Could you avoid probate by leaving a deed filled out and notarized but not filed until death?

In some states it would work, in others it would not. To be sure that it would work for you, you would have to check out the laws of your state.

Beware though, with this kind of “dresser drawer deed,” there might be some negative tax consequences, such as owing capital gains tax on the amount the property has increased in value over the years. For example, say X bought her home for $100,000 in 1964 and dies in 2005, with a dresser drawer “gift” deed to you. If you then sold the property after X’s death in 2005 for $220,000, you would have to pay a capital gains tax on the $120,000 of “profit.”

On the other hand, if X owned the property at her death, and it went through probate, or X put the property in a living trust to be distributed to you by her successor trustee, the tax basis would be “stepped up” as of the date of death to the full $220,000 value. If you then sold the property at that price, there would be no capital gains tax to pay, because there would be no “profit.”

The capital gains tax the beneficiary has to pay could be 10–50 times what it might cost to go through probate or to prepare a living trust. Given these tax concerns, this kind of deed is probably not a very good option in most cases. Consult a qualified, experienced estate planning attorney in your state if you have questions about the best way to transfer real property in your situation.

Case Studies: Exploring Strategies for Avoiding Probate With Deeds

Case Study 1: The Dresser Drawer Deed

Mary, a homeowner in State, decided to leave a deed for her property filled out and notarized but kept in her dresser drawer instead of filing it immediately. Her intention was to avoid probate and ensure a smooth transfer of the property to her chosen beneficiary, John, upon her death. In State, this strategy worked successfully for Mary. After her passing, John presented the deed to the appropriate authorities, and the property was transferred to his name without going through probate.

Case Study 2: Tax Consequences of the Dresser Drawer Deed

Samantha followed a similar approach to Mary by leaving a deed in her dresser drawer. However, Samantha’s property had significantly increased in value over the years. After Samantha’s death, her chosen beneficiary, Lisa, discovered that she had to pay capital gains tax on the appreciation of the property.

Lisa had to pay a substantial capital gains tax on the profit generated from the sale of the property. This tax liability arose due to the dresser drawer deed strategy, as the property’s tax basis was not “stepped up” to the value at the time of Samantha’s death.

Case Study 3: Probate and Living Trust

James owned a property and was considering the options for transferring it to his chosen beneficiary, Sarah. He explored two alternatives: going through probate or establishing a living trust. After consulting with an experienced estate planning attorney, James discovered that both probate and a living trust would offer a more favorable tax basis for Sarah.

By either going through probate or setting up a living trust, the property’s tax basis would be “stepped up” to the value at the time of James’s death, thus avoiding capital gains tax on any profit when Sarah decides to sell the property.