How Should Single, Unmarried Property Owners Title Florida Homestead? by Jeffrey M. Mutnik, CPA/PFS
Deciding how to title Florida homestead can be a vexing issue, especially for single property owners, including individuals who become unmarried due to death or divorce.
In Florida, homestead designation provides state residents with incredible benefits, including the ability to protect a primary residence from creditors as well as a Save our Homes assessment cap that limits the real estate taxes imposed on that property. When married couples hold joint title to a homestead property as tenants or tenancy by the entirety (TBE) or joint TBE (JTBE), there is a right of survivorship for each spouse. As a result, upon the death of one spouse, the home passes to the surviving spouse without the costly and public process of probate.
At that point, single, surviving spouses have several options for retaining homestead benefits and passing their properties to heirs outside of probate after their own passing.
Should heirs decide to sell an inherited property for cash, they may encounter challenges from the buyer’s title company, which may attempt to delay or stop the sale until it receives clear and convincing evidence that the decedent owned and occupied the property as his or her primary residence through his or her date of death. If the decedent left the property for even a brief period, perhaps to recover from surgery in a rehab facility or to move into a nursing home, the title company may not accept the property as being homestead through the eventual date of death. Without the protection of homestead designation, potential creditors could obfuscate the “clear title” heirs thought they inherited (i.e., free of potential creditor claims). To remedy this situation and provide a buyer’s title company with the necessary comfort to issue title insurance, heirs often wind up having to put a decedent’s home through the probate process. Even with the help of probate judges to move these matters through the court system as expeditiously as possible, it still costs heirs a considerable amount of time, money and publicity.
Another option many Floridians may use to pass their primary residences and homestead benefits to heirs is to put that property into a revocable trust. While a sale of the property as homestead may still be challenged by a title company, the grantor, or person who establishes the trust, can name successor trustees in the event the grantor becomes incapacitated or upon his or her death. A trust also provides grantors with the ability to potentially avoid Florida’s statute of equal inheritances of a homestead property to the decedent’s children, and instead specify how they wish to allocate beneficial interest in their homestead property (and other trust assets) among their heirs.
Alternatively, a single person can own homestead property and add one or more joint owners with rights of survivorship so that when the primary owner passes away, the property passes automatically to the surviving owner. Presuming that the decedent provided all the consideration to acquire the property, it will be included as part of his or her estate, and appreciation garnered during the decedent’s life will pass income tax free to the joint owner. At the same time, the joint owner/beneficiary of the property will receive step-up in the tax basis of the property to the value on the date of the primary owner’s death. If a sale of the property occurs soon thereafter, there should be no taxable gain or loss for the joint owner/beneficiary.
The Florida homestead exemption is a valuable tool for state residents, although it is not without complexities. Florida homeowners should meet with experienced financial advisors and tax accountants to understand how Florida homestead can impact tax liabilities and the administration of residents’ estates and the distribution of assets to their heirs at death.
About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director of Taxation and Financial Services with Berkowitz Pollack Brant Advisors + CPAs, where he provides tax- and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.
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