whether there were any past title defects or you plan to sell the property to a third party who will require warranties about the title, then a general or special warranties deed may be more appropriate.
The safest course of action to protect both the transferor and the transferee in any real estate transaction.
Is to use a general warranty deed along with an in-force title insurance policy that covers the transferor for any potential title defects that may have occurred before or during the transferor’s ownership of the property.
If you are planning to establish a trust or need to transfer a piece of real estate property, don’t hesitate to get in touch with us for assistance.