Sometimes, homeowners want to consider the idea of adding a family member or someone else to the title deed of their property. Often, this notion is based on the idea that making that person an owner of the property now will help make succession easier later on. While that may be true in some cases, there are significant risks and liabilities associated with adding someone’s name to your property deed.
Potential Loss Or Reduction Of Homestead Exemption
The Florida State Constitution, Article X, Section 4, exempts properly designated homestead property from forced sale under process of any court. This exemption was created to prevent people from losing the homes they live in to creditors and allows homestead property to be transferred to your spouse and/or children free from creditor claims upon your death. If the person you add to the deed for your primary residence does not live there (for example, an adult child), your homestead exemption is reduced by half, because there are now two owners, but only one of them resides in the house. Adding a non-resident to the title weakens your Homestead Exemption protection.
Financing & Tax Issues
If your home is mortgaged or you’re using a HELOC (Home Equity Line Of Credit), you may discover that it violates the terms of that mortgage or HELOC to transfer interest in the home to another person by adding them to the property deed. Even in cases where the lender allows such a transfer, you may owe money for new documentary stamps. If you later want to sell or refinance the house, you will need signatures from every person named on the property deed. If your co-owners don’t agree to the sale or refinance, you’re either going to be stuck, or facing the prospect of taking them to court. Finally, it is likely that the person you add to the property deed will ultimately pay more income tax when the property is sold after you are deceased because they lose the stepped-up tax basis they would have had if they’d inherited the property through probate or a trust.
When you add someone to the property deed of your home, the home becomes that person’s asset, in addition to being yours. That means that if your new co-owner files bankruptcy or has a judgment filed against them by a creditor, the house is an asset that can be encumbered by their creditors, despite the fact that it’s your primary residence.
Keep Your Homestead Exemption Protection Intact
The relative simplicity of adding your heir’s name to the property deed for your home may seem appealing, but for most people, it’s not the best solution. The real estate attorneys at Overstreet, Miles, Cumbie & Finkenbinder can help you find the option that best protects you and your assets now, and eases the cost and hassle of succession for your heir later on. Call us or contact us online for a consultation, and learn more about your options.