Considerations for Types of Property Ownership

There are many ways real property can be titled or owned. The following are the most common ways property is titled and/or owned. It is strongly suggested that you speak to a real estate attorney to determine the best way to title your property given your specific circumstances.

NOTE: The Florida Constitution allows for arguably the broadest “Homestead Exemption” in the country. This however is not automatic. You must apply with the property appraiser in your county to take advantage of the exemption. Homestead limits annual tax increases, reduces tax liability and provides protection for your property from many types of creditors. The most common exceptions to protection from creditors are the mortgage(s) on the property, property taxes, condo/homeowner associations, and materialmen/subcontractors providing materials/labor for repairs/modifications/upgrades to the property.

Homestead also has advantages in probate. If a person dies and their property is homesteaded, the heirs can petition the court in probate for an order determining homestead. This process takes on average around 150 days due to the publication requirements of Florida law. The property will usually be protected from unsecured creditors but will still be subject to certain creditors like mortgages, property taxes, associations, etc.

Considerations for minor children: It becomes a significant issue if a minor child becomes the owner of real estate in Florida. Unfortunately, this situation can arise upon the unexpected demise of the minor child’s parent(s).  The minor child cannot enter into a contract so the minor cannot rent or sell the property. Absent proper planning, a guardianship may need to be filed with the court to establish a guardian that can act on behalf of the minor child. This can be not only expensive to establish but expensive to maintain as annual accountings will be required and it may require court orders to remove monies from the guardianship. Properly written trusts avoid this situation.

The most common types of ownership are Individual ownership, Tenancy by the Entireties, Tenancy in common, Joint Tenancy with right of survivorship, Enhanced Life Estates, ownership through an LLC or corporation and ownership through a Trust.

Individual Ownership

This is where a single person owns the property in their sole name. This does not provide any protection from creditors and is not an estate planning tool. If the property is the person’s residence, then they can apply for homestead. Once homestead is established, they have protection from many types of creditors and if they pass away their heirs can petition the court in probate for an order determining homestead.

Tenancy by the Entireties

This can only be created between married persons. The deed must include the marital status of the owners. Each owner has an undivided ownership interest in the property. Upon the demise of either owner, the then living owner records certain documents in the public records and they are the sole owner of the property. There is no need for probate. If the property is the primary residence of the owners, then they also must apply for homestead. When the second owner passes away the property will be subject to probate just like “Individual Ownership” listed above. Tenancy by the Entireties also affords some protection from creditors because judgments against one owner may not attach to the property. Tenancy by the entireties property can be placed into a revocable trust without restricting the ability to homestead the property.

Tenancy in Common

This is where a property is owned by more than one person, and they are not married. Each person has a percentage ownership in the property. If the deed is silent as to the percentage of ownership, then it will be deemed, absent some other agreement between the owners, that they each have an equal ownership percentage. This property can be completely or partially homesteaded depending on the principal residence of each owner. Many times, this is not the preferred type of ownership because issues can arise when one owner passes away, one owner wants to sell and another does not, or a judgment or lien is recorded against one of the owners.

Joint Tenancy with Right of Survivorship

This is where a property is owned by more than one person, they are not married, and the owners agree (at the time they take ownership) that when one owner passes away their ownership interest in the property will pass to the other owner(s). The words, “with rights of survivorship” must be included in the deed. This type of ownership does avoid probate. However, this type of ownership may also create issues like a Tenancy in Common if one owner wants to sell or has a judgment or lien recorded against them.

Enhanced Life Estates

This type of ownership is also called a “Lady Bird Deed”. The owner executes a special life estate deed which names a remainderman or remaindermen and reserves not only a life estate but also certain other rights. If properly created, this deed allows the “Life Tenant” to mortgage, sell, rent and/or otherwise dispose of the property. However, if the “life Tenant” owns the property when they die then the listed remainderman(men) become the owners without probate. The “Life Tenant” can homestead the property. This type of deed is used in some estate planning models because it avoids probate, however, consideration should be given to whether a minor child could become a beneficiary of the deed.

Trust Ownership

Trusts can be revocable or irrevocable. Many trusts will not adversely restrict the ability to homestead the property. Trusts allow for an adult to be named the Trustee of the property even if a minor child becomes the beneficiary of the trust. Trusts can also be written to control when and/or at what age a beneficiary will receive monies from a property. Trusts can be written to allow for the property to be sold and the proceeds held in trust after the sale. Trusts can be written so that use of proceeds from the sale can be restricted and protections from the beneficiary’s creditors can be included in “Spend Thrift” provisions.

LLC/Corporate Ownership

Many investors will use an LLC or corporation to protect their other assets from creditors of the property. This is a protection from liability tool as well as a tax planning tool. This is not usually an estate planning tool. However, many investors that own their properties in LLC’s or corporations also use a trust to act as the member in an LLC or owner in a corporation to establish an estate plan as well. Property owned in an LLC or corporation cannot be homesteaded.