greenhouse.pngYou can transfer ownership of your real estate property through probate, or by signing an instrument known as a deed.1 Using a deed to transfer ownership of your real estate allows you to bypass probate, but there are some risks associated with this alternative. This blog discusses the advantages and disadvantages of using a deed to transfer ownership of your real estate property.
Advantages of Using a Deed to Transfer Ownership

  1. A transfer by deed can allow you to reserve the right to use the real estate property transferred for the remainder of your lifetime: There are different types of deeds that can be used to transfer property and each one of them serve a different purpose. Some deeds, like the life estate deed, allow you to transfer ownership of your real estate property while reserving you the right to use the property for the remainder of your lifetime.
  2. A transfer by deed can simplify the transfer of your real estate property: A deed transfers ownership of your real estate property automatically and bypasses probate. Therefore, a transfer by deed avoids you the delays and expenses of Florida probate.
  3. A transfer by deed can bypass both your creditors and your beneficiaries’ creditors: Property transferred through probate is subject to the claims of your creditors and the creditors of your beneficiaries unless the property transferred qualifies as your homestead.

Disadvantages of Using a Deed to Transfer Ownership

  1. A transfer by deed can place your home in jeopardy to other’s creditors: The Florida Supreme Court noted in Snyder v. Davis that there are three kinds of homestead that have the following purpose: preserve the family home for its owner and his or her heirs. One kind of homestead protects the home from forced sale by creditors. Sometimes families attempt to transfer their home by adding kids on to the house deed to avoid probate. These families face a problem when one or more of the owners mentioned in the deed do not live in the home. The problem is that the ownership percentage of the person not living in the home is subject to the claims of his or her creditors. The problem is aggravated when no ownership percentage is specified in the deed since Florida assumes that there are equal percentages of ownership to each person named on the deed. If a creditor takes an ownership in the home, then he can force the sale of the whole property. Therefore, adding someone to your house deed to transfer ownership of the property avoiding probate might leave you with nothing to transfer. The same scenario applies to those who try to transfer ownership of their house with a Florida life estate deed.
  2. A transfer by deed brings adverse tax consequences: There may be gift taxes or penalties associate with the failure to report the gift if the value is over the yearly gift tax limits.
  3. A transfer by deed can cause you to lose stepped up basis: This can cause a much greater income tax upon the sale of the property in the future.
  4. A transfer by deed might cause you to pay gift tax: If you do not receive payment for the transfer, then the IRS views the transaction as a gift and requires you to pay a gift tax. However, there are some exclusions to this tax.
  5. A transfer by deed can create a disqualifying transfer of assets for Medicaid purposes: This can be for as long as 5 years.

If you are trying to avoid probate in Florida and would like to also have protection for your homestead from creditors, not have adverse tax consequences, not lose stepped up basis, and/or not create a disqualifying transfer of assets for Medicaid purposes, you should contact a Florida Estate Planning Lawyer to discuss how to protect your homestead and the options available that deal with your circumstances and goals. To contact a Florida Estate Planning lawyer call the Law Office of David M. Goldman PLLC at (904) 685 – 1200.

What happens if I die without a will in Florida?

Florida probate law has changed recently with regard to people who die intestate (without a will) and are married.

If you have no descendants, your entire intestate estate will go to your spouse. This does not typically include your home or other non-probate assets.

If you and your spouse have descendants, and your spouse has no descendants other than those which are common to you, then again your spouse receives your entire intestate estate.

If you have children from a previous relationship your spouse will only receive one-half of your estate. The same is true if your spouse has children that are not yours and you have some children in common.

If you own a homestead with your spouse then the spouse will receive the homestead outright. If your homestead was only owned by you then your spouse will receive a life estate or may elect to take 50% of the home as tenants in common with your children. If your spouse does not elect to take the 50% ownership then your children will receive the remainder of the home.

This new election that the spouse has can create some problems or unexpected results that can be dealt with by using a will or trust in Florida.

While personal income tax returns and gift tax returns for taxable gifts made during 2011 are due on or before April 17, 2012, estate tax returns for decedents who died during 2011 are not due on April 17, 2012.

