Revocable Trust

What’s the Difference Between a Quitclaim and a Warranty Deed?

When you buy, sell, or transfer ownership of a property to another, you need to be aware of what type of deed a property has, and what type of deed to use when you transfer your interest in a property to someone else. It’s most helpful to know the difference between a quitclaim and a warranty deed.

the difference between a quitclaim and a warranty deed
Two of the most commonly used deeds in property transfers are the quitclaim deed and the warranty deed.

Bankrate explains in its recent article, “Quitclaim vs. warranty deed: What you need to know,” that a quitclaim deed is a deed that transfers the actual legal rights to a property that the grantor has to another person. That is without any representation, warranty, or guarantee. A quitclaim deed gives no guarantee of the title status of a property, any liens against it or any encumbrances. It really means that you get only what a grantor may have—nothing more. Therefore, if the grantor has nothing, you get nothing.

A quitclaim deed may work well, if the grantor indeed has the legal rights to a property, and there are no liens.

Quitclaim deeds are used in safer situations where there’s little question about the ownership interest in a property. They can be used when a person is transferring ownership of real estate to family members. However, a warranty deed is generally used in more complex situations, including when someone is getting a mortgage to buy a home.

With a warranty deed, the seller is guaranteeing that she has a defensible ownership interest in the property being transferred and can legally transfer her ownership interest to the buyer.

Warranty deeds are the better option, when you’re purchasing property. Buyers want to be certain that you own the property, so they want you to sign a warranty deed. If you don’t actually own the property, the buyer can sue for a breach of warranty.

If you’re transferring property to your child or your revocable trust agreement as part of an estate plan, a quitclaim deed would be just fine because it accomplishes the change of ownership, but you’re not providing any warranty for the transaction.

All real estate transactions that are arm’s length transactions, use warranty deeds.

You should be aware and understand the type of transaction into which you’re entering and the difference between a quitclaim and a warranty deed.

Reference: Bankrate (September 4, 2019) “Quitclaim vs. warranty deed: What you need to know”

Your Will Isn’t the End of Your Estate Planning

Even if your financial life is pretty simple, you should have a will. And once you have a will, that’s not the end of your estate planning.  There’s still some work to be done to make sure your family isn’t left with an expensive mess to clean up.  Assets must be properly titled, so that assets are distributed as intended upon death.

Your Will is only one piece of your estate planning.

Forbes’ recent article, “For Estate Plan To Work As Intended, Assets Must Be Properly Titled” notes that with the exception of the choice of potential guardians for children, the most important function of a will is to make certain that the transfer of assets to beneficiaries is the way you intended.

However, not all assets are disposed of by a will—they pass to beneficiaries regardless of the intentions stated in the will. Your will only controls the disposition of assets that fall within your probated estate.

An example of when a designated beneficiary controls the disposition of a financial asset is life insurance. Other examples are retirement accounts, such as a 401(k) or an IRA. When there’s a named beneficiary, assets will be distributed accordingly, which may be different than the intentions stated in a will.

The title of real estate controls its disposition. When property is jointly owned, how it is titled determines if the decedent’s interest in the property passes to the surviving partner, becomes part of the decedent’s estate, or passes to a third party. Titling of jointly owned property can be complicated in community property states.

In the same light, a revocable trust is an inter vivos or living trust that’s created during the grantor’s life, as part of an estate plan.

Such a trust can be used to ensure privacy, avoid the expenses and delays in the probate process and provide for continuity of asset management. A critical part of the planning is that the grantor must transfer (or retitle) assets to the trust.

Wills are very important in estate planning. To ensure that your estate plan fulfills your intentions, talk to an estate planning attorney about the proper titling of your assets.

Reference: Forbes (May 20, 2019) “For Estate Plan To Work As Intended, Assets Must Be Properly Titled”

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