Question. My wife and I are both employed, and we own our home jointly. Can we change ownership to only one of us, and does this require a new settlement?
Answer. If a husband transfers property to a wife or vice versa, to my knowledge there is no recordation or transfer tax required in any of the 50 states. Only the actual cost of recording the deed on the Land Records will be charged by the county or the city.
However, before you consider transferring the property out of your joint names, give serious thought as to whether you really want to do this.
By way of background, title can be held in one of four ways:
1. Sole ownership. Here, one person owns the entire property;
2. Tenants in common. Here, two or more individuals own property and their respective interests will go to their heirs under their Will on their death. For example: “X” conveys property to “A” and “B” as tenants in common. “A” dies, leaving two children, “C” and “D.” Title is now in “B” as a half interest and “C” and “D” as quarter interest each, and each party owns their percentage interest in the property as a tenant in common.
3. Joint tenants with right of survivorship. Here, on the death of one of the joint tenants, the remaining owner or owners automatically (by operation of law) become the owners of the property. Example: “X” deeds property to “A,” “B” and “C” as joint tenants. “C” dies, and “A” and “B” now own the property as joint tenants. “B” dies. “A” is now the sole owner. Under a joint tenant arrangement, while it is not necessary to use the language “with right of survivorship,” to be on the safe side this language should be included in the deed that is recorded among the Land Records.
4. Tenants by the entirety. This is similar to a joint tenancy, but is reserved for a husband and wife situation. This is the strongest title, in that it cannot be broken except by a deed of conveyance signed by both husband and wife or divorce.
Having given this brief background, the question then should be asked: why do you want to transfer the property to one of your names as sole owner?
Presumably, you and your wife hold the property as tenants by the entirety. Upon the death of one of you, the surviving spouse will own the entire property, and you will avoid probate proceedings, as well as any inheritance taxes. Of equal importance, during your lifetime, if one of you should create a debt which cannot be paid — for example you are involved in an automobile accident and the insurance coverage is not enough — your house cannot be attached to satisfy this debt if you hold the property as tenants by the entirety. However, if you hold the property as joint tenants (or even tenants in common), or if only one of you owns the property as sole owner, the debt can be sued upon and the house can be sold to satisfy this debt. Any surplus will go to the other owner.
There are, of course, tax reasons for transferring the property from both husband and wife to one of your names, and creating what is known as a “by-pass trust.” In effect, on the death of the property owner, the other spouse would have the right to live in the house, and indeed sell the property, but the house (or the proceeds) are held in trust for any children. Under this arrangement, there could be considerable tax savings. However, this is extremely complex, and your estate should be sufficiently large enough before you consider these tax issues and definitely consult an estate attorney.
On the other hand, if, for example, the husband owns the property in his own name, and he dies, it may very well be that probate proceedings will have to be started and inheritance taxes may have to be paid. The tax consequences on both sides of this issue must be considered before making a decision which may be irreversible. Probate proceedings can be time-consuming and expensive, and in our example if the wife wanted to sell the property immediately, she may have difficulty doing so until she obtains court approval.
Thus, there are significant drawbacks to transferring the property into one of your names as sole owner. It is suggested that you discuss all of these financial and legal issues with your tax advisors, so as to make sure that you are not creating a potentially disastrous situation.
If you do decide to transfer the property from both of you to one party as sole owner, however, all you need is a properly prepared deed and the necessary transfer and recordation forms that are required by the county or city where the property is located. You do not have to go through a brand new settlement. You should, however, advise any lender that has an existing mortgage on the property that you are transferring the property to your spouse. The lender will not be able to call the loan because it is an inter-family transfer, but the lender should be advised of the situation.
You should keep in mind, however, that if there is a mortgage loan, and if both husband and wife have signed the mortgage documents (promissory note and deed of trust), the mere fact that one party will now become the sole owner does not relieve the other spouse from liability under the original promissory note. Both husband and wife were initially obligated when they signed the promissory note in favor of the lender. They will continue to be individually and jointly responsible until such time as the note is paid in full.
