Winter Park Home Magazine / Issue 2 / 2013
Clients frequently ask how they should take title when purchasing real property. This question encompasses a consideration of the goals of each client, and if appropriate, the client’s need for asset protection.
If property is to be used as a primary residence, I generally advise that title be vested in the individuals’ names. This provides the buyers homestead protection from judgment creditors, and also allows the buyers to take advantage of the real property tax benefits associated with the homestead. If the buyers are husband and wife, and acquire title in their individual names, I typically recommend that the title be vested as husband and wife, in order to create a tenancy by the entireties. A tenancy by the entireties is a legal fiction, by which property is treated as owned by the married couple as a unit, and not in their individual capacities.
Judgments generally do not attach to homestead property. A judgment against one spouse, but not both spouses, also will not attach to entireties property. There are limited exceptions to this rule. For example, under recent case law a federal tax lien against one spouse attaches not only to entireties property, but also to homestead property. Generally speaking, however, judgments and liens against one spouse do not attach to property owned as tenants by the entireties.
Another benefit of owning property as tenants by the entireties is the survivorship feature – at the death of the first spouse the entire interest in the property passes automatically to the surviving spouse, without the expense of probate. The only requirements to clear title in the surviving spouse is the recording of the death certificate of the deceased spouse, and the execution and recording of an affidavit establishing that the husband and wife were continuously married from the date they acquired title until the death of the deceased spouse.
If the right of survivorship is not the couple’s intention, then an alternative form of tenancy should be recited in the deed. For example, the deed could state “to Michael Smith and Mary Smith, husband and wife, as tenants in common and not as tenants by the entireties.” In this example, Michael and Mary would each own a one-half undivided interest in the property. If Michael died, his one half interest in the property would need to be probated to determine the identity of his heirs, i.e the new owners of his one-half interest. The clearer the recitation of tenancy, therefore, the better the result. In this tenancy in common example, a judgment against either one of the spouses (unless the property is homestead) will attach to that spouse’s one-half interest in the property.
If no recitation is made concerning the form of tenancy, and the parties are married, then a tenancy by the entireties is presumed. If they are not married, and no form of tenancy is recited, the property will be owned as tenants in common. Divorce automatically terminates an entireties tenancy, and creates a tenancy in common. If the parties then remarry each other, the parties will remain as tenants in common unless a new deed from the parties to themselves is executed to recreate the tenancy by the entireties status.
A third alternative is to create a joint tenancy with full rights of survivorship, and is often used when purchasers are not married (to each other), and wish to create a survivorship benefit. For example, title is placed in Mary Smith and Amanda Johnson, as joint tenants with full rights of survivorship. Each will own a one-half undivided interest in the property. Unlike a tenancy in common, however, if Mary Smith were to die, her interest would automatically pass to Amanda – without the need nor the expense of a probate proceeding. A judgment lien against Mary Smith, during her lifetime (again, assuming that the property is not homestead) would attach to her interest while she is alive. If a judgment creditor failed to enforce its lien against Mary during her lifetime, then the lien would be extinguished at the time of her death – due to the survivorship feature of the joint tenancy. This would also be true of any voluntary lien that Mary may place on joint tenancy property. Prior federal tax liens and estate taxes, if any, are the exceptions, and will attach to the property even after the death of Mary.
When purchasing non-homestead property, buyers often should consider the benefits of placing title in a legal entity to protect their individual assets. Examples of legal entities vary, and individuals should consult with their attorneys to determine which legal entity will best serve their purposes. Corporations, for example, are one alternative form of business ownership, and consist of shareholders, a board of directors, and officers who are appointed by the board members or shareholders. The President typically is authorized to bind the corporation, and can execute documents on behalf of the corporation.
Conceptually, only the corporation is liable for its debts and obligations. In the event of a judgment against the corporation, the shareholders, officers, and directors typically do not incur any individual liability. Judgments against the shareholders, directors, or officers of the corporation, when entered in their individual capacities, also do not attach to the property owned by the corporation. There are, of course, additional costs and fees associated with the creation of a corporation (as well as any other legal entity that may be created by the purchasers). In addition, individuals should consult with their attorneys and accountants to determine any additional income tax liability that may be imposed as a result of vesting title in a corporation, or any other legal entity.
Examples of other commonly used legal entities that can own real property are general partnerships, limited partnerships, limited liability companies, and limited liability limited partnerships. Florida law sets forth the guidelines, rules and regulations for each of these entities.
In my next article, I will describe the mechanics and benefits of these additional legal entities.
