Here’s a scenario that happens often. A man receives an inheritance and he decides to use it to purchase the family home outright. His wife has signed a Quitclaim Deed to put the property into her husband’s trust. The understanding was that if the husband died before the wife, she would be permitted to stay in the home until her own death. The problem, says The Washington Post in this recent article “Make sure you and your spouse are on same page on who will inherit your home,” is that the husband never signed the living trust.
Making matters more complicated: this is a second marriage for both husband and wife, and they both have adult children from their prior marriages.
A few questions must be raised. First, is he the sole owner on the deed, or is the living trust the owner on the deed? If the wife quitclaimed their home to her husband personally, then the husband owns her share of the home, subject to any marital interests she may have in the home.
However, if she quitclaimed the home to his living trust and the trust was never created—which happens far more often than it should—then the deed might be an invalid deed. The wife may still own her interest in the home.
In Texas, it becomes more complicated. A Quitclaim Deed is deceiving. You see, it is actually not a deed at all. A Quitclaim Deed conveys any title, interest or claim of the Grantor in the real property. However, it does not state that the title is valid and it does not contain any warranty or promises of a title. Quitclaim Deeds do not contain a contractual promise to the buyer that the Grantor does indeed own the property and has the legal rights to sell it or “warranty of title.” It cannot be used as a tool to obtain title, but it can be used as an “estoppel”, or defense against a Quitclaim Grantor who is claiming an interest in real property, quitclaimed to the Quitclaim Grantee. There are several disadvantages to using a Quitclaim Deed. First, there is no expressed warranty of title nor implied warranty of title. Second, a person claiming a Quitclaim cannot rely on the 5-year statute of limitations to establish title. Third, a Buyer or Grantee claiming under a Quitclaim cannot reap the benefits of the Texas recording statutes that protects innocent purchases against prior unrecorded Deeds. Lastly, the after-acquired title doctrine cannot be invoked by a Quitclaim Grantee to claim an interest in real property obtained by the Quitclaim Grantor after the date of the Quitclaim.
Failing to finalize documents can undo the best estate plans.
There is more. Although the most common real property ownership in Texas is joint tenants in common, there’s a possibility that the wife and husband owned the home as joint tenants with right of survivorship. If the wife died, the husband would own the entire property, and the same would happen if he died—she would own the entire property.
If the trust was not signed, it does not exist, and any deed transfer to a legal entity that does not exist, creates a situation where the wife could claim that she still owns her interest in the house, but the house may be owned by the husband and wife as tenants in common, and not joint tenants with right of survivorship.
It could become even more complex. If the husband now owns the home and the wife has marital rights, upon his death, she may be entitled to a share of the home under her husband’s will, if he has one, or by the laws of their state. However, his children would also own a share of the home, so she would end up owning a home with his children. Depending upon the relationship with the step-children, that could work out, or it could be a disaster.
Instead, the couple needs to sit down with an estate planning attorney to clarify how the home is presently owned, what they want to have happen and how to document it, so upon either of their deaths, their wishes are fulfilled.
Reference: The Washington Post (August 19, 2019) “Make sure you and your spouse are on same page on who will inherit your home” https://www.biggerpockets.com/member-blogs/6835/52793-what-you-need-to-know-about-quitclaim-deeds-in-texas