Careful estate planning now can result in the minimization or elimination of gift, estate and income taxes on the transfer of your home to your heirs. Additionally, be sure to have a Will or Revocable Trust because failure to do so may result in your home passing under the Florida intestacy and Homestead laws
If you're a homeowner who is a firm believer that "your home is your castle," you should have a plan of action in place that will lay the groundwork for transferring your "castle" to your heirs. Because if you don't, the Internal Revenue Service and the State of Florida already have a plan – and you may not like the outcome. Below are few situations to consider.
Intestacy Law and Homestead Law
Without a properly drafted Will or Trust, the State of Florida has its own set of laws on who shall inherit your homestead. This is especially important if you are in a second marriage with no children or have children from a previous marriage. When anyone without a Will dies, the state's intestacy statutes kick in to govern who inherits.
Florida Homestead laws are in addition to intestacy laws, specifically stating who must inherit your homestead if are married or have a minor child. The law is designed to make sure you leave a roof over your spouse's head (or minor child). That means Florida Statutes will control who inherits your home. In a first marriage situation, this may make little difference. However, in a second marriage with children from a prior marriage it is essential to decide who you wish to inherit your home.
If you are married and you do not wish to pass your home outright to your spouse, then it is critical to enter into a marital agreement with your spouse wherein you waive the constitutional and statutory protection that would otherwise prohibit you from giving your home to someone other than your spouse.
Do not leave the disposition of your home to chance. If you enter into a properly drafted homestead waiver, then you are free to give your home to whomever you wish.
Joint Tenancy with Rights of Survivorship or Tenants by the Entireties
If you are married, you can choose to take title to your home in your name and your spouse's name. This will result in the property transferring directly to the survivor upon the first spouse to die. This may NOT be exactly what you want, especially when you ultimately wish for the property to transfer to someone else upon your spouse's death.
Joint Tenancy with Non-Spouse
You would guess that adding someone as a joint tenant would eliminate a lot of problems if you die. This may be true, but the act of adding another person to the title to your home may result in the loss of your homestead protection and the loss of your Save Our Homes exemption.
Capital Gains on the Sale of Your Homestead
There is an advantage to keeping your home until you die. If you pass your home to your family when you die, they inherit the property with an updated cost basis and any capital gain disappears. If you gift the home while you're alive, the person receiving the home may take your adjusted cost basis and therefore have a capital gains tax to pay upon the sale of the property. But before changing the title to your home, seek legal advice. The simplest solution may be the most complicated long-term.
These are just a few of the basic tips homeowners should know. Future articles will cover more advanced techniques to reduce or eliminate gift and estate taxes, including the use of a qualified personal residence trust, a spousal irrevocable trust or a charitable remainder trust.
Ed Wollman is a FL Bar board certified wills, trusts and estates attorney with 26 years' experience practicing in the state of Florida.