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 rights, 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. Each way of holding title addresses different concerns. Our goal might be to find a simple solution to avoid probate, qualify for Medicaid, limit taxes, protect assets from creditors, or avoid conflicts. There is no simple way to tile property to meet all these objective. Furthermore, 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 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 plus 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.

With individual ownership, a problem does arise at the owner’s demise. When someone dies, no one is empowered to sign the deceased person’s name. A Power of Attorney does not help since it works only while the creator is living. Frozen in the decedent’s name, the asset 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 the time and expense of 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. Sometimes people provide for direct transfer of accounts on their demise, but leave real estate that must be probated. When there are no funds in an estate to maintain the property and pay for probate administration, someone will have to advance their personal funds.

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.