Most people who own property will go through the process of transferring property titles at some point in their lives. There are many reasons why real estate changes hands. It could be that property owners want to help a family member get their foot on the property ladder, or they may be interested in gifting property to a charitable cause. No matter the reasoning, it’s important to understand the legal process behind property ownership transfers to ensure all parties avoid potentially damaging legal implications.
Choosing to transfer property rights directly to a family member, rather than committing to the lengthy and often complex process of selling, can be a simple way to ensure a loved one has a place to call home. But, as all real estate in the US is carefully monitored by multiple government and industry agencies, various legal requirements must be fulfilled to ensure a compliant and proper transfer process.
For homeowners exploring the idea of transferring property to a family member, the below guide details key aspects of the transfer process. From the tax implications of deed transfers to advice regarding the filing of legal documents. Read on to discover how to transfer your property title to a family member.
Property Ownership Transfer Laws in the US
Property ownership in the US is subject to all three levels of law, federal, state and local. The owner of a piece of land, including any property built on that land, is legally defined as the person who holds the land title for that piece of real estate. As well as the deed documenting the legal transfer of ownership.
Property owners are responsible for ensuring all matters conducted on their land remain compliant with relevant federal, state, and local laws. This is why it’s vital, at least from a legal and tax perspective, that property ownership is verifiably transferred and documented to ensure records reflect actual conditions.
If a title holder wishes to transfer property ownership to a new owner, like a family member for example, they must follow a rigorous process to ensure the new property owner is made apparent to all relevant authorities. At present, there are a few ways to legally transfer property titles between family members.
How to Transfer Property Through Gifting
Transferring property ownership through gifting relinquishes either partial or complete ownership to a family member with minimal financial considerations. In other words, the current title holder will transfer ownership of the property to a new owner with the understanding that they will not earn any value back.
While gifting property does help stakeholders avoid the expense and potential complications of the real estate sales process, there are still a number of legal requirements that must be fulfilled. These include:
Conducting a House Title Search
A house title search will confirm the name of the legal owner of the property, and reveal whether the property is associated with any outstanding claims or liens. Conducting a title search ensures the old owner has a legal right to transfer property ownership, and that the title is clean.
Filing a Property Transfer Affidavit
A property transfer affidavit is a form used to officially notify local tax authorities that the ownership of real estate has changed hands. This form must be filed by the new property owner within 45 days of the transfer to ensure the property is taxed correctly.
Drafting a Compliant House Deed
All real estate transactions must be documented in a deed that contains information about the property, the old owner, the new owner and the nature of the title transfer. A special type of deed, known as a gift deed, is needed for property transfers where no monetary reward is required.
Signing the Deed Before Witnesses
Once a gift deed has been drafted, agreed upon and checked against relevant local laws, both parties will need to sign this legal document in front of witnesses. Witnesses must be over 18, have no personal ties to the deed and be considered competent to testify in court.
Acquiring a Notary Acknowledgement
A notary acknowledgement must be acquired for a deed to be verified as legal. A notary public, appointed by the state government in charge of the state in which the property is located, must review the document and be present when both parties sign.
Registering the Deed With the Government
The reviewed, signed and notarized deed must be sent to the county recorder’s office to be officially filed with relevant government agencies. This process ensures property records are updated and marks the end of the property transfer process.
Gift and Capital Gains Tax Considerations
While transferring property to family members as a gift does remove some of the costs associated with real estate transfers, there are some expenses property owners must account for. For example, state governments may impose a gift tax on the transfer of gift property. This is legally defined as the transfer of property from one person to another while receiving nothing, or less than fair market value, in return.
The individual transferring property must file an Internal Revenue Service (IRS) Form 709 to report any property title transfer legally defined as a gift. If the value of the property exceeds the annual gift tax exclusion cap ($18,000 as of 2024), the owner will need to pay gift tax on the remaining monetary value.
The new property owner may also be liable to pay capital gains tax at a later date after receiving a gift property. If the property appreciates from its original purchase price to a higher value by the time your family member chooses to make a sale, they will be expected to pay capital gains tax on the difference.