If property is to be used as a primary residence, I generally advise that title be vested in the individuals’ names. This provides the buyers homestead protection from judgment creditors, and also allows the buyers to take advantage of the real property tax benefits associated with the homestead. If the buyers are husband and wife, and acquire title in their individual names, I typically recommend that the title be vested as husband and wife, in order to create a tenancy by the entireties. A tenancy by the entireties is a legal fiction, by which property is treated as owned by the married couple as a unit, and not in their individual capacities.
Judgments generally do not attach to homestead property. A judgment against one spouse, but not both spouses, also will not attach to entireties property. There are limited exceptions to this rule. For example, under recent case law a federal tax lien against one spouse attaches not only to entireties property, but also to homestead property. Generally speaking, however, judgments and liens against one spouse do not attach to property owned as tenants by the entireties.
Another benefit of owning property as tenants by the entireties is the survivorship feature – at the death of the first spouse the entire interest in the property passes automatically to the surviving spouse, without the expense of probate. The only requirements to clear title in the surviving spouse is the recording of the death certificate of the deceased spouse, and the execution and recording of an affidavit establishing that the husband and wife were continuously married from the date they acquired title until the death of the deceased spouse.
If the right of survivorship is not the couple’s intention, then an alternative form of tenancy should be recited in the deed. For example, the deed could state “to Michael Smith and Mary Smith, husband and wife, as tenants in common and not as tenants by the entireties.” In this example, Michael and Mary would each own a one-half undivided interest in the property. If Michael died, his one half interest in the property would need to be probated to determine the identity of his heirs, i.e the new owners of his one-half interest. The clearer the recitation of tenancy, therefore, the better the result. In this tenancy in common example, a judgment against either one of the spouses (unless the property is homestead) will attach to that spouse’s one-half interest in the property.
If no recitation is made concerning the form of tenancy, and the parties are married, then a tenancy by the entireties is presumed. If they are not married, and no form of tenancy is recited, the property will be owned as tenants in common. Divorce automatically terminates an entireties tenancy, and creates a tenancy in common. If the parties then remarry each other, the parties will remain as tenants in common unless a new deed from the parties to themselves is executed to recreate the tenancy by the entireties status.
A third alternative is to create a joint tenancy with full rights of survivorship, and is often used when purchasers are not married (to each other), and wish to create a survivorship benefit. For example, title is placed in Mary Smith and Amanda Johnson, as joint tenants with full rights of survivorship. Each will own a one-half undivided interest in the property. Unlike a tenancy in common, however, if Mary Smith were to die, her interest would automatically pass to Amanda – without the need nor the expense of a probate proceeding. A judgment lien against Mary Smith, during her lifetime (again, assuming that the property is not homestead) would attach to her interest while she is alive. If a judgment creditor failed to enforce its lien against Mary during her lifetime, then the lien would be extinguished at the time of her death – due to the survivorship feature of the joint tenancy. This would also be true of any voluntary lien that Mary may place on joint tenancy property. Prior federal tax liens and estate taxes, if any, are the exceptions, and will attach to the property even after the death of Mary.
When purchasing non-homestead property, buyers often should consider the benefits of placing title in a legal entity to protect their individual assets. Examples of legal entities vary, and individuals should consult with their attorneys to determine which legal entity will best serve their purposes. Corporations, for example, are one alternative form of business ownership, and consist of shareholders, a board of directors, and officers who are appointed by the board members or shareholders. The President typically is authorized to bind the corporation, and can execute documents on behalf of the corporation.
Conceptually, only the corporation is liable for its debts and obligations. In the event of a judgment against the corporation, the shareholders, officers, and directors typically do not incur any individual liability. Judgments against the shareholders, directors, or officers of the corporation, when entered in their individual capacities, also do not attach to the property owned by the corporation. There are, of course, additional costs and fees associated with the creation of a corporation (as well as any other legal entity that may be created by the purchasers). In addition, individuals should consult with their attorneys and accountants to determine any additional income tax liability that may be imposed as a result of vesting title in a corporation, or any other legal entity.
Examples of other commonly used legal entities that can own real property are general partnerships, limited partnerships, limited liability companies, and limited liability limited partnerships. Florida law sets forth the guidelines, rules and regulations for each of these entities.
In my next article, I will describe the mechanics and benefits of these additional legal entities.
This Article is not a substitute for hiring an independent attorney
to assist in the determination of the appropriate legal entity by
which a purchaser should acquire title to real property.
which a purchaser should acquire title to real property.
Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank’s legal practice has concentrated on complex real estate, tax and corporate transactions throughout Central Florida. Frank has been involved in the Central Florida community for more than thirty years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M from New York University School of Law in 1980.
