Legal Question in Real Estate Law in California

Re: Quickclaim Deed

As you seem to be aware, your sister will probably be liable for a gift tax, and if you were ever to sell the house, you'd have a huge capital gain and a very large tax bill for that.

Also, although at one point you seem to be saying that there are no liens or encumbrances on the house, at another point you say you'll take over the payments. I have to assume you meant to say there are no liens or encumbrances other than a first note and deed of trust. Otherwise, what do you mean by "take over the payments?" Are you aware that changing the ownership of real property does not shift the payment obligation? If your sister is shown as the borrower on the loan, the lender will continue to look to her for payments, even though record title may have changed. In fact, transferring title without the lender's prior approval may be a breach of the terms of the loan. Most home loans contain "due on sale" clauses that accelerate the balance due if the borrower does anything to change or cloud title. They will often waive these clauses in certain situations, sometimes requiring a small fee to do so, but you cannot just assume it's OK for her to give you the title while it is subject to the lien of a deed of trust.

This transaction can be done by grant deed or quitclaim deed. The fact that no money changes hands has no impact one way or the other.

Final boilerplate warning: giving houses to relatives is a frequent trick of owners who are afraid of losing them to creditors, be it MediCal or someone threatening to file a lawsuit, or whatever. I'm sure that isn't a factor here, but other people read these answers, so I address the issue of fraudulent transfers. They are relatively easy for the creditors to spot, and its equally easy to get a court to set them aside, with the possibility of punitive damages against both transferor and transferee.

OK, now here's your REAL answer: "Any tax imposed pursuant to this part shall not apply to any deed, instrument, or other writing which purports to grant, assign, transfer, convey, divide, allocate, or vest lands, tenements, or realty, or any interest therein, if by reason of such inter vivos gift or by reason of the death of any person, such lands, tenements, realty, or interests therein are transferred outright to, or in trust for the benefit of, any person or entity." Revenue and Taxation Code section 11930.

Re: Quickclaim Deed

If your sister is giving you a gift, it is exempt from documentary transfer tax. Under the law there is a Unified Gift and Estate Tax. To the extent the value of the gift exceeds $12,000 your sister will have to file a gift tax return, and the excess will reduce the amount she can give without tax in the future. There is no tax presently on gifts up to $2,000,000. Using up a gift tax credit can have adverse long term consequences for your sister's family and loved ones, by making future gifts, while alive or after death, taxable that would not have been taxable otherwise. You can avoid this problem by structuring a sale of the property to you by having you sign a note secured by a mortgage, and than forgiving up to $12,000 a year of payments on the note. You will also benefit by having an increased tax basis in the property saving you taxes if you sell it in the future. An estate planning attorney can help you structure all of this draft the necessary documents for a few hundred dollars. The documentary transfer tax, at $1.20 per $1,000 of value, is hardly a monetary issue worth worrying about.