The Trouble With Secret Property Deeds

secret property deeds

Many clients like to plan their estate by making sure there are always a least two owners on a piece of real estate. That way, when one owner dies, there is no need to go through the probate court to have the property transferred; it simply passes to the survivor.

This is simple enough to accomplish when both a husband and wife are still alive. But it becomes more involved after the first spouse dies. Commonly, the surviving spouse adds one or more of his children to the deed to his home. Often, these deeds are then hidden away with instructions for a child to record the deed after the parent dies.

This method has several possible pitfalls. First, if the original deed is lost or destroyed, there will be no other record of the parent’s intent and the real estate will need to go to probate court. Second, if the parent names only one child on the deed, with instructions for that child to “share” with his siblings, there is no way for the other siblings to enforce those instructions.

Finally, depending upon how the deed is drafted, the parent may have created expensive tax consequences. If not drafted properly, the deed may cause the property to be “uncapped” by the local tax assessor and it may lose the homestead exemption. Often, the biggest expense is the capital gains tax that the children will have to pay on the amount the real estate has appreciated since Mom and Dad originally purchased it.

It is usually much simpler, and cheaper, to have a will or trust prepared by a professional, which leaves clear instructions for all of the children to see. Copies of the documents can be kept in multiple locations or given to the children in advance of death so there are no surprises and no unnecessary taxes.

As an alternative, a person may use a “Ladybird” deed to keep control of the property during his or her lifetime and pass it on at death (without probate). This deed should be recorded with the local County so there are no problems if the original is lost or destroyed.

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My Legal Strategies, P.C. 

Terri North is the Shelby County, Michigan attorney who  heads up the My Legal Strategies practice. My Legal Strategies assists clients in the areas of estate planning, probate and real estate. 
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