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| Transfer property title between family members |
How to transfer property title between family members
How to transfer property title between family members? - is a common question when someone wants to transfer his/her property between family members. Transferring property are possible in different ways such as- 1) a transfer between partners, 2) a gift to a child, or 3) a sale to a sibling. But there are extra legal requirements involved when transferring property to family members. If you don’t know the procedures then you can get in trouble.
You may be confused what is the perfect time to begin the process, who are important persons to be involved and why do you transfer to property? Here's a complete guideline on what you need to know to transfer property ownership between family members.
How to transfer property title between family members
To transfer property ownership smoothly and successfully, you’ll need to complete some important steps. Here are the steps you need to follow.
- At first, make sure who is the family member you want to donate or sell the property.
- Discuss the terms and conditions of the deed with that person.
- Collect a change of ownership form and complete it.
- Change the title on the deed as per the donor or recipient.
- To avoid any issue contact a real estate attorney to complete the deed.
- Review the deed properly.
- Sign the deed in front of a notary public in the present of witnesses.
- Notarize and file the deed on public record.
It may seem very easy but a lot of thought and planning should be needed to complete these steps. So, you must have a real estate attorney or lawyer to make the work simple.
So, it is clear property title or ownership can be transferred in different ways. We can divide it into three parts. Those are:
- Gifting Property to Family Member
- Selling Property to Family Member
- Changing Ownership Share Between Family Member
In every way you will meet with the tax man. Now this is the time to discuss the ways how you can transfer property.
Gifting Property to Family Member
You may think, is it possible to give a property as a gift to a family member? The answer is, yes. If you have a property, you can give or donate it to a family member, usually a spouse or a child. You can also donate it as a charity to any other person or organization. But in this article we are covering only to transfer property to your family members.
When transferring property to a family member the Title Office and Banks want to see an executed "Transfer of Land" document and others relevant State Revenue Office paperwork.
The Transfer of Land is a very important legal document that transfers ownership of property from one person to another. This is the first step you have to take to transfer your property.
The second step is to execute a "Deed of Gift". In order to protect both the transferor (owner) and transferee (acquirer), it is safer for the both parties to execute a "Deed of Gift". It is also called “Gift Deed”.
A deed of gift is especially a legal document that transfers a title to real property from one party (the grantor) to another (the grantee). Usually, a deed of gift is applied when voluntarily transfer property between family members or close friends to avoid conflict or any kind of confusion in the future.
There is another option which is called the Transfer on Death (TOD) deed. Sometimes it is called a beneficiary deed. It provides you full control of your property while you’re alive but the property will automatically be transferred to a selected individual after your death. Doing transfer on death deed you can avoid paying a gift tax because the transfer is revocable or not immediate. But there is a problem also. If you have any mortgage on your property then the TOD beneficiary will inherit the responsibility of paying that mortgage.
For this reason, a deed of gift is better than TOD to the donor but in TOD gift tax can be avoided which is good for the donor.
Selling Property to Family Member
Selling property to a family member is another way of property transfer. This is the most similar to a normal transfer as a Contract of Sale will be entered into between the family members. But it happens very rarely between family members.
Most of the time in this situation the contract price is less than the market value of the property. In this case you should take legal advice from an expert conveyancing lawyer.
A parent can sell their property to their child making the contract price just enough to pay off their mortgage and perhaps a bit extra for them. In this case the stamp duty paid and potential capital gains on the property will be based on the market value, not the contract price.
Changing Ownership Share Between Family Member
The final way is changing ownership proportions in already jointly owned property between family members or putting a family member on title.
An example can clear it. Suppose, a husband and wife own a property jointly and both hold 50% share of that property. It will be a tax effective and a good asset protection plan for them to change ownership proportions to be occupant in common with a 99-1 share or any other variation.
Another way is a spouse being put onto the Title of the family property. In both of these situations a Transfer of Land and the correct State Revenue Office documents need to be drafted.
It should be noted that the laws in Victoria have changed recently about changing ownership percentage. When the property will be your permanent place of residence between spouses then the Changing ownership proportions will attract stamp duty.
The paperwork needed to transfer property
To transfer the property title, you will need some documents, paperwork or deed forms. These legal documents will save you from any kind of issues created by transferring the property. Those documents are:
Transfer of Land:
It is a written document which is signed and delivered by the owner of the property to transfer the ownership to another individual. The title office and banks need this document and it is state revenue office paperwork. This is a preliminary change of ownership form.
A Quitclaim Deed Form:
This is an important document which transfers the ownership and rights of a property from a seller to a buyer with no guarantees. In quitclaim deeds form the value of your home, location of your home and a legal description (property dimensions and boundaries) of the property have to be filled.
