You’ve heard the term ‘intrafamily transfer and dissolution’ bandied about in real estate circles, but what exactly does it mean? For an investor, it could be an opportunity—or a problem.
Let’s get into it and take a deep dive into everything you need to know about intrafamily transfer and dissolution, how it impacts real estate, and what it could mean for your investing strategy.
What Is Intrafamily Transfer and Dissolution?
Intrafamily transfer and dissolution refers to just that: transferring and dissolving real estate from one family member to another.
This process could result from parents bequeathing a home to their children, siblings dividing inherited real estate among themselves, or spouses dividing a marital estate following a divorce. In any case, it’s just what the name suggests: real estate is legally transferred from one family member to another.
The ‘dissolution’ part kicks in by breaking up any ownership position—think of it as the dissolution or ending of a joint tenancy agreement with the family.
It is common to see this when property is divided up during a divorce or with the settlement of an estate.
This can be a good thing—it can help to keep property in the family, avoid taxes, or even simplify estate planning—but for investors, it can get a little tricky, especially if they might be on the other end of the transaction.
Basic Steps Involved in Intrafamily Transfer
Intrafamily transfer and intrafamily dissolution are more than just the handing over of keys—they involve a set of legal steps. Here’s what usually happens:
- Title Transfer: You transfer the title to the property from one family member to another. This is the easiest way to transfer property without selling it. Typically, you can do this with a quitclaim deed.
- Legal Documentation: Family members need to draw up all the legal paperwork to document the transfer, such as deeds, a transfer agreement, and, for dissolution, a court filing.
- Tax Consequences: Depending on the situation, there may be tax liabilities, such as gift tax or capital gains tax, and you should consult a tax adviser.
- Property Valuation: The property is appraised to figure out its current fair market value, which may affect the financial terms of the deal.
- Dissolution of Joint Ownership: In the case of joint ownership (e.g., in cases of divorce or inheritance), you will have to dissolve the joint ownership and either split the net proceeds or decide on a buyout.
Example of Intrafamily Transfer and Dissolution in Real Estate
A couple might own a rental property together, but then divorce and need to dissolve their joint tenancy; one party could buy out the other, or they might sell the property and share the profit. Intrafamily transfer and dissolution can work in this way.
Or take a parent who wishes to bequeath a family home to a child, say by transferring the title from parent to child. Such a transfer is called an ‘intrafamily transfer’ because it involves transferring property between family members without, technically, selling it on the market.
Pros of Intrafamily Transfer & Dissolution
There would be clear benefits to disposing of real estate like this, and for anyone keen to keep things ‘in the bloodline.’
- No Market Sales: No need to list it or deal with buyers outside the family when it’s transferred privately.
- Tax Advantages: In some circumstances, intrafamily transfers can help to avoid or reduce taxes such as capital gains or inheritance tax.
- Family Continuity: The asset stays in the family, and this keeps it emotionally important and can preserve generational wealth.
- Control Process: Unlike with a normal sale, you have more control over the terms, the timeframe, and over how the property is transferred or divided.
Cons of Intrafamily Transfer & Dissolution
But (and there’s always a “but”)—this process also comes with some potential drawbacks.
- Tax Benefits but Also Tax Complications: While there can be tax benefits under a will, there can also be tax complications, especially if the property has appreciated in value or if the transfer is considered a gift.
- Emotional Stress: Family dynamics make for messy transfers. Divorce, sibling rivalries, inheritance disputes—any of these can turn a property transfer into a nightmare.
- Legal and Paperwork Hassles: It’s a family deal, but it’s still a sale, so there are legal and paperwork fees involved.
- Lower Market Value: If you are transferring the property within your family, you will presumably not get what it would have fetched on the open market.
What To Do If You’re a Real Estate Investor and You Get a Property by Intrafamily Transfer or Dissolution
So, what should you do if it actually happens and you end up with a property in this manner? Well, first off, congratulations—you’ve got a new asset! But there are a few key things to keep in mind.
- Evaluate the Property: Treat it like any other income-producing property and do a full analysis of the current condition, the ability to rent it, and its long-term value.
- Understand Tax Implications: Make sure you understand the tax implications of the transfer. If the property was gifted to you or inherited, there could be taxes to pay when you sell.
- Rental or Flip? Whether you’re going to rent it out for the long haul or flip it, look at market conditions in your local area first and then consider your investment strategy.
- Check Legal Docs: Check all legal paperwork before making any kind of transfer. Make sure you won’t have any nasty ownership surprises.
What To Do If You’re a Real Estate Investor Looking for Intrafamily Transfer Leads
If you’re an investor looking for leads, intrafamily transfers can be a goldmine. Here’s how to get them:
- Family Law Attorneys: These are the people who deal with divorce, estate planning, and other matters that regularly involve family members selling one another’s homes and splitting up their real estate.
- Probate Leads: Check probate court records. When estates are settled, real estate is often involved that must be transferred or sold.
- Divorce Listings: Many people divorce and have to sell their properties. These sellers are often motivated to sell the property fast, meaning that you have a good chance of getting a better deal.
The Bottom Line: Intrafamily Transfer and Dissolution
A transfer between family members can be used to keep real estate in the family, and to resolve ownership issues in a divorce or estate case.
An intrafamily transfer can also provide unique opportunities for a real estate investor to acquire a property—sometimes at a discount, sometimes without going through a traditional sale.
But, like any piece of real estate, the intrafamily transfer and dissolution needs to be done with a well-defined strategy in mind. If you are a recipient of an intrafamily exchange or a prospective buyer of a lead through one, alike, understand the tax, legal, and family-dynamic aspects of the transaction, and the potential investment benefits of the property involved.
When approached correctly, these types of transfers can be solid prospects for a specific segment of a comprehensive investment portfolio.
