If a parent uses a quitclaim deed to sign over the title to their home to a child and that child records the document, the parent no longer owns the home. (Dreamstime.com)

Q: In 2012, I set up a living trust, and at that time signed a quitclaim deed to my house and property over to my daughter. If I now decided to sell my house, what do I have to do? Could she sign a quitclaim deed back to me? If I sell under her name, won’t there be a lot of taxes to pay, as she never lived in this house? Please help. I think I might have made a big mistake.

A: Well, you might have made mistakes (read this for our thoughts about using quitclaim deeds to transfer ownership within families), but what we’re hoping is that you’re confusing terminology.

The whole purpose of setting up a living trust is to clarify what happens to the property and avoid the many questions and issues you raise. When you own property in your own name, after you die the surviving family members don’t automatically get ownership of the home. Not only do they not get automatic ownership in the home, but unless a will or other legal document spells out exactly what is supposed to happen to the property, ownership may be divided among a living spouse, children, other heirs or a combination of those depending on state law.

For title to transfer to these family members after your death, in the absence of key legal documents even if there is a will, they would generally have to go to probate court and have the court authorize the transfer from the deceased to the new owners of the home.

We’re assuming that you set up the living trust so that your heirs could avoid probate and have the ability to designate exactly who you want to own the home after you die. Or perhaps you wanted to designate who should handle the affairs of the home in case you become incapacitated.

But a living trust is like an empty shopping bag. If you don’t fill it up, it’s just an empty bag. So once you set up the living trust document, you have to transfer assets into that living trust. You may think that you signed a quitclaim deed to your daughter, but we’re hoping that you signed a quitclaim deed transferring title of the home into your living trust.

These days, many local or county recorder of deeds offices allow users to go online and look up the property tax parcel number and see the documents that are on the title to the home. If you have access to a computer and the Internet, you can search your county recorder’s office website and see if you can find your property documents. Once you perform the search, you should be able to find a copy of the 2012 deed. That deed should say that you conveyed title of your home from your name to the name of your living trust.

When you find the document and see that title of the home is in the living trust, you shouldn’t have to worry. Once the property is in your living trust, you can treat the home as your own. You can sell the home and treat the sale as your own for federal income tax purposes; at least, that’s the way it works for the vast majority of homeowners who put their properties into their living trusts.

Many people forget to actively transfer the title to their home into their living trusts. If they forget to take this last step, the title remains in their name; when they die, the property usually will have to go through probate court to transfer the title of the home.

Unfortunately, if you did use a quitclaim deed to sign over the title to your home to your daughter and she recorded that document, you no longer own your home. Your daughter would now be the owner of the home. Yes, you could have her reconvey the title back to you, and then you could sell the home.

However, we see a whole bunch of potential problems for you under these circumstances. For IRS purposes, the IRS could claim that you did not own the home for two out of the last five years. That might exclude you from obtaining the $250,000 exemption (up to $500,000 if you're married) from federal taxes on the profits from the sale of the home. We've discussed the exemption at length in other columns.

In the end, we suspect that the 2012 deed you signed was to transfer ownership from your own name into the name of your living trust. We can't see why you would have gone through the trouble of setting up a living trust and then signing over title of the home to your daughter. But if you did and you're worried about both the short-term and long-term ramifications of this move, please consult with your attorney.

Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.