Dolores M. Coulter

Attorney at Law

8341 Office Park Dr. Ste C

Grand Blanc, MI 48439

Phone:  (810) 603-0801




Unrecorded Deeds

Dolores M. Coulter © February 2008

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  1. I want to give my home to my daughter after I die but I don’t want the house to go through probate.  Can I sign a deed now that puts the house in her name, but then keep the deed with my other important papers and tell her she can take the deed and  record it after I die? 

Although this approach is sometimes recommended by well-meaning friends or relatives and in some cases by attorneys as means of avoiding probate while still maintaining complete control of the property during your lifetime, there are significant disadvantages to this estate planning strategy and better ways to achieve your objectives. 

One obvious problem is that the deed could be lost.  In that case, if you still owned the home at the time of your death, your home would pass according to the terms of your will, if you had a will, or, if you did not have a will, then it would pass to your heirs according to the laws of intestacy.  In either case, the home would have to go through probate and it may or may not be inherited by your daughter.  A less benign possibility is that the deed could be found by someone who was not happy with your decision to give the house to your daughter and that person then destroys the deed.  As estate planners we unfortunately see situations where family members or other trusted persons have betrayed that trust and tried to enrich themselves at the expense of others.  It is also possible that your daughter could find the deed before your death and record it.  This would give her legal title to your home and prevent you from changing your mind about whether to give the deed to her. 

There is also the problem that if the deed is not delivered to your daughter until after your death it could be challenged as an “incomplete gift”.  In order for a gift to be effective to transfer title to property the property must be delivered to other person.  If the deed was in your possession at the time of your death, then no delivery has occurred, and thus at the time of your death legal title would still be in your name.  At the time of your death, any property that you own in your name becomes part of your estate and is distributed according to your will or, if you did not have a will, to your heirs according to the laws of intestacy. As in the example in the previous paragraph, this means that the home would be subject to probate and may or may not be inherited by your daughter.   

Unrecorded deeds also raise issues concerning property taxes, including when the “transfer of ownership” takes  place, when the taxable value is "uncapped",  and the effect of the transfer on the principal residence exemption (sometimes referred to as the homestead exemption).

There is a 2006 decision from the Michigan Tax Tribunal that illustrates the property tax problems that can occur with unrecorded deeds.  The Tax Tribunal decided that under the Michigan property tax laws, where a deed from a parent to a child was recorded after the parent’s death but was signed by the parent several years earlier, the relevant date for property tax purposes was the date the deed was signed, and not the date the deed was recorded.  The parent should have filed a  Transfer Affidavit with the tax assessor’s office within 45 days of the date the deed was signed.  When a Transfer Affidavit is filed, the tax assessor reevaluates the property tax status to determine whether a "transfer of ownership" has occurred that would cause the taxable value of the property to be "uncapped" - to be increased up to the "state equalized value" (SEV).   If you look at your tax statement you will see that both the SEV and the taxable value are listed.  If your property value has risen significantly since you bought it the difference between the taxable value and the SEV could be quite large. 

Prior to December 31, 2013 a deed from a parent to his/her child was considered  a "transfer of ownership" and would cause an uncapping of the taxable value.  In the 2006 case the Tax Tribunal decided that a "transfer of ownership", and thus an uncapping of the taxable value, occurred when the deed was signed and not when the deed was recorded.  The result was an increase in the property taxes retroactive to the date of the deed.  In your case, since you would be signing the deed after December 31, 2013, the deed would not cause an uncapping of the taxable value as long as the property was  used for residential purposes.

Another property tax problem that can arise from holding an unrecorded deed is that if you sign a deed transferring complete ownership to your daughter (as opposed to adding your daughter as a joint owner) your right to claim the principal residence exemption on the property would terminate as of the date of the deed.  Non-homestead property is taxed at a higher rate.  If the deed was not recorded until some years later the tax assessor could  retroactively increase the tax rate on the property back to the date on the deed.  However if your daughter also resided in the home as her principal residence  with you after the date of the deed she could file a new Principal Residence Exemption  affidavit. In order for the exemption to be retroactive she would have to file a request with the local Board of Review, but there is a limit on the length of the retroactive period. 

If you signed a deed that simply added your daughter as a joint owner with you and the property continued to be your principal residence, your property would retain the principal residence exemption.  Upon your death you daughter would become the sole owner of the property and if she continued to occupy the property as her principal residence she could file a new PRE affidavit and the exemption would continue.   

A better way to achieve your objective of avoiding probate and still retaining control of your property during your lifetime is to execute a “Ladybird deed”.  The deed creates a special type of life estate; you not only retain the exclusive right to possession during your lifetime but your also retain complete control to sell or mortgage the property.  You do not need the consent of the person you have named as the holder of the remainder interest.  If you still own the property at the time of your death, it will then pass automatically to that person.    

The unrecorded “deed in the drawer” sounds like a simple and inexpensive estate planning strategy, but it can have unintended consequences.  Other estate planning strategies should be considered in order to achieve your objectives.




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