When working with an estate planning lawyer, you likely are interested in simplifying your affairs, avoiding taxes, and preserving your assets for your heirs. In many cases, your goal is to ensure your loved ones avoid the expense and time involved in probate proceedings after you pass away. A Florida estate planning lawyer from Kramer Green can help you determine the best methods to avoid probate based on your circumstances.
Adding an adult child to the deed to real estate that you own can prevent the property from going through probate. For instance, when two parties own real estate as joint tenants with rights of survivorship, the real estate automatically passes to the surviving owner when the other owner passes away, without any need for probate proceedings. In this respect, adding your adult to your real estate deed seems practical and can make sense. However, you should consider various other factors in making this decision, some of which may not make adding your adult child to your real estate deed a good idea.
Losing Protection from Creditors
First, Florida has one of the country’s most generous homestead asset protection laws. Under Article X, Section IV of the Florida Constitution, you can protect up to one-half acre of contiguous land in a municipality and up to 160 acres in an unincorporated area , containing a home of unlimited value from the reach of creditors.
However, if you add your adult child to the deed to your property (assuming that your child does not live on the property), a portion of your property loses its character as a homestead. As a result, half your property now could be subject to the reach of the child’s creditors. For instance, if your adult son caused an accident, was sued, and an injured party obtained a large judgment against him, the creditor could try to attach his interest in the property to pay the judgment. His interest in the property also might be subject to liquidation by a bankruptcy trustee in bankruptcy proceedings or property division in a divorce.
Unexpected Tax Implications
Adding your adult child to the deed to your property may result in unexpected and unwanted tax implications.
Capital Gains Taxes
One major issue that can arise from this situation is capital gains tax. For example, when you add a child to the title of your property, your child receives a transferred cost basis for the value of the property or the value that you originally paid for the property. However, if the property is sold, your child may owe capital gains tax on the share of the property that he or she received from you.
Conversely, if your child had inherited the property, he or she would have received it with the basis set at the date of death value. Unless your child sells the property for more than its date of death value, your child will owe no capital gains tax, which can be quite a tax savings in many instances.
Gift Taxes
When you add an adult child to the deed to your property, you are making a gift to them or transferring property to them and receiving nothing, or less than full value, in return. The Internal Revenue Code requires you to file a gift tax return if you make a gift worth over a certain amount in a year ($17,000 in 2023).
Most people will not owe gift taxes for adding an adult child to the deed to their property, as the gift tax exemption for 2023 is $12.92 million. However, the gift tax exemption is directly tied to the estate tax exemption, and the amount of those exemptions has fluctuated quite a bit over the years. As a result, the applicable gift tax exemption is always a factor to consider.
Control Over the Property
While adding your adult daughter to the deed to your home may seem ideal at the time, it can prove to be less than ideal in some circumstances. For instance, suppose you decide later in life that the property is too much to handle and want to sell it. Since your daughter is now a co-owner of the property, you need her permission to sell the property. However, if your daughter doesn’t want to sell the property because she wants to inherit it after your death, your only option would be to sue your daughter to force the sale of the property, which can be expensive and highly damaging to your family relationships.
Look to Kramer Green for Help in Avoiding Probate
The Florida estate planning attorneys of Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A. are prepared to assist you and your family through every step of creating the estate plan that best meets the needs of you and your family. We know how to most effectively and efficiently draft an estate plan that achieves your goals, protects your heirs, and avoids the time and cost involved in probate proceedings.
Our objective is to guide you through the complex legal matters that estate planning can involve. In addition, we want to help you lessen the burden on the surviving loved ones you will leave behind. Contact our office today at (954) 966-2112 or reach out to us online to schedule a time to discuss your legal estate planning issues with our attorneys.