My parents have quit claimed a piece of property to me, but have asked that it not be recorded until after their deaths, due to family discord amongst my siblings. Our attorney says this is legal, however how - or when - do I pay excise taxes on the transfer. At the time of recording (years from now?) or can you pay excise taxes on the sale and keep the 'receipt' with the deed in a safe deposit box for years, to prove that they were paid -- without the quit claim being recorded?
Real Estate Attorney
We generally recommend that a deed of transfer be recorded as soon as possible, but different states have different statutes regarding transfers and recording. I am cnfident your local attorney can give you advice that is correct for your jurisdiction, so you may wish to consult him or her about the transfer taxes as well.
(THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. Answering this question does not create an attorney-client relationship or otherwise require further consultation.)
Real Estate Attorney
It is generally not wise to delay recording your deed because you run the risk that another person could purchase the property and record their deed before your deed is recorded. You also run a heightened risk of increased family discord if other family members are not aware of the transfer and expected the property would be transferred to them in accordance with a Will. Heightened family discord means a higher chance of future litigation. With regard to excise tax, no tax is owed if the transfer is considered a gift.
You've got a few issues:
1. Staleness. The recorder should take the deed and record it whenever you present it. But I have seen a deed rejected by the Snohomish County recording office for "staleness" because there was about a year between the date on the deed and the date we tried to record it. I thought the rejection was improper, but it was easier in that case to get a new deed than to fight the county. But we might have had a problem if the grantor had been deceased (as your parents would be in your scenario). You should call the recorder to make sure they do not have a "staleness" policy.
2. Excise tax. Present the deed to the county treasurer and pay the excise tax now. Yes, keep whatever sort of receipt the treasurer and/or recorder will want to see once the deed is recorded. Otherwise you will incur penalties and interest which you will have to pay when you record.
3. Risk of priority. If someone else records a deed before you, their deed may have priority over yours (RCW 65.08.070). Even if that other deed is fraudulent, you may have a hard time disputing its validity because your parents will not be there to testify on your behalf. Further, you would likely be barred by Washington's deadman statute from testifying as to the details of the parents-to-you transaction (RCW 5.60.030).
4. Advancement. If you wait to record, your parents' other heirs may have a better argument (or be more fired-up to make the argument) that your parents intended the land as an advancement on your portion of the inheritance, i.e. that your share should be reduced by the value of the property. If you are intent on not recording the deed at this point, you can get a notarized affidavit from your parents swearing that they did not intend the deed as an advancement on your inheritance share, but as an outright gift. That is not foolproof, but it's better than nothing.
5. Depending on their net worth when they die, the gift may have "death tax" consequences for your parents, in that it may move the death tax triggering point to a lower dollar level than it would be had your parents not given you the deed.
Please give me a call if you would like to discuss further. 425/776-4100
Correction- Mr. Anderson is right, no excise tax would be due on a gift (just a $10 fee to the treasurer).
Estate Planning Attorney
I'll add a few remarks that haven't yet been covered.
You want to make sure that this is a completed gift. The elements of a gift are (1) donative intent; (2) delivery; and (3) acceptance. If there is going to be silence about what is actually occurring, you may run the risk of not being able to prove delivery and/or acceptance. If the gift is challenged by your siblings later and you are unable to prove those elements, the gift is incomplete and remains part of your parents' estates.
So, what do you do if you want to honor your parents' wishes to not record the deed? First, have your parents give you the original deed. Ask your attorney to make sure that the deed is in proper form and includes that is being quit claimed for "love and affection" or similar gift type language. Second, a real estate excise tax affidavit should be prepared and signed and dated by both your parents and you. Because this is a gift, you'll also need to do a supplemental statement. You should hold onto the original of these. Third, have your parents create a letter to you indicating their intent to gift the property to you and requesting that you not record until after their deaths. Fourth, your parents need to file a federal gift tax return by April 15, 2011 to report the gift, pay any applicable gift tax, or use part of their lifetime gift exemption towards that part of the gift that is taxable. The filing of the gift tax return is especially good evidence that the gift was made before death.
Though the deed is not recorded, the property belongs to you. However, you need to heed Isaac's warnings about the risks associated with failing to record. These are substantial risks. I'm also concerned that if the real estate excise tax forms change in later years (and it's reasonable to believe that they will), you run the risk that the County will not record the deed because the excise tax form is not in proper form. If your parents have both died, it may be complicated to correct this and your siblings may claim defective or incomplete delivery.
Also, with the property belonging to you, your parents need to pay fair market rent to you if they continue to retain the benefit of the property. If they don't, the IRS may take the position that the property remains in your parents' estates, which may or may not be helpful from an estate tax perspective. It also doesn't help your position in a dispute with siblings if they challenge the gift. If you're not going to charge your parents rent, then you need to report the fair market rent as a gift and file a gift tax return to the extent the gift is taxable.
Another option to consider is to have your parents give you a remainder interest in the property, such that they own the property during their lifetimes and you receive it upon their death. This is known as a life estate (for them) with remainder to you. This option means you don't have to charge them rent during their lifetime and you get a stepped up basis in the property on the second death. This may be a significant benefit if the property has a low tax basis and has appreciated in value or is expected to appreciate in value. However, the fair market value of the property will be included in your parents' estates for federal estate taxes, which may be a drawback if they were to have a taxable estate on their deaths.
Gifts and transfers of real property can be complicated on their own, but are even more complex when family dynamics are added. It's good that you have an attorney involved in this transaction and I encourage you to discuss these remarks and Isaac's as well with him/her. Also, make sure that your parents have an attorney that is independent of yours.