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Probate and Estate Planning Considerations for the Different forms of Real Property Title Available in Florida

January 22, 2016

Florida law allows owners of property to hold title to real property in various ways.  Each type of ownership has varying characteristics that impact succession and rights to Florida Property.  When deciding how to hold title consider asset protection, taxation and succession.

Fee Simple/ Sole Ownership:

Holding title in an individual’s name only.  You can sell, gift or devise in your estate plan through a will or other estate planning mechanism.

Tenants in Common:

Each joint owner has the right to sell, lease or devise their interest in the property to his or her beneficiaries or legal heirs.   So you don’t need permission from any other tenant in common to convey your share of the property.   When a co-tenant passes, his or her share of the property is distributed to his or her heirs or beneficiaries pursuant to either intestate succession or his or her estate plan.

Joint Tenants with the Right of Survivorship:

Each person has equal possession rights to their respective share of the property and when one joint tenant passes, the share is automatically distributed among the remaining joint tenants.   Disadvantages of this type of holding include loss of complete control over sale, or mortgage and potential effects of creditor problems of one of the Joint Owners.

Upon the death of the Joint Tenant, the surviving co-owners will take title at the cost basis of the original deceased co-owner.  This is a disadvantage compared with taking the property through probate as the probate process in Florida will allow the new owner to take it a “stepped-up” basis.  This is a major advantage of taking title to Property through a Florida Probate rather than as a Joint Tenant with the right of survivorship.

Let’s look at an example.  Anna and Ben own a property together as Joint Tenants with the right of survivorship that they purchased in 1950 for 100 thousand dollars.  Anna passes away and Ben obtains title to the property via the survivorship clause in the original deed.  Ben decides to sell the property and obtains a buyer who is willing to purchase the property for 400 thousand.  Ben must pay taxes on the gain from the sale of the real estate.  The gain will be calculated from the original cost, 100 versus the sale 400, for a total taxable gain of 300k.

Using the same example, if Anna and Ben had instead simply had an estate plan, when Anna passed Ben would inherit the property through a Florida Probate.  Ben would take the property on a “stepped-up” basis meaning that his cost basis would be the value of the property at the time he inherited it.  Ben would therefore be able to use the present value of the property as his cost basis.  If he then decides to sell it within a reasonable time, his cost basis will be the same as the sale price, and he will have no capital gains tax.  This is a key advantage of passing property in a Florida Probate.

Tenancy by the Entirety:

For married couples in Florida.  Each partner has equal right to possession in the property and like a Joint Tenancy with the right of survivorship, complete title passes to the surviving spouse upon death.  This type of holding may avoid the need for probate in Florida to transfer title to the asset.  Other advantages of Tenancy by the Entirety include the ability of both spouses or the survivor of them to be entitled to the Homestead Property Tax exemption.  This homestead exemption, when applied to both spouses through a Tenancy by the Entireties allows you to protect your homestead in Florida from either spouse’s individual creditors.

Life Estate:

This is a type of ownership whereby the owner holds the property for his life and upon his or her death the property vests to the “remainder.”  Example: Anna holds a life estate in property but upon her death it shall pass to Ben.  Taking title by a remainder interest in Florida, like a Florida Probate, allows you to take the property at a stepped up basis.

Conveying title through life estate has some disadvantages.  For one, there is a Medicaid disqualification period upon the application of benefits because of the conveyance.   A second consideration has to do with Florida creditors.  If you convey the remainder interest of your property to your heirs, that is a real property interest upon which their creditors can attach or levy.  Another potential problem exists if the grantors are unavailable or unwilling to change the deed and the grantee refuses to sign the documents required to effect the change. A probate attorney can help you work through these issues.

Example: Anny and Ben are married and convey a remainder interest in their property to their daughter.  Ben dies and Anny remarries.  Anny decides she and her new husband want to sell the property but the daughter refuses.  Anny no longer has the ability to sell her home.

Disclaimer:   The information contained in this blog/website is for informational purposes only and provides general information about the law but not specific advice.  This information should not be used as a substitute for advice from competent legal counsel as laws change and the facts in your specific case need to be analyzed.