Owning Real Property in Florida may appear simple but in fact it can be a mind field for those in particular situations, such as married couples, older single out of state owners, Canadians (and other foreigners), owners of multiple investment properties, and unmarried couples. Without proper planning, a wrong decision can lead to unnecessary probates, judgments, tax withholding and other undesired consequences. The following is a basic primer on estate holding, but it should only be a starting point, and all readers are encouraged to discuss the best method for property ownership with their legal and tax professional.
The Three Estates: In Florida, the law recognizes three distinct estates for multiple owners of property. Two are derived from common law, and the third, tenants by the entireties (TBTE) is distinct to Florida and about half of the states in the US. The traditional estates are Tenants in Common and Joint Tenants.
Ownership as Tenants in Common (TIC) means that each owner owns a distinct percentage as stated in the deed. If not stated, then it is presumed to be equal shares, two owners means each owns fifty percent, four owners means each owns twenty-five percent. TIC owners can freely convey their interest without affecting the nature of the estate, and upon the owner’s death, their TIC interest passes to their heirs at law. Creditors can encumber a TIC interest, either voluntarily through a mortgage, or involuntarily through a judgment. To create a TIC interest in Florida the deed need merely recite the grantee (buyer’s) names, and no statement of interest is required. For example, John Smith and Dave Brown, grantees, creates a TIC estate.
Ownership as Joint Tenants traditionally meant that the owners share equally in the ownership of the entire property. To create a joint tenancy, four specific elements are necessary. The joint tenants must own an undivided interest in the property as a whole and their share must be equal (TIC owners can have variable ownership). (2) The estates of the joint tenants are vested must be for the same period of time. (3) The joint tenants hold their property under the same title. (4) The joint tenants all enjoy the same rights of possession. Traditionally, merely stating John Smith and Dave Brown, joint tenants, as grantees, created the Joint Tenant estate. However, Florida courts have long rejected that rule, requiring magic additional language to create the estate.
The magic language is “with rights of survivorship” added to the joint tenant language. John Smith and Dave Brown, joint tenants with rights of survivorship would create the necessary estate. The main benefit of the joint tenancy is that upon the death of one tenant, the property passes outside of the deceased owner’s estate to the other owner and no probate is required. Joint Tenancy does not act as a creditors protection scheme and creditors can lien and foreclose a joint owner’s interest. Joint Tenancy is usually the best option for owners with a common interest through family or for same sex couples. After death, the recording of death certificate and a non-tax (estate) certificate will generally clear title in the surviving joint tenant.
The final estate in Florida is Tenancy by the Entireties (TBTE). This estate must be created with the same conditions as a joint tenancy, but is only available to married couples. The magic language can be John Smith and Mary Smith, husband and wife, or John Smith and Mary Smith, his wife, Mary Smith and John Smith, her husband, or even John Smith and Mary Smith, as tenants by the entireties. The TBTE estate has the same survivorship interest as the joint tenant estate but also adds a creditor’s protection that only applies to married couples holding title as TBTE. For example, a couple owns three rental homes in Florida in addition to their homestead. If one spouse is sued and a judgment is entered against that spouse, the judgment will not attach or become a lien against the property. Thereafter, as long as they remain married or the non-judgment spouse survives the judgment spouse, the lien will not attach against the property. However, if the parties get divorced, or the judgment spouse survives the non-judgment spouse, the lien can attach.
We frequently see mistakes in planning with TICs created when the new owners, had they known would have either selected a joint tenancy or even a TBTE estate. Knowing your options and planning when purchasing can avoid these problems.