If one inherits a house by a Florida Last Will & Testament when the owner passes away with his or her name alone as the owner on the deed, in order to sell it, the inheritor will need to go through the Florida probate court.
Florida does not have an inheritance tax or estate tax. A beneficiary (by Last Will) or heir (without a Last Will) of a deceased person in Florida does not owe any state taxes on inherited property.
Accordingly, to transfer real property from an estate to an heir or beneficiary, the executor or Personal Representative issues and records a deed of transfer in the name of the new owner(s). If the property was held in a trust, then the Trustee will issue the deed to the new owner as directed by the terms or provisions in the declaration of trust by the trustee.
In Florida, there are no separate property taxes, but beneficiaries or heirs will owe federal taxes if the inherited property is sold after transfer. The heir or beneficiary should only owe taxes on the gains (i.e., capital gains) of the property, or if it increased in value from the point of transfer until the point of sale.
With a Lady Bird Deed, under Florida law, when a person dies, the remaindermen (like a designated beneficiary on real property) automatically take possession of the property. No other disposition is legally necessary. Since they inherit by deed in Florida, the said remaindermen are not subject to probate.
It is generally better to receive real estate as an inheritance rather than as an outright gift because of capital gains implications. That is because of the cost basis, which is the cost of the property used to determine the capital gain, if any, when it is transferred. One must pay Capital Gains Tax if they decide to sell the property that was inherited, or a second home or buy-to-let property, in the future. If the property has increased in value since it was inherited or bought it, then the Capital Gains Tax will be deducted from the profit.
As the recipient of an inherited property, one will benefit from a step-up tax basis, meaning they will inherit the home at the fair market value on the date of inheritance(death of the prior owner), and they will only be taxed on any gains between the time the said property was inherit and when it was sold.
The surviving spouse may inherit everything if there are no children or all children are common to both the said spouse & the deceased party. However, if one dies with children or other descendants from the deceased and the surviving spouse, and the surviving spouse also has descendants from previous relationships a different result will occur. Consequently, the surviving spouse inherits half of the intestate (without a Will) property and the descendants inherit the other half.
Florida will afford all intestate heirs an equal share of the estate’s property, which is legally known as “per stirpes.” For example, if a deceased party has four biological and/or adopted children and they were deemed the sole legal heirs to one’s property, each of them would receive 25%.
If one’s heir wishes to mortgage, sell, or rent out the entire property, they must obtain consent from all of the other heirs, yet an heir can sell their individual interest, even to an outsider, without the consent of other heirs.
State laws may vary slightly, but the typical scheme of most states, including Florida (§732.101 to §732.111), is that intestate property passes in this order: spouse, descendants (children or grandchildren), biological and adopted, parents, grandparents, and siblings (and children of deceased siblings).
Formal administration is the more involved form of Florida probate. Formal administration is required for any estate with non-exempt assets valued at over $75,000 when a decedent died within the last two years.
Non-probate assets encompass jointly held property (land, bank accounts) or assets with beneficiary designations or with payable on death designations (life insurance, annuities IRAs).
Exempt property shall consist of: (a) Household furniture, furnishings, and appliances in the decedent’s usual place of abode up to a net value of $20,000 as of the date of death. (b) Two motor vehicles as defined in Stat. 316.003, which do not, individually as to either such motor vehicle, have a gross vehicle weight in excess of 15,000 pounds, held in the decedent’s name and regularly used by the decedent or members of the decedent’s immediate family as their personal motor vehicles.
The favorable aspect is that one could gift their home to their children and if they lived for at least seven years after the gift was made, it would be removed from their estate and no inheritance tax would be due.
In the state of Florida, a $25,000 exemption is applied to the first $50,000 of their property’s assessed value if the property is their permanent primary residence and they owned the property on January 1 of the subject tax year. This exemption applies to all taxes, including school district taxes.
If a person dies before executing a deed to transfer assets to a new owner, the said property will be distributed pursuant to the provisions in the Last Will after probate is concluded. Dying without a Last Will results in intestacy, which requires the court to distribute the deceased party’s assets following Florida’s intestacy laws(i.e., to next of kin).
Inheritances are not considered income for Federal Tax purposes, whether one inherits cash, investments, or property. However, any subsequent earnings on the inherited assets are taxable, unless it comes from a tax-free source.
Selling at lower than fair market value means that an individual will have to report the gift to the IRS. Under IRS rules, as of 2022, one can provide a gift of up to $16,000 as a gift of equity before one (the donor) has to pay gift taxes. As the seller and gift-giver, one must pay the gift tax.
There are several ways to avoid paying capital gains tax on inherited property: Sell the inherited property quickly; Make the inherited property one’s primary residence; Rent the inherited property; Disclaim the inherited property and Deduct selling expenses from capital gains, among others.
Again if a person dies without a will or trust and has assets in their name ONLY, then probate is required to distribute property and monies.
