Does it make sense for her to give up her ownership of the property now using a quitclaim deed since she will be giving me her part of the house upon her death anyway?
No, not at all.
Will this save us all money and time?
No. In a sense, it will cost you money after she passes.
If she quit-claims the house now, the remaining owners each get half of her share and have of her original cost basis.
If the house is passed in the will after she passes, then each of you inherit half of her interest, and get a step-up in the cost basis that is the FMV of her share on the date of her passing.
You really need to see an elder law attorney to plan for your mother's eventual (long away, we hope) passing. There are consequences that go far beyond taxes.
Briefly, the legal and tax situation is she would be giving you her 1/3 share of the home (1/6 to each of you and your spouse unless you word the deed differently.). The gift itself is not taxable (unless her estate is worth more than $11 million), but the gift may change other tax and financial situations.
First, you may pay more capital gains tax when you eventually sell the home if 1/3 of it was a gift from your mother, whereas you would pay less capital gains tax if you inherited it.
Second, if she requires residential care for a long term illness, Medicaid will only pay after she has spent all her own assets. This could mean she has to sell her 1/3 ownership share, which would force you to sell the house or buy her out. If she has made large gifts within the 5 year lookback window before she goes into care (like giving you her 1/3 share), Medicaid can require those gifts be used to pay for her medical care before Medicare will take over. (This can be very complicated--your mother would not be forced to sell the home if the other owner was her spouse who will continue to live in the home after she becomes a patient at a nursing home, but I don't know if the same rule applies to children living with the parent.)
It might be wiser for all of you to change the deed to joint tenant with right of survivorship, or to give your mother a life estate. This can vary from state to state, but it may reduce the capital gains tax when you sell. You might also consider putting the home into a Medicare Asset Protection Trust. The trust owns the house, so that Medicare can't force your mom to sell her 1/3 share to qualify for Medicaid if she requires long term care. Then you would inherit it from the trust after she dies. (The trust can be dissolved if you want to sell the house and move somewhere else, but if you put the new house into a similar MAP trust, it starts a new 5 year clock on the lookback period.)
Of course, these ideas would probably affect your refinancing options. Are you being forced to refinance for other reasons, or can you put a pause on this until you talk to an Elder care attorney/estate planner? They may have more insight than a general real estate attorney.
@j-b-duckett You really do need to consult with a local estate planning professional (preferably a local attorney).
Depending upon state law, you might wind up in probate court which can be a hassle and you and your husband will incur additional expenses.
There are other options beyond having your mom simply use a quitclaim deed to gift you and your husband her share of the property. For example, a deed could be drafted in which your mom would hold her share (one-third) as joint tenants with rights of survivorship with you and your husband while maintaining the TIC form of ownership for you, you husband, and mom for the other two-thirds.
There are several other options as well, such as a transfer on death deed.
Probate is not a hassle or expensive in all states. Depending on what state you are in, there might be no reason to try to bypass it.
On the other hand, if your mother gifts her share of the house to you subject to a life estate, that can preserve the step-up in basis.
As others have said, consult a local estate planning lawyer.
Probate court is a hassle and expensive in virtually every state of which I am aware. Obviously, most states have summary procedures (typically for small estates) which only require filing an affidavit while some others also have procedures to bypass probate entirely (the latter which normally does not apply to real property).
Probate is also expensive for those who cannot use a state's small estate procedure (or bypass procedure) and/or who need to employ an attorney. Regardless, there are typically, at least, filing fees involved in any case.
The deed subject to a life estate is problematic in the sense that some sort of appraisal of the fair market value at the time of transfer must be done and a gift tax return will most likely have to be filed.
Again, there are other options available that would avoid both of the aforementioned scenarios.