Deed of Gift:
Its a legal agreement form between the donor and the beneficiary to make the right legal on the donated materials. Basically, this document helps to avoid any future conflicts between the grantor and the grantee.
Required fees need to pay to transfer property ownership
You can not avoid fees and charges to transfer property ownership. But these costs are not same in all states. You need a proper knowledge about these fees or costs and always be prepared to pay the fees.
Transfer Tax or Stamp Duty:
Transfer tax has different names in different countries. So don’t be confused. Let me clear it up. Usually, it is called stamp tax or documentary stamp tax. The stamp duty is also known as mortgage tax or intangibles tax (Source: Wikipedia). The State Revenue Office imposes stamp taxes at the time of officially recording a transaction involving real property. Government charges these taxes in order to raise money to fund various government activities and projects. Previously the federal government formally imposed stamp duty but now this tax is only imposed by states. Transfer tax or stamp duty rate depends on the country's rules. In the USA, total transfer taxes can range between .01% to 4% as per the law of different states.
Deed Preparation Fee:
Deed preparation fee is the cost of drafting the document that transfers the title from the seller (the grantor) to the buyer (the grantee). Basically, this fee needs to arrange final legal papers, such as- a mortgage, deed of trust, note or deed papers. In most of the cases at closing the seller pays this fee but in some situations the buyer pays it to the attorney directly. The pricing of this fee varies by state. But the deed preparation fee up-down between $225 to $235 as per the contract with buyer or seller and attorney.
Gift Tax Cost:
The gift tax is a federal tax which is imposed by the IRS (Internal Revenue Service) when you’re gifting the property to someone such as your child. The donor who is gifting the property is generally responsible for paying the gift tax. The annual gift tax exclusion is $15,000 in 2021 tax year. The amount was also the same from 2018-2020 tax year. It is assessed on the total market value of the property. The Internal Revenue Service (IRS) uses current market data to assess the value of the property or gift. This tax originally prevents taxpayers from gifting their money and items of value to others to keep away from paying taxes.
Capital Gains Tax:
Capital gains tax is a type of tax claimed to the profits earned on the sale of an asset like property. Basically, the seller is responsible to pay capital gains tax. Because the seller is earning the profits by selling his property. Capital gains tax are two types. Short-term capital gains tax is applied when you owned the asset for less than a year. Long-term capital gains tax is applied when you owned the asset for more than a year. Short-term capital gains tax rate is equal to the ordinary income tax rate. Long-term capital gains tax rates 0%, 15% and 20% depends on your income.
Title Insurance Cost:
Title insurance is a policy that protects sellers and buyers of the property from any kind of financial loss or damage. Lender's title insurance is very common in the USA and the buyer purchases it to protect the seller. Also, seller often buys a title insurance for the new homeowner which cost is between $500-$1,000.
Recording Fees & Costs:
Basically government recorder’s office charges recording fees to register the purchase or sale of real estate property. This is imposed on the value or sale price of the property also including the number of pages and documents. Usually, the buyer pays this fee to record the property.
These costs of transferring property ownership may vary depending on the states, property value and other terms of law of that country.
How to avoid fees and charges to transfer ownership of property
There are not a lot of options to skip fees and charges when transferring property. But there are two options to avoid fees and charges you may try. Those are:
First option is, transferring property in a state where doesn’t charge transfer taxes. If you transfer your property in one of these states, you don’t need to pay a transfer tax: Alaska, Indiana, Idaho, Louisiana, Mississippi, Montana, Missouri, North Dakota, New Mexico, Utah, Wyoming and Texas.
Another best option to avoid charges to use the annual gift tax exclusion. The IRS imposes gift tax on those who gift property to their children or family members. As per law the annual gift tax exclusion is $15,000. That means if you and your spouse join forces, you can transfer up to $30,000 in assets without touching off the tax. The limitation of The property and gift tax exemption are $5.6 million for individuals and $11.2 million for married couples.
Before ending, some important facts I want to disclose.
If you transfer a deed to another person, it doesn’t remove your responsibility to pay the mortgage on the property.
Once the quitclaim deed is signed you can’t cancel it unless you can prove in court that the deed was the result of fraud or any illegal pressure.
If the property transferor is on a pension it may affect their rights on title to transfer the property. So If you are on a pension then you should make it clear before any transaction takes place.
Ending
You achieved your property with very hard work. That's why at first you should do your research on property transfers before starting the transfer process of your property title to family members. It will make your path easy to avoid any complexity. Transferring process of property ownership can be time consuming as well as costly from both side- donor and recipient. That’s why you should talk to an attorney (licensed in your state) to understand which option is best for you.