My dad wants to quitclaim property to four adult children before his death. Is this the route to go?

The answer depends on whether or not you and your siblings ever want to sell the property in the future. If he quitclaims the property to you and your siblings he is making a taxable gift. He's entitled to gift $13,000 per year per person, so for the excess $7,000 per person he'll need to file a gift tax return Form 709 and claim the gifts against his lifetime gift tax exclusion amount. No tax will be owed, but the tax return preparation could get expensive. Also, you and your siblings will receive the property and your basis in the property will generally be your father's adjusted basis in the property. So, for argument's sake, let's assume he's held the property for a long time and his adjusted basis is $0. Let's also assume that when you decide to sell the property it's worth $100,000. That means that when you and your siblings sell the property you will need to pay capital gains tax on $100,000. Now, if you and your siblings INHERIT the property, you will all receive a stepped up basis to the fair market valur (FMV) of the property on your father's date of death. Again, lets assume you sell the property at $100,000; however, the FMV on his date of death is $80,000. Now you'll pay capital gains tax on $20,000 rather than the entire $100,000. Putting real numbers to this, lets further assume that the long-term capital gains tax rate when you eventually decide to sell the property is 10%. If your father quitclaims the property to you and your siblings, you will end up owing the IRS a total of $10,000. However, if you inherit the property you'll end up owing the IRS a total of $2,000 in capital gains tax. NOTE: We're disregarding State taxes for this hypo. So, from a tax standpoint, inheriting property makes better sense because it reduces capital gains tax that you and your siblings will owe when you sell it. This is a BIG difference and perhaps you and your siblings should all chip in to help your father prepare a Trust and make sure the property is properly transferred into the Trust. See IRS Publication 551 for more information about basis. http://www.irs.gov/publications/p551/ar02.html There are other issues such as, should your siblings take title as Joint Tenants or Tenants in Common? Joint Tenants (JT) means the survivor takes all. Each individual JT owns an undivided share of the whole property and they cannot individually transfer their interst to another person otherwise the JT will be severed. With a Tenancy in Common (TIC) each owner can individually transfer their interest to another person without the consent of the other owners. Since this is a family property I don't think a TIC would appeal to you or your siblings. Finally, from a bankruptcy perspective....I'll have to let a BK attorney field this part of the question. I hope this helps.

I agree with Attorney Winstead's answer in most respects. I would add, however, that there are different kinds of quit claim deeds. If drafted properly, the transfer will be treated as an inheritance and not a gift, which will eliminate the negative tax aspects. It should go without saying that this is a serious legal matter and should be handled by an attorney. The attorney can consider the potential bankruptcy problems, as well as other potential creditor claims or claims of children's spouses. The other practical problem with this arrangement is that all four of the kids will be owners and all four of them will need to agree on the ultimate disposition of the property. This may be a difficult task. I recently had a contested situation where five beneficiaries fought for 18 months about the sale of a cottage property. It sometimes is MUCH better for there to be one person in charge. This is best done through a trust. Setting up a trust may be much less costly than you all believe. It is worth asking an attorney. You would have an attorney prepare the quit claim deed, anyway, as that is the only smart thing to do. Discussing other alternatives only makes sense. And in addition to whatever you decide to do about the house, your father needs to have a general durable power of attorney for health care and financial matters. This will protect him, in the event he ever becomes incapacitated. This form (or forms) should also be prepared by an attorney. James Frederick

Mr. Frederick's answer is a good one, and it suggests a solution that works around one of the problems inherent in simply deeding the property to the children. If each received an undivided 1/4 interest in the property, and one wants to force a sale, he or she can do it through a legal proceeding called a partition suit, which forces the sale of the property and a division of the proceeds. Many people wish to avoid this, and a trust is one way to do it. Here in Illinois, we have a very simple for of trust called an "Illinois Land Trust" which avoids the problem of a partition suit. There are, of course trusts in every state that would accomplish the same thing. Another way to accomplish the same result, with much more flexibility built in would be to deed the property into an LLC holding company. Some or all of the children could be designated as "managers." Or the LLC could be member managed by all four, with "rules" for voting on various issues built in to the operating agreement. There are States where the costs of LLCs are extremely reasonable, both for formation and for annual costs. Some states have entirely eliminated annual reporting with attendant fees and so forth. There are at least two States where the fee for organizing the LLC is only $50. (plus attorney's fees). I suggest you discuss alternatives with an attorney where the property is located.

Bankruptcy is an issue but the value is fairly low. You need to be careful because if a child files for Bankruptcy and does not have sufficient exemption to cover the share of the house the Bankruptcy trustee could push you to sell the house or buy out the share of the bankrupt child. It is not really an ideal situation. The alternatives an LLC or an Irrevocable trust can be somewhat costly. In the end you will have to decide if you would rather pay to protect the share now or if you want to be prepared to buyout that share later. When you decide an estate planner can help you with setting up a protected LLC or Irrevocable trust that will protect the assets and ensure your father continues to have a home.