California deeds prepared and recorded to:
Trusts must be funded with real property to avoid probate. Funding is by deed from the owner to the owner as trustee of his or her trust. There is no transfer tax, property tax increase or transfer tax on trust transfers. On death of the owner, the successor trustee transfers real property by deed to heirs of the decedent.
Adding a spouse as owner without a trust should be titled as “community property with right of survivorship.” “Right of Survivorship” avoids probate on the death of the first spouse. By operation of California law ownership of the first-to-die spouse disappears and the surviving spouse is the sole owner. The “community property” designation reduces or eliminates capital gains tax. The surviving spouse receives a full step-up in basis on real property.
In divorce or dissolution of marriage ownership of real property of the marriage is awarded to one spouse. The spouse awarded the real property must be the sole owner of record to sell, refinance or borrow on the property. If the non-owning spouse remains on title as owner he or she may inherit the house on the death of the other spouse. The non-owning spouse conveys his or her ownership interest by deed.
California Limited Liabilities Companies (“LLC”) are often used to own real property for asset protection. To shield the owner from individual liability the real property must be owned by the LLC. Prior to transfer the owner should obtain written permission from the lender. Loans have a “due on sale” clause in the promissory note. Bankers consider a transfer to an LLC as a "sale."
What is a Quit Claim Deed?
A quit claim deed does not contain any implied warranties. The owner who quit-claims real estate simply conveys whatever ownership interest he or she has along with any debt or loans secured by the property. The quitclaim owner makes no promises and the property is taken “as is.” A quit claim is the easiest and cheapest way to transfer ownership to a trust, add or remove a co-owner or give away a timeshare.
Why File a Preliminary Change of Title Report?
Each county assessor's office in California reviews all recorded deeds for that county to determine which properties require reappraisal under the law. Proposition 13 requires the county assessor to reassess the property to its current fair market value as of the date the change.
Since property taxes are based on the assessed value of a property at the time of acquisition, a current market value that is higher than the previously assessed Proposition 13 adjusted base year value will increase the property taxes. But there are exclusions.
To obtain the exclusion, the grantee fills out a form for the county assessor entitled Preliminary Change of Ownership Report (PCOR). Examples of exclusions from reassessment are: transfers of real property between husband and wife, which include transfers in and out of a trust for the benefit of a spouse, the addition of a spouse on a deed, transfers upon the death of a spouse, and transfers pursuant to a divorce settlement or court order.
Why Record the Deed?
The deed must be made part of the public record so the world knows there has been a change of ownership. The deed must be recorded in the county where the real property is located.
Make it Legal
A properly prepared quit claim deed must have a legal description so the county recorder’s office can add the deed to the public chain of title. The legal description is not the street address. The legal description has at a minimum the map, tract, block and lot number of the real estate property. The county recorder will not accept a quit claim deed without a legal description.
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California real property quit claim deed $149
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We also prepare Affidavits for death of joint tenant or death of trustee.
Service includes Preliminary Change of Ownership Report and filing all documents with the county recorder’s office.
Parent to Child Transfers and Grandparent to Grandchild Transfers
Real property and land transfers from parent to child and from grandparent to grandchild have property tax, and capital gains tax and documentary tax traps and savings.
A change in ownership of real property increases the base for property tax. The increase is either the sale price or the market value at date of ownership change. California excludes the first $1 million plus the principal residence of the parents in parent-child transfers. To obtain this exclusion The ‘Claim for Reassessment Exclusion for Transfer between Parent and Child’ form must be filed within three years after the date of the transfer.
Capital Gains Tax
A transfer to a child while the parent is living is a gift. In legal jargon an ‘inter vivos’ gift. The purchase price paid by the parent, (the basis) transfers with the property. The child assumes the parent’s basis or purchase price in the property. Any future sale will incur a tax on the difference between the parent’s basis and the sales price.
A transfer or inheritance due to death receives a ‘step-up’ in basis. The parent’s purchase price or basis disappears. The new basis is the market value of the real estate on the date of death of the parent. A sale in the future incurs capital tax on the difference between the market value on date of parent’s death and the sales price.
The last tax on land and real property transfers is the documentary tax. This tax currently is $1.10 per thousand dollars plus any local government additions. The California Revenue and Taxation Code Section 11930 exempts all grants, assigns, transfers or conveys that are gifts or transfers due to death. To obtain this exemption the deed must state under penalty of perjury on the its face the exemption claimed
Persons with a living trust but unfunded real property are at risk of probate.
Trusts must be funded with real property to avoid probate. Funding is by deed from the owner to the owner as trustee of his or her trust.
A deed is a document signed by the owner of the real property that transfers ownership. Deeds are either “warranty deed” “grant deed” or “quit claim deed.” Grant deeds and warranty deeds by law have the owner’s promises he or she has not conveyed the property to someone else and the real property does not have any taxes, loans, assessments or liens secured by the real property.
A quit claim deed conveys ownership “as is.” Quit claim deeds do not contain any implied warranties of debt outstanding or good title. These warranties are not needed to fund a trust because the transfer does not change ownership, only how the real property is titled or owned. A person is transferring property from himself or herself to his or her trust. No third party is involved.
The deed must be part of the public database maintained by each county in California. The deed is “recorded” in the county where the real property is located. Recording puts the world on notice how title is held and is the final word on ownership.
Transfers in and out of a trust are excluded from reappraisal and increase in property tax base. To obtain the exclusion, the grantee fills out a form for the county assessor entitled “Preliminary Change of Ownership Report” (PCOR).
There is no transfer tax on trust transfer deeds. California Revenue and Taxation Code exempts trust transfer deeds from transfer tax. To obtain this exemption the tax code must be stated on the deed.
Trusts are unfunded for the following reasons; real property was omitted when the trust was created, real property was acquired after the trust was created and real property was transferred out of trust by a lender for underwriting purposes. A trust transfer deed filed with the county recorder will remedy each of these problems.
On death of the owner the successor trustee transfers real property to beneficiaries identified in the trust. The successor trustee files an “Affidavit of Death of Trustee” with the county recorder. The affidavit allows the successor trustee to sell the real property or transfer ownership as directed in the trust. Transfer of ownership out of the trust is by deed.