Rowe & Walton PC
In the world of estate planning, the desire to “outsmart the system” can often lead to unintended and expensive consequences. One common tactic homeowners use is executing a “dresser drawer deed”—also known as a silent or pocket deed. The idea is simple: a property owner signs a deed transferring their home to their children but hides the document in a safe place, such as a dresser drawer, to be discovered and recorded only after their death.
While the primary motivation is usually to save family members the time and expense of probate, this “clever” trick is frequently deemed dangerous and foolish by legal professionals.
A fundamental requirement for a deed to be legally valid is that it must be “delivered” to the new owner. Simply signing a paper and tucking it away rarely meets this legal standard. If a deed remains in the grantor’s possession and control until their passing, a court may rule that the transfer never actually occurred. This leaves the property exactly where the owner tried to avoid: in the probate process, where they no longer have a say in its distribution.
Beyond legal technicalities, there are significant practical risks. A deed left in a house can be easily lost, accidentally destroyed, or even intentionally discarded by someone who doesn’t like the terms. If the physical document is lost, the intended transfer is lost with it.
Furthermore, silent deeds can create a nightmare for those requiring long-term care. If an elderly homeowner applies for Medicaid but fails to report ownership of a home because they “gave it away” via a hidden deed, they may inadvertently commit Medicaid fraud. For the application to be handled properly, the deed must be delivered and reported, or the omission could serve as the basis for a fraud claim.
Perhaps the most financially devastating consequence of a pocket deed is the loss of the “step-up” in cost basis. Typically, when an heir inherits property after a death, the property’s tax basis is “stepped up” to its current market value. This means if the heirs sell the home shortly after inheriting it, they pay little to no capital gains tax.
However, if a silent deed is treated as a completed gift made during the owner’s lifetime, the heirs receive the owner’s original cost basis (often what was paid for the home decades ago). When the home is eventually sold, the family could face a massive tax bill that would have been eliminated through proper estate planning.
Ultimately, the adage remains true: “If the trick is too good to be true, it probably is.” There are far more effective and affordable ways to protect your legacy without the risks of hidden deeds. Alternatives such as revocable living trusts and life estate deeds offer favorable tax treatment while ensuring your property bypasses probate.
Silent deeds are rarely productive in the end. Before setting a plan for your loved ones, it is essential to seek guidance from a qualified estate planning or elder law attorney. At Rowe & Walton PC in Bountiful, we specialize in navigating these complexities to ensure your home and your family are truly protected.
Contact Robyn Walton at Rowe & Walton PC today at 801-298-0640 for a consultation on a plan that actually works.