Practicing law in South Florida exposes lawyers to a greatly diverse client base. Many residents of Miami-Dade, Broward, Palm Beach, and Monroe Counties are of Latino decent or are immigrants from Latin America. Many of my clients fit this description. Being of Latino decent myself, (Cuban and Puerto Rican), I have many family members who face the same kinds of challenges and problems that others, (Latinos and non-Latinos alike) face. Often these problems require legal assistance from a professional. Family members and friends come to me for matters of real estate, but too often, they come to me when it is too late for me to help them effectively.
Case-in-point: “The Cuban Will” also known as the Quit Claim Deed. These deeds are easy to come by, and are very commonly used, (especially in the Latino community), to avoid probate. However, the risk of potential estate tax and capital gains tax exposure almost always outweighs the costs of a simple probate process.
A common scenario is when a parent of advanced age is concerned over what will happen to his or her home when they pass away. A trend has developed (not only in the Latino community — but at large), of parents signing a Quit Claim Deed to their child(ren) in an effort to avoid the expense and delay of probating their estate upon death. In the view of the parent, their child(ren) will be spared the probate process and the parent is spared the need for a Last Will and Testament by simply adding their children to their title while the parent is still living.
There are a number of problems with this type of do-it-yourself estate planning; namely, the loss of control. By adding another person to the title to your home, (or worse: replacing one’s own name on the title with that of a child), the parent can no longer unilaterally decide what to do with their property in terms of selling it, refinancing it, renting it, etc. They now have to consult with and get the consent of their child(ren). Even more problematic would be a scenario where the child(ren) does not give his or her consent. Should the child(ren) not give their consent to sell or otherwise dispose of the property, the parent is for all intents and purposes stuck with the property.
Another potential problem is the loss or partial loss of property tax exemptions which the parent holds. Homestead Exemption is perhaps the most famous of these tax exemptions, but many people of advanced age often hold Senior Citizen, Disability, or Widow(er) exemptions. These may be in jeopardy, (at least in part), by adding the name of an unqualified child to the title particularly if that child already has some of these exemptions on their own home.
Yet another problem of great consequence is the loss of the “stepped up basis” that the parent had in the real property. Many Latinos, particularly those who emigrated from Cuba to live in the United States, purchased properties in the 1960’s and 1970’s and to this very day still hold on to that same piece of property they acquired all those years ago. This fact is important because the basis one holds in a piece of real property, i.e., the purchase price of the real property, is also transferred to the children if real property is passed via quit claim deed. However, if real property is inherited, the heirs get a “stepped up basis” in the real property to the fair market value of the real property at the date of death of the parent. This allows both parent and child to save in capital gains tax .
The final problem is “the unknown.” What happens if a child(ren), (or one of them), unexpectedly dies before the parent? There is no contingency plan in a Quit Claim Deed if this happens and the property may be subject to the claims of other relatives or spouses of the child who died. The parent would have to probate the child’s estate in order to reclaim the very property that they own, and expose the property to the claims of other family members and possibly their creditors.
These are just a few examples of what can go wrong by using a Quit Claim Deed without seeking legal advice. Others include: the transfer of title to another person may violate the parents’ mortgage subjecting the property to foreclosure, may subject the child(ren) to personal liability for the homeowners or condominium association assessments, and such deeds may be declared invalid if they are made to a minor child.
There are a number of ways to fulfill parents’ desires for disposition of their property at death. Wills are a good tool, but there are also trusts, life estate deeds, and the like which can accomplish those desires without jeopardizing the rights and privileges a parent enjoys while still living. Simply put, do not make the mistake of conveying a piece of property through a “Cuban Will” without first seeking legal advice, as the pennies you try to save today will turn into thousands of dollars you would have to spend tomorrow.