Does it matter how you hold title to property?
By Attorney Truman Scarborough
Title to property can be held a number of different ways: individually; jointly with or without survivorship; as husband and wife as “tenancy by the entirety”; in a corporation; in a Limited Liability Company (LLC); in a partnership (limited or general); and in various kinds of trusts. There are ownership interests that are only available with certain types of property: life estates and remainder interests with real estate; convenience accounts at banks (giving someone authority to sign checks without ownership rights); transfer on death (TOD) with stockbrokers and payment on death (POD) with bank accounts. There are unique ways of holding property for particular individuals, e.g. the Florida Transfer to Minors Act allows property to be placed in a custodial account for an individual under twenty-one years of age. Some property interests are created by the Internal Revenue Code, like IRAs, 401(k)s, 403(b)s, 457s, etc. Other properties, like the home, are given special treatment under Florida law.
In a series of articles, we will discuss the different ways property can be titled to accomplish estate planning objectives. Our goal might be to find a simple solution to avoid probate, qualify for Medicaid, limit taxes, protect assets from creditors, avoid conflicts, reduce time and expense in settling the estate. Unfortunately, there is no one way to title property to meet all these objectives. Each way of holding title addresses different concerns. Furthermore, in titling property a particular way to solve one problem may increase exposure to other problems.
We will begin our discussion by looking at individual ownership. The advantage of individually owned property is that no one else has direct access to help themselves to the property. Likewise, no one else’s creditors can reach the property to satisfy a judgment. Generally, if someone can access property because their name is on the title, their creditors can as well.
Another advantage is appreciated assets will receive a full “stepped-up-basis” at your death. This limits the capital gains taxes that have to be paid when it is sold by the beneficiaries. The gain is calculated by subtracting the “basis” from the sales price. If sold during your life the basis is the purchase price and the cost of any improvements. However, when property is inherited it obtains a “stepped-up-basis” which is the value at the time of your death.
There are problems with individual ownership. When someone dies no one is empowered to sign the deceased person’s name. A power of attorney cannot help since it ends with the death of the principal (creator). Assets in the decedent’s name can only be transferred through the probate court process. This can take six months or more from the time a petition is first filed with the probate court.
To avoid probate, you can use payment on death (POD) provisions for bank accounts and transfer on death (TOD) provisions for brokerage accounts. However, there is nothing similar for real estate without putting someone’s name on the title to your property. Some people provide for direct transfer of bank and brokerage accounts on their demise, but leave the home in their name which requires probate. This results in not having funds to pay for probate, utilities, taxes and insurance requiring the beneficiaries to advance their own funds to pay these expenses.
For further information on estate planning you may be interested in Attorney Truman Scarborough’s Booklet on Estate Planning in Florida. It is available without charge or obligation by calling (321) 267 – 4770. His office is located at 239 Harrison Street, Titusville, Florida.