If a decedent who died in 2011 is required to file a federal estate tax return or a generation-Skipping Tax Return, it is due on or before nine months after the decedent’s date of death.

For example, if the death occurred on April 1, 2011, then IRS Form 706 will be was Due on or before January 1, 2012. If they died after April 1st you still have time to file the returns.

Do I need to file a return? This information will help you to determine if Form 706 is needed for a decedent who died in 2011:

If the Gross estate exceeds $5 million the a Form 706 must be filed for the estate of every U.S. citizen or resident who died in 2011 and whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $5 million. To determine whether a return must be filed, add:

  1. The adjusted taxable gifts (under section 2001(b)) made by the decedent after December 31, 1976;
  2. The total specific exemption allowed under section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after September 8, 1976; and
  3. The decedent’s gross estate valued at the date of death. (See Instructions for Form 706 for additional information.)

Should I Make the portability election. Even if the value of an estate of a decedent who died in 2011 does not exceed $5 million, the surviving spouse will want to consider filing IRS Form 706 in order to take advantage of the election to use the deceased spouse’s unused estate tax exemption.

Note: The estate tax exemption has dropped to 1 Million for 2013 so this will apply to many more people unless congress acts to change the estate tax and gift tax exemptions this year

In Florida when a Summary Administration is used to Probate an estate the Florida Probate must be converted to a Formal Administration to allow for a will contest.

There are time limits to object to a will so it is important to file documents timely. If the probate has not been opened in Florida it is possible to file a caveat. A caveat is a notice that is file in the probate court that allows you an opportunity to object to a will or the appointment of a personal representative. It is basically a notice to the court to give you an opportunity to respond before the court appoints a PR or admits the will for probate in Florida.

It is more difficult to remove a PR after they are appointed so if you feel that something is wrong, it is a good idea to file a caveat as soon as possible.

One a Florida Summary Administration Probate has been opened, it will need to be converted to a Formal Administration before you can object to the Last Will and Testament on grounds of undue influence.

While objections are not common in a summary administration there are circumstances when they may make financial sense. If you feel that a will was obtained by undue influence or created when someone lacked the capacity to create the will, you should contact a Jacksonville Estate Planning Lawyer or fill out the contact us form on this page.

John Buchanan has an article in Central Florida’s Agri-Leader which was published on October 24th which discusses the effects of the expiration of the estate tax exemption on farmers.

Many farmers end up loosing farms because of estate taxes and the inability of their families to become liquid enough to pay the estate tax bills. Over the past few years, the estate tax exemption has been high enough that many small farmers have not had to worry about this effect, but that could all change on January 1, 2013.

I was interviewed by John Buchanan about some of the potential solutions that small farmers could use to help insulate against the huge tax changes set to take effect next year.

One solution involves the purchase of life insurance to offset the taxes that will become due. Another solution involves a gifting strategy that takes advantage of the 5 million dollar gift tax exemption that is also set to expire 12/31/2012. There are other strategies, but you should discuss your objective and circumstances with an estate planning lawyer to see which options make sense for you and your family.

Phyllis Korkki with the NY Times wrote an article dealing with some of the problems our aging society has when they have no children or natural caregivers and ways to help deal with it. In the article, she quotes me in dealing with some ways you can use legal documents that can be prepared by an attorney to deal with giving someone legal rights to help you make decisions if and when you need it.

These documents can also help avoid a guardianship and limit the ability for some to hijack your assets and use them up with unnecessary fees.

Follow this link to the NY Time article or contact us to discuss how we can provide documents to help manage these situations for your, your friends, or your family.

florida-case-law.jpgIn the Florida case of Jervis v. Tucker, 37 Fla. L. Weekly D349 (Fla. 4th DCA 2012)

Bernice J. Meikle executed a revocable trust agreement in 1991, which she subsequently amended by executing a first amendment. Her trust, as amended by the first amendment,
provided that Meikle’s power to revoke or amend the trust would be suspended upon her being “adjudicated incapacitated by a court of appropriate jurisdiction.” The trust further provided that Meikle’s powers could be restored by an order of an appropriate court having jurisdiction over Meikle, or upon the issuance and receipt by the Trustee of a written opinion from two licensed physicians after their examination of Meikle.

