Legal Question in Real Estate Law in California

Analysis #1 says executing the deed was absolutely the wrong thing to do, at least for most families and most properties. Even unrecorded, it is valid between the parties thereto and those with knowledge of it, which seems to be mom, you, and maybe others. Mom is now the owner of the house, by virtue of the deed. She didn't inherit it, she got it as a gift. She'll owe major-league taxes (probably) when she sells, because her profit will be calculated as selling price less cost (zero, I assume). If she had inherited the property, as she probably would have even in the absence of a will, she would have received the property with a so-called "stepped-up basis" and upon selling it her capital gains tax would be computed on the difference between the selling price and teh fair market value on the day she inherited it.

Analysis #2 says analysis #1 is faulty and doesn't completely apply because mom was already the owner of a substantial interest in the property anyway, under California community-property law.

In truth, the consequences of the decision to deed over the property instead of allowing it to pass by inheritance can't be known without a lot more details about how dad happens to have been the sole owner until he deeded it away just before his death; whether the deeding over is legally effective and binding (I think it is, despite no recording!!!) and perhaps whether there are other heirs with potential claims under the rules of intestate succession (you didn't mention a will or trust, so I'm assuming there is none).

I think the family, particularly mom, needs to see a lawyer with substantial experience in administration of estates. The most obvious problem is the doggone deed, which seems to benefit the IRS more than the heirs. The potential problems here run into many tens of thousands of dollars in tax liability, plus possible confusion as to the validity of the deed versus the possibility that the house was duly inherited rather than deeded away. Get help now! You should have gotten legal advice before!!