How Do You Transfer a Property Title to a Family Member?
Need to transfer property to a loved one?
Maybe you’re selling a piece of real estate to a family member or you could be thinking about gifting it to your child. Perhaps you’re just considering your best options for estate planning and how your assets will be divided when you’re gone.
Whatever your reason is for needing to transfer a property title to a family member, you need a Houston real estate lawyer to ensure the transaction is completed legally, efficiently, and in the most cost-effective manner possible.
We’ll discuss some of the details related to property transfer, but reach out to Titus Law Firm to discuss your options in detail.
Title Vs. Deed: What’s the Difference?
The first thing to understand about a transaction like transferring ownership of a property is that there’s a difference between the terms title and deed. The deed of a property is a physical legal document that verifies property ownership. A title, on the other hand, is not a physical document and simply refers to the legal rights the property owner has over the property in question.
This distinction means that, in real estate transactions, a property deed is the only way to legally transfer ownership of a piece of real estate property.
Types of Deeds Used to Transfer Ownership of Property
There are several options when it comes to types of deeds that can be used in property ownership transfers. Each type of deed carries its own benefits and requirements, including tax implications and other legal responsibilities.
Most commonly used in the sale of real estate—particularly when a lender is involved—a general warranty deed is the one that provides the person taking ownership of the property with the most legal protections. A warranty deed guarantees that the current owner’s title to the property is valid and there are no other claims that can be made to it.
This means that if a property ownership dispute occurs in the future, the seller—also called the “grantor”—will be liable for any financial loss that the buyer incurs in correcting the title defect.
Special Warranty Deed
In cases where a special warranty deed is used, the grantor takes responsibility for any title defects that originated during a specific period of time. For example, a defect occurred during the time that the grantor owned the property.
This type of deed is sometimes called a limited warranty deed.
Also called non-warranty deeds, quitclaim deeds are often used in property transfers between family members, curing defects or mistakes on the original document, or adding and removing spouses from deeds. Unlike a warranty deed, this type of deed leaves the grantor with no responsibilities with regard to title defects discovered in the future.
Transfer on Death Deed
Often used in conjunction with designating beneficiaries in a Last Will and Testament, a TOD (transfer on death) deed allows the title of real estate property to automatically transfer to the beneficiary of the asset upon the death of the grantor.
A transfer on death deed is a good way to have real estate assets avoid probate court when you pass away.
A gift deed is exactly what it sounds like: giving the gift of property to another person. This type of deed explicitly states that the property being transferred is, indeed, a gift and no payment is required from the recipient.
Taxes and Other Implications of Transferring Ownership of Property
When transferring a property title to a family member, you need to understand the costs and other financial implications at play. Some deed types place expenses—like taxes—on the grantor, while others place that responsibility on the grantee.
When any gift of value is given from one person to the other, if the value of the gift exceeds the federal gift tax exclusion, the grantor is responsible for paying gift taxes. For 2023, the gift tax exclusion is $17,000.
Capital Gains Tax
When real estate gains value, taxes must be paid on the amount of that gain. This is called the capital gains tax, and it’s due when the property is sold and the gains are actually collected.
This means that if you are selling your real estate to a family member, you will pay a capital gains tax on any money you earn above what you initially paid for the property. If you give the property to your family member as a gift, they will have to pay capital gains taxes whenever they sell the property.
If you transfer property titles in preparation for long-term or end-of-life care, keep in mind that this transfer may affect your Medicaid eligibility. Texas Medicaid uses a look-back period of five years for giving away assets.
This means that if you gift your property to a family member within five years of applying for Medicaid, you won’t be eligible for benefits.
How to Transfer a Property Title to a Family Member
A real estate deed in Texas must be in written form and needs to include the following items in order to be legally binding:
- Names of both the grantor and the grantee
- A statement from the grantor explaining that they’re transferring ownership of the property to the grantee
- A legal and accurate property description
- A statement of “consideration” if the transfer is not to be considered a gift
- The signature of the grantor
- The signature of a notary
Once the deed has been properly and legally prepared and signed, the grantee must file it with the county clerk’s office in the county that the property is in. Filing fees will need to be paid, and then the deed will be mailed to the grantee once it’s been filed.
Contact a Houston Real Estate Attorney
When you’re transferring a property title to a family member, it’s a legal transaction that requires the help of a legal professional. To ensure there are no current or future legal issues with regard to the property’s ownership—like title defects or ownership disputes—enlist the help of a Houston real estate attorney at Titus Law Firm.
We’ll walk you through the best options for you with regard to the type of deed you choose to use and ensure that the legal documents are prepared, signed, and filed properly.