Quit Claim vrs. probate

What is the name of your state? MN

My mother has been diagnosed with terminal cancer. In her existing Will she states that her lake property be given to her three children (myself being one). Since the others (my brother and sister) live out of state they have agreed to give (quit claim) the property to myself in the event of my mothers death.

Are there any benefits of having my mother change her Will and remove the granting of the property and then have her Quit Claim the property directly to myself, versus leaving the Will as-is and letting it go thru probate?

I think I know the answer but any legal advise would be appreciated.

Thank you.What is the name of your state?

The tax basis will not step up if she gives it to you and there may also be a gift tax. Downside is that they may change their minds.

lwpat said:

The tax basis will not step up if she gives it to you and there may also be a gift tax.

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Not sure what you mean by "the tax basis will not step up". Can you elaborate?
And why would there be a gift tax?
Is there a better way to transfer the property without Quit Claiming it?
thanks.

What he means is that when one inherits property, the basis "steps-up" to the fair market value at the time of death (or at alternate valuation date). On a gift, you take the basis of the giver. Say the giver purchased the property for $100 and, when she died it was worth $200. When the person who got the property sells it he sold it for $300. If inherited, the person would pay taxes on $100. If gifted, the person would pay taxes on $200.

A quit claim is a present gift of the property. As would any other present transfer. The person giving the property will almost assuredly need to file a gift tax return and, depending on the value of the property and other lifetime gifts of the giver may need to pay taxes on the gift. The current lifetime exclusion is $1 million.

scottb said:

Not sure what you mean by "the tax basis will not step up". Can you elaborate?
And why would there be a gift tax?
Is there a better way to transfer the property without Quit Claiming it?
thanks.

Click to expand...

In real simple terms, whenever you sell an asset, the capital gain/loss is determined by subtracting the cost basis from the net selling price. Cost basis is generally what was paid for an asset. (For real estate and some other assets, the cost of major improvements made after acquisition would be added to arrive at the "adjusted cost basis.") If there is a capital gain, then income taxes are owed.

When a person passes away, the cost basis of that person's assets is "stepped up" to the fair market value of the asset on the day that they passed away. If the beneficiaries of the assets sell them, the stepped up cost basis is used to determine if there is a capital gain.

If an asset is gifted, the cost basis remains the same as the cost basis of the person making the gift. From a tax standpoint, it is generally better to inherit with the cost basis step up than to receive a gift.

If your mother were to gift the property now or your siblings inherit their shares and then quit claim to you, those would be considered gifts. Depemding on the value of the gifts, the giver might need to file a gift tax return. Depending upon a bunch of other factors, there is possibility (probably slight) that gift tax would be due.

An alternative would be to wait until your mother passes away and then have the siblings disclaim their shares when probate is opened. If they do so on a timely basis, the disclaimer would not be considered a gift. Check with a MN atorney about MN law regarding disclaimers.