How to Avoid Capital Gains in California With a Transfer Deed
The capital gains tax can be a challenging burden on families that are trying to sell property after the death of a loved one. As a result, different states have devised means of allowing a property owner to transfer the property to family and thus avoid the probate process that can tie up the property indefinitely and subject it to exorbitant capital gains taxes. Traditionally, the Enhanced Life Estate Deed (also known as the Lady Bird Deed) has been a way of approaching this. In California, the Lady Bird Deed is known as the Revocable Transfer-on-Death Deed and has been a matter of considerable debate in the last decade. For property owners who hope to ease the transfer of a house or other piece of property after their death, creating a Revocable Transfer-on-Death Deed is a simple matter of completing and notarizing a short document.
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Instructions
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Obtain or purchase a legal form for the Transfer-on-Death Deed. Websites such as TheOnlineLawyer.org and NonProbate.com offer forms that can be used. Additionally, you may want to consult a probate attorney on the correct way to set up a Transfer-on-Death Deed. The purpose of the deed is to create simplicity in the transfer process, so it is important to ensure that it is as clear as possible.
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Complete the form, including all information about how the property will be transferred and to whom it will be transferred. Typically, Transfer-on-Death Deeds are only a single page; this is what has established their popularity, since instruments such as the Living Trust can often be vast, multi-page documents that can create more legal frustration than they are worth and tie up the probate process unnecessarily.
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Sign the Transfer-on-Death Deed and have the document notarized. Once the deed is notarized, you will have to file it with your county courthouse or in the courthouse that pertains to the county where the property is located. Before filing the deed, be sure to make several copies of it for your personal use and possibly for your attorney to maintain as well. The beneficiary of the Transfer-on-Death Deed should also retain a copy. While the photocopies will not suffice in a court of law, they will at least prove the existence of the document should problems arise at the courthouse.
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Tips & Warnings
At present, the law about the Revocable Transfer-on-Death Deed is still being debated in the State of California, so the official process for recognizing this document has not been determined in full yet. This being said, California has traditionally recognized this type of deed from the early 20th century, and a late 20th century case made the significance of the deed current. To be certain that your document is correct and enforceable to avoid capital gains tax, consider submitting it to a probate attorney for review.
References
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
