Transfer of Real Property and Installment Notes Using Quit Claim Deeds

[TaoWanderer]

What is the name of your state (only U.S. law)? CA

My friend and I were business partners and owned a few real properties in my name. We decided to go our separate ways and now I want to put some of the properties in his name. He wants me to use quit claim deeds to transfer the real properties. I can get a quit claim deed form off the counties website and fill it out myself and get it notarized and recorded. This would work, right, or is there something I should watch out for?

Also I want to transfer an installment note which I carried back from the sale of one of the properties. Can a quit claim deed be used to transfer a note or what document would be more appropriate?

He also wants me to say sold for $1 on the documents, to avoid paying gift tax. Is this OK, or is it going to create some weird tax or other issues?

Thank you very much for your help.

 

[tranquility]

A quit claim can certainly transfer all the rights you have. If you don't want any rights in the items, you would not risk much in giving one.

A quit claim will be a gift of the FMV of the property. It will not matter if there is a $1 recitation or not. It will be a gift of the full value, unless there are rights being given up, then it could be a sale. Since people don't tend to just give money and property away, I suspect there is some type of taxable event here and not just a gift. Perhaps you can explain the circumstances more completely.

 

[TaoWanderer]

Thank you, here are more details. We were living together in a guru-disciple relationship for 11 years. He being the guru and me the disciple. He put all the properties that we bought over the years in my name for whatever reason, I guess cause he's trying to stay off the radar. I left cause it turned abusive. We agreed to split the properties in half I take 3, he takes 3. One of the them he takes is an installment note.

 

[TaoWanderer]

Another thing is, he wants me to transfer the properties to an LLC, not sure if that matters.

 

[tranquility]

You may have a complex taxable event. While you might get away with it, I suspect there will be IRS involvement in the dissolution of your partnership so it must be done correctly. From the way you are talking, I bet you did not handle things correctly, but more informally and you need to unwind this before it becomes a mess. If it was not a "partnership" you are dissolving, you might be able to make it a non-taxable event through the use of 1031 exchanges for property value.

Don't sign the quit claims until you get professional representation. I'd start with a tax professional. He may recommend an attorney as well.

 

[TaoWanderer]

There never was anything written down regarding what kind of relationship it was between us. Don't know what spiritual guru-disciple relationship would translate to in legal terms. We just both worked very hard together to acquire the assets that we did, even though they were all in my name officially. It seemed like the fair thing to do would be to split them up equitably, so that's what I'm trying to do. How would a 1031 exchange be used to avoid creating a tax liability?

Would giving him the property with a quit claim deed, create a tax liability for me or him?

Does an Assignment of Deed of Trust sound like the right type of document to transfer the note? Because the sale was completed using a ''Grant Deed", a "Short Form Deed of Trust and Assignment of Rents" (both recorded) and an "Installment Note" (not recorded).

 

[tranquility]

There never was anything written down regarding what kind of relationship it was between us. Don't know what spiritual guru-disciple relationship would translate to in legal terms. We just both worked very hard together to acquire the assets that we did, even though they were all in my name officially. It seemed like the fair thing to do would be to split them up equitably, so that's what I'm trying to do. How would a 1031 exchange be used to avoid creating a tax liability?

Would giving him the property with a quit claim deed, create a tax liability for me or him?

Does an Assignment of Deed of Trust sound like the right type of document to transfer the note? Because the sale was completed using a ''Grant Deed", a "Short Form Deed of Trust and Assignment of Rents" (both recorded) and an "Installment Note" (not recorded).

The more you say, the worse it gets.

See a tax professional. See an attorney. Do not take any action until you have received professional advice. You are almost assuredly in violation of tax law up to now.

 

[TaoWanderer]

What did I do that was a violation?

 

[tranquility]

You held assets that were meant for both of you in your own name. You did not report any income in a fiduciary tax return or in a partnership tax return. At best, what you did could be called a constructive trust, but you did not handle it correctly. You worked hard together, but put the assets in your name. Were their gift tax returns for this transfer of wealth?

I don't know all the facts. All I know is that you:

are almost assuredly in violation of tax law up to now.

Sure, we can imagine up some set of facts where everything was done correctly--tax wise. I'd love to look further for otherwise and wonder if a creditor was defrauded or other areas of the law were violated (including misrepresentations on loan documents), but it would be better for you to say less about the actual facts.

See a tax professional. See an attorney. Do not take any action until you get professional advice.