A Florida Lady Bird deed, also known as an Enhanced Life Estate Deed, was created to allow property owners in Florida to transfer property to others automatically upon their death while maintaining use, control and ownership while alive.
As an example, unless the Last Will explicitly states otherwise, inheriting a house with siblings means that ownership of the property is distributed equally. The siblings can negotiate whether the house will be sold and the profits divided, whether one will buy out the others’ shares, or whether ownership will continue to be shared. However, under Florida law, if the siblings cannot agree, and any of the siblings want to sell the house they inherited, they can use a legal proceeding known as a “partition action” to force the sale. This legal proceeding is both expensive and time-consuming.
An executor or Personal Representative of the probate estate can sell the house as soon as it is transferred into their legal possession. The job as Florida Personal Representative is to protect estate assets during probate. So, one does not want to wait too long to sell the house after the person dies.
Under Florida law, a Last Will & Testament can be voided if the said Last Will was procured by fraud, duress, or undue influence. A person must file a petition in a probate court case to contest a Florida Will.
In most circumstances, there will need to be a court order to transfer the property. In Florida, that means opening a probate court proceeding or administration. In the state of Florida, probate is a court proceeding that is filed in the county where the deceased person last resided. The two types of probate are summary and formal administrations.
If probate is not filed, the probate court will not distribute the assets of the estate. The probate process provides a legal mechanism for resolving disputes over the estate, and without it, beneficiaries or heirs may have to resort to litigation to assert their rights.
There are key assets that are protected from creditors in Florida which include: A homestead property, with some acreage limitations; The wages of someone who qualifies as head of household; Annuities; Life Insurance cash value; Retirement Accounts, and Tenants by entireties property when the judgment is against one spouse in a marriage(not both).
Property which is jointly owned with a survivorship right will avoid probate. If one owner dies, title passes automatically to the remaining or surviving owner. There are several joint ownerships- with rights of survivorship for anyone and Tenancy by the Entirety for spouses/married couple.
A Florida homestead is not subject to probate. Probate proceedings involve only assets subject to creditor claims. The Florida homestead is exempt from creditors, so it is not part of the probate estate. Therefore, title to a Florida homestead transfers to heirs quickly (at the time of owner’s death) without waiting for the completion of probate proceedings.
Florida is one of the few states that allow enhanced life estate deed or Lady Bird deeds. These deeds allow residents to preserve their eligibility for Medicaid during their lifetimes while keeping valuable assets in the family. After death, the real property named in a Lady Bird deed passes automatically to beneficiaries without probate, which means that assets cannot be taken by the state to recoup any Medicaid benefits used by the decedent.
Again the decedent’s homestead is not part of the probate estate, because it is not subject to creditors. However, the Personal Representative of the deceased’s estate often needs to obtain a court order stating that the property was the person’s homestead/primary residence, particularly if the family plans to sell the former homestead. The heirs can request or petition a court to issue an Order Determining Homestead Status of Real Property.
Title companies will not insure the sale of a deceased party’s homestead unless the title examiner is sure that the property legally qualified as an exempt homestead, free of potential creditor claims and the heirs or beneficiaries are determined.
A title company knows from the public records that a deceased parent owned their home. However, it may not be clear from the public records that the residence was, for example, the parents’ homestead because public records do not indicate whether an owner resided in a property at or before death. Even though the owner may have previously applied for a homestead tax exemption, there is nothing recorded in the real estate or Official public records identifying the occupant of the subject property. The deceased parent may have abandoned residency before death; for example, the parent may have been living with a child and may have rented the former homestead property to a tenant to get rental income to live on.
Title companies regularly insist on or require a court order that the property was the owner’s homestead through death when the deceased owner had creditors. A court order requires a court proceeding, and the appropriate court proceeding is a probate. As a result, surviving family members wanting to sell the parents’ former primary residence may have to open a probate proceeding even if the parents conveyed the house to a living trust and there are no probate assets.
The sole purpose of the probate is filing a court petition to declare the deceased’s residence to be their exempt homestead. The probate court routinely grants an order determining homestead status. This order ensures that the house is exempt from unknown claims and leads a title insurance company to issue insurance to potential buyers and their mortgage company.
There are a few states that levy taxes on the estate of the deceased, generally referred to as the inheritance tax (or the death tax). Fortunately, Florida does not have a separate state inheritance tax. Even further, heirs and beneficiaries in Florida do not pay income tax on any monies received from an estate because inherited property does not count as income for Federal income tax purposes (and Florida does not have a separate state income tax).
If an asset does not have a named beneficiary or remainderman, or rights of survivorship, it will probably have to go through probate to change or transfer ownership pursuant to the Florida Probate Rules (2023). The most common assets that go through this process are bank accounts, real estate, and certain personal property.
The foregoing is just a general overview of the subject of Real Estate and Inheritance in Florida.
If you have any additional Questions regarding the foregoing or have any legal issue or concern, please contact the law firm of CASERTA & SPIRITI in Miami Lakes, Florida.