How to Transfer Property as Joint Tenants
Creating a new joint tenancy deed is another way to transfer a property title to family members. While joint tenancy deeds are similar to gift deeds in that the current owner can give the entire property to a family member without expectancy of payment, this type of transfer is centered around survivorship.
The current holder of the property title can draft a new deed declaring both themselves and their family member as joint tenants, with both parties entitled to equal ownership rights. In the event of the death of the original owner, such a deed will legally define the surviving member as the owner of the property.
While ownership of the property automatically transfers to the surviving deed member in a joint tenancy agreement, the new title holder may still need to pay taxes of some sort. Capital gains tax may apply in the same sense as mentioned above, but some family members may also need to pay inheritance tax.
The only way to avoid inheritance tax is if the surviving deed member is the deceased’s spouse, or if the property title is transferred to a registered charity. If the surviving member is of any other relation to the deceased, it will not be possible to transfer ownership via joint tenancy to a family member tax free.
Understanding Property Deed Transfers
Ultimately, the key to transferring property ownership between family members lies in the formation of a new, or the transfer of a previously recorded deed. The two main types of deeds you’ll come across are:
- Grant deeds: Grant deeds are used to transfer interest in a property from the original owner to a new one, and must always contain a record of the percentage of interest being transferred.
- Quitclaim deeds: Quitclaim deeds are used to release a person’s interest in a property without revealing the nature of that person’s rights. In a quitclaim deed, there will be no guarantees that the grantor has valid ownership of the property, but it will stop them from claiming ownership later.
You may encounter variations of the above deeds when transferring property ownership between yourself and another party. But all legally recognized deeds will fall into one of these two categories. For example, previously mentioned gift deeds are a unique variation of the standard grant deed format that feature further conditions associated with gift taxes. Below are a few additional deed variations to know.
General Warranty Deeds
These are the most common types of deeds used when transferring ownership of property. In a general warranty deed, the original owner will document a selection of legally binding promises intended to protect the buyer from pre-existing debts and liens that may arise before the completion of the transfer.
The three most common promises, also known as covenants, are:
- Covenant of Quiet Enjoyment: The seller assures the buyer that they will not be disturbed by existing liens or ownership challenges.
- Covenant of Seisin: The seller states they possess the legal right to transfer equity and ownership of the property to the buyer.
- Covenant Against Encumbrances: The seller promises the property is free from existing encumbrances outside of those mentioned in the deed.
Special Warranty Deeds
Special warranty deeds afford protection to buyers against defects caused by the original owner during their period of ownership. The protection these deeds offer is limited only to defects that emerged during the seller’s period of ownership, with any defects that arose prior to this period being excluded.
Transfer on Death Deeds
A transfer on death deed, also known as a TOD deed, a revocable death deed or a beneficiary deed, is a legal document that permits a person to transfer real estate ownership to one or more beneficiaries with immediate effect upon their death. TOD deeds must be written and executed prior to the owner’s death.
This document will include a description of the property earmarked for transfer and the name of the beneficiary who will be granted ownership upon the grantor’s death. TOD deeds enable stakeholders to avoid paying taxes associated with gifting property, as the transfer is not instant and can be revoked at any time. With guidance from a legal professional, this often means you can avoid filing a gift tax return.V
Further Tax Consequences of Property Transfers
Stakeholders will be required to pay a few further taxes when transferring property ownership between family members. Primarily, the buyer will need to pay stamp duty upon the filing of any legal documents associated with the transfer of property. It’s worth consulting a tax advisor to mitigate this requirement.
Which Term Is Defined as a Tax That’s Applied When Property Changes Ownership?
Real estate transfer taxes must be paid upon the transfer of real estate in the US. The rules governing real estate transfer taxes differ by state, including how much must be paid and who will be responsible for payment. In most cases, the seller is responsible. Though in some states the buyer may be liable or there may be no transfer tax consequences. Your local real estate attorney will be able to offer guidance.