Meikle was adjudicated incapacitated in 2000. On December 27, 2001, Meikle executed a second amendment to her trust without obtaining a court order authorizing the amendment or restoring her capacity to amend the trust,and without written opinions from two licensed physicians.

The second amendment attempted to reallocate the distribution of her assets. Meikle died in 2007 and the second amendment to her trust was subsequently challenged by beneficiaries under her first trust amendment. In granting a motion for summary judgment, the trial court ruled that the second amendment was “void and of no legal effect.” On appeal, Appellant argued that the record evidence showed that Meikle did not lack testament capacity when she executed the second amendment in 2001. The Fourth District found that the plain meaning of the trust agreement, as amended by the first amendment, required Meikle to either have her capacity restored by the court or through the written opinion of two licensed physicians.

Although the trial court had judicially restored certain of Meikle’s rights before her death, it had not restored her rights concerning her property. Moreover, at the trial level, Appellant only offered the opinions of one licensed physician in support of his argument that Meikle had testamentary capacity. Although Appellant also offered the opinion of a licensed nursing home health care administrator, the Fourth District noted this witness, even though possessed of expert experience, was without a physician’s license.

Therefore, because the unambiguous provisions of the trust had not been met, the Fourth District affirmed the trial court’s ruling that Meikle lacked the requisite testamentary capacity to execute the second amendment to her trust.

It is important to understand and comply with the terms of the trust when making changes. You not only have to comply with the trust but with state laws that may override the terms of the trust. In this case, the Ward did not have their ability to deal with property restored by the court nor did they have two doctors state that she was not incapacitated. Even with two doctors the court order determining incapacity would have seemed to have not restored the power to deal with property including her trust.

florida-case-law.jpgIn the case of Bowdoin v. Rinnier, 81 So. 3d 582 (Fla. 2d DCA 2012) The Decedent died intestate, leaving her husband, and a minor child as her sole heirs. Decedent’s mother, filed a petition for administration seeking her appointment as personal representative. The surviving spouse filed a counter-petition for administration seeking his appointment as personal representative. After hearing, the trial court granted Appellee’s petition notwithstanding husband’s preference in appointment under § 733.301, Fla. Stat., because the trial court determined it was in the best interest of all parties to appoint the Decedent’s mother as personal representative. On appeal, the Second District found the trial court’s decision was an abuse of discretion. The Second District reinforced the proposition that statutorily preferred individuals should be appointed unless the record shows the preferred person is unfit to serve. In this case, the Mother produced no witnesses or evidence at the hearing to show the husband was unqualified to serve. The Second District Court therefore reversed the trial court’s appointment of the mother and remanded the matter back to the trial court to conduct an evidentiary hearing to determine whether the decedent’s husband was fit to serve as personal representative.

asset-protection-cash.jpgIn Florida many parents create Life Estate Deeds with their children in an attempt to avoid Probate on their homes. A Florida Life Estate Deed is a document which changes the ownership of a home or other piece of real estate. Essentially it creates a present interest and a future interest. A traditional life estate would say something like this, ” I give my self and my spouse the right to live in the home as long as either of us shall live and the remainder to my child or children.”

This example would create a future interest that vests now in the child or children and a present interest or right to use the home for the parents or grantor. While there are many potential problems like loss of tax basis, penalties and interest for failure to do gift tax returns, loss of eligibility for nursing home coverage because of the gift, the issue we are concerned about here is the risk that the home could be lost to the creditor of the child or one of the children.

Here is how it works. If the child or children do no live in the parents home, it is not their homestead, even if they do live in the home, it cannot be their homestead because they do not have a present interest in the home. Remember the child or children only have a future interest in the home. A creditor can levy against that asset just like any other. There are tables that determine the value of a future interest based on the age of the parents, their life expectancy, and the current interest rates.

So besides all the other risks associated with transferring a portion of your home to a child, you may in fact transfer nothing to your child if they end up having a creditor take the child’s portion of the home.

There are ways of avoiding probate, reducing risks of loss to creditors, and receiving favorable tax status that may work in your situation but you should discuss these with a Florida Estate Planning Lawyer to see which options offer the best combination of benefits for your situation.

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