Defining a Deed – What is it?
A property deed is a legal document that can be used to transfer the ownership of property. For the deed to be valid, it must be signed by the person interested in transferring the real estate and include within it the names of both the previous and current owners, or the grantor and the grantee. Additionally, a fully legal and detailed description of the real estate is required as well. Legally, the seller must possess the right to sell and the deed must be signed by both the seller and the buyer. Deeds can also be useful when dealing with inheritance issues and the transference of property upon one’s death. There are many different types of deeds and listed below are a few that can help ensure efficiency of the transaction.
Beneficiary Deeds
When the grantor passes away, a beneficiary deed, also known as a transfer-on-death deed, can be used to transfer ownership of property. This is one of the most common types of deeds because it is not necessary to have the deceased’s will probated before the transfer can occur. Beneficiary deeds can be best if you plan on leaving your property to someone whom you want to have instant access to it. Although beneficiary deeds are still easily accessible on public record, this kind of deed may be beneficial to you if you do not wish to have your property probated in a will publicly or if you would like to keep the recipient of your property away until after you pass.
Pros and Cons of Beneficiary Deeds
Beneficiary deeds are less expensive than other methods of transferring property such as through a will or trust. This method also allows for the probate process to be avoided. Because the deed has the name of the individual whom the grantor assigns survivorship rights, there is no need to go to probate once the grantor passes away. This significantly eases the financial burden on the intended beneficiary of the asset in question. Additionally, it allows the assets to be distributed much faster than if probate were necessary. A huge advantage of beneficiary deeds is that the named beneficiary will have no interest in the property. This allows for a smooth transfer of property through a beneficiary, as well as for you to be exempt from paying gift tax. Another plus is that you can revoke or alter your named beneficiary if at any point you wish to do so. Additionally, your asset gets partial protection, because your real estate is not affected by any legal actions taken against your beneficiaries and their creditors cannot lien your property.
On the other hand, beneficiary deeds do come with some downsides. For instance, beneficiary disagreements may not be fully avoided since the asset did not go into probate. Additionally, it is important to note that your asset will not dodge estate taxes and that this type of deed does not exclude the value of your real estate when taking your total assets into consideration for Medicaid planning. Furthermore, because you maintain the ownership, your credit liabilities are still responsible for your asset, as the beneficiary deed will not protect it. Since beneficiary deeds do not require a lawyer, legal mistakes are more common. For example, people often do not think to name a second beneficiary as a precaution in case the first dies before the owner. If this were to happen, a revocation may need to be filed because assets will not be transferred to heirs. Lastly, if for any reason someone wants to dispute the effectiveness of the deed, a court hearing may be needed.
General Warranty Deeds
General warranty deeds are deeds that provide the grantor and their heirs with a significant amount of protection against any demands or claims made against the property. This type of deed requires the grantor to make multiple covenants, or legal commitments and warranties, which state this guaranteed protection. The specific covenants listed within the deed are as follows:
The covenant of seisin: The grantor affirms that they legally own the property.
The covenant against encumbrances: The grantor affirms that the property does not have any unmentioned encumbrances or liens.
The covenant of quiet enjoyment: If a grantor has a defective title, the possession of the property by the grantee must remain quiet.
The covenant of further assurance: In order to make the title good, the grantor warrants to bring any document needed.
Special Warranty Deeds
A special warranty deed offers the grantee less protection because within it, the grantor warrants that they have received their newfound title of ownership of the property and that none of their actions have caused a defect to it. This means that the only faults that are warranted are the ones that have occurred in the duration of the grantor’s ownership.
Special warranty deeds are advantageous in the event of foreclosure sales because banks can only take warranty up to the point of repossession. However, it should be noted that they offer significantly less protection than a beneficiary deed.
Quitclaim Deeds
Quitclaim Deeds, also know as non-warranty deeds, are often the least favorable of deeds because no guarantees are made surrounding the quality of the title. Non-warranty deeds also disclose the interest in the property that a grantor may have. They are often only used if one is unsure whether defects are present or not, or if the grantor does not wish to be held accountable under the title of covenants. With a good title, the quitclaim deed can be beneficial, however. Even with a single defect, the deed states that the grantor cannot face any legal recourse by the grantee.
While the upsides to quitclaim deeds include the fact that they are much less expensive and an attorney is not needed because the necessary forms can be conveniently found online, it should be noted that this type of deed guarantees the least amount of protection.
Special Purposes Deeds
Special Purpose Deeds guarantee the grantee very little protection, if any at all. These are used to take the place of another deed in which the owner was prevented from signing it, such as in the case of death or deemed incapable.
Administrator’s Deed – When one passes away without a will, the assets of the deceased will be disposed of by an administrator appointed by the court and then the grantee will receive the title of the real property.
Executor’s Deed – When one passes away with a will, their assets will be disposed of by the executor of the estate before the grantee can receive the title of the real property.
Personal Representative’s Deed – If someone dies owning an interest in their property, this kind of deed can be used and the personal representative will then transfer the interest to an estate beneficiary or to a third-party buyer.
How Can You Counteract the Cons of Deeds?
Having a properly formatted deed can help facilitate the process of transferring property. However, when engaging in estate planning, it is important to fully assess the positives and negatives of deeds and to discuss your options with an attorney. An important note to make is that deeds are not right for everyone, and it is quite likely that you will find other methods of conferring assets to be in greater alignment with your goals. If you decide that deeds are not the right method for you, two important options to emphasize are wills and trusts.
Wills: A will is a legal document that states the desired distribution of one’s estate after their death. As stated in a will, all assets will go directly to the named beneficiaries. Before this can happen, your will must be probated and the court must assess each asset before your beneficiaries can claim their right to the inherited property. An application for the beneficiary to transfer the title of the property into their name must be filled out in order for them to legally become the owner of the inherited property.
Trusts: Assets stated in a trust will first be received by a trustee who will then distribute them accordingly. Your named beneficiaries will eventually receive your assets and inherit your property if you have so designated. A living trust is a legal entity that you can create to own your assets and property and when you die, the trust will automatically distribute your assets the way you wanted.