When purchasing real estate an important consideration is the way in which the title is held. You may be considering titling the property in the name of your children or adding a child's name as a joint tenant with rights of survivorship to transfer the asset upon your death. Avoiding probate is often the prevailing concern. However, there are a number of legal consequences involved when your child's name is on thedeed which may cause you to think twice about such a transfer.
Divorce or death: Consider what would happen if you give your daughter your house and she then divorces or dies. In the case of divorce, her husband could claim an interest in your home as an asset she owned during the marriage. He might not prevail since the home wasa separate gift and might not be considered a "marital asset." But thejudge might consider that since she has that substantial asset in hername, the other property should be divided favorably to your son-in-law. Or suppose your daughter dies leaving everything to her husband. Hethen remarries. Your home is owned by virtual strangers. You still have to worry about their creditors, divorce, and so on.
Homestead protection and bankruptcy: Florida law protects your homestead from forced sale by your creditors. If you transfer title toyour son and he is laid off from his job, his creditors may look to thevalue of his interest in your house to pay his debts. There is no homestead protection if he holds the title without living in the house. Should your son be in title to your home and be forced to file for bankruptcy, your house could be sold to satisfy his creditors. Homesteads are protected in bankruptcy but when you transfer to your child who does not live in the home, your home loses its homestead character.
Parity among your children: You may wish to leave your children equal amounts upon your death. Even if your will says that your children will share equally in your estate, if you make one of your children a joint tenant on your real estate, that child alone owns the home when you die. By adding the name to the deed, you have removed this asset from your probate estate and your will will not control its disposition.
Real property taxes: Real property taxes in Florida are based onthe assessed value of the home, less any exemptions allowed to the homeowner. The homestead exemption provides that anyone who owns the home in which he lives can deduct $25,000.00 off the assessed value before the amount of the property tax is levied. If you transfer the home to a child who does not reside with you, neither of you willqualify for the homestead exemption. Your yearly property taxesincrease. You may lose other exemptions such as the widow/ widower,veteran, and disability exemptions. If you add you son or daughter's name as a joint tenant with rights of survivorship, you may lose part of your homestead exemption, depending on the value of your property.
Basis: If you give the property to your son, he takes it with the same basis you have in it. This means that when he sells he will have to face the same capital gains you would. For example, if you bought acondominium in 1980 for $50,000.00 which is worth $150,000.00 today, you would be taxed upon sale for $100,000.00 in profit. So will your son if you give him the property. But if he inherited the property after your death, his basis would be the value of the property at the date ofdeath. Therefore, if he inherits the condominium worth $150,000.00 and later sells it for $155,000.00, he will pay capital gains tax on only $5,000.00.
Medicaid: Another concern is eligibility for Medicaid. You may be eligible for Medicaid without selling your home if you need to go intoa nursing home. Your residence is an exempt asset when calculating whether you qualify for help from Medicaid. However, you may notqualify for up to 36 months if you make a gift of your home. (The exact period of time depends on the value of the gift.) Furthermore, with the passing of the Kennedy-Kassebaum legislation, such a transfer made after January 1, 1997 will be a criminal offense.
Therefore, there are many factors to consider before you make agift of an important asset such as your home. I have not even mentioned the possibility of a disagreement or falling-out with your child. You would like to believe that this will not happen, but you would not want to put yourself in the position needing your child's consent to sell your home when your relationship is not good. The best advice is to structure an entire estate plan with an attorney. Your attorney will be able to look at your entire estate and develop a cohesive plan to accomplish your objectives. Your attorney can also help with any transfers needed to accomplish your objectives. For example, if you doneed to transfer the title to your home, your attorney can prepare the statutory deed and record it for you. No one plan is optimal for every estate, and no estate is too small to need a plan.