|
Transferring Property to Family Members
By Ann Smith,
Broker
Property transfers
to family members are not as straight forward as one might think. Despite
familiar parties, it is in everyone’s best interest to obtain professional
advice. Although it sounds nice to gift property to someone dear, it may
not be as easy as you’d think.
The most common form of deed is a warranty deed (sometimes called a "grant
deed"). A warranty deed transfers ownership and explicitly promises
(warrants) that the grantor/seller holds good title to the property.
The other common form of deed is the quit claim deed, which is used most
commonly in Canada. A quit claim transfers any ownership interest the
grantor/seller has in the property, but makes no promises or guarantees
about what that interest is or that the title is good. Quit claim deeds are
most commonly used to clear up title problems, to transfer property between
spouses after a divorce, or in informal transactions between friends or
family members.
Quit claim deeds are being used more often because our aging population is
looking to transfer real estate within the family. But this could
potentially lead to several issues, including lawsuits, as family members
realize the shortcomings of the quit claim deed method.
Normally, if an individual sells or gives property to family members, other
than a spouse, they are considered to have sold the property for its fair
market value. As a result, they have to recognize a capital gain on the
difference between the original cost and the property’s current value. The
taxable portion of a capital gain is 50% meaning 50% of the capital gain is
subject to tax at the individual’s applicable tax rate. Special “rollover”
rules exist which avoid the basic rules if the property is used in a
farming business and transferred to a child, grandchild or great-grandchild
(including a spouse of a child or child of a spouse).
To ensure a solid, unquestionable transfer of property, consult a property
transfer team including a Realtor, lawyer, and financial advisor. Keep it
structurally, financially, and emotionally sound. The last intention here
is to harbor any hard feelings or incur unnecessary expenses.
Back to Archive
Ann
Smith, Broker
Your Real
Estate Consultant…For Life! |
