Real estate encompasses not only one’s primary residence but also other real estate, such as a vacation home. The ideal form of ownership varies depending on the type of real estate you own. Below, we take a look at the different types of real estate
Florida has a concept that many other states do not have: homestead. To receive the Florida homestead exemption, the home must be your permanent residence or the permanent resident of a dependant who you claim on your taxes. You cannot rent the property for more than 30 days in a calendar year, and you must live on the property as of January 1 of the tax year. For example, if you want to claim the homestead exemption in 2020, you must have lived in the property on January 1, 2020. Otherwise, you must wait until the following year (2021). When you die, if the home is your homestead, the home is exempt from creditor claims (subject to a mortgage, taxes, liens, or other encumbrances). If you have taken the property with your spouse (called “tenants by the entireties”) or as joint tenants with rights of survivorship (one owner dies, the other inherits the whole thing), your home still has the homestead exemption. Many people run into trouble when they have taken property with another person but do not have the correct ownership on the deed. Property owned with another person and without either of the above designations is called “tenants in common” and when one person dies, a probate may be required for that person’s share of the home.
For some families, their vacation home has not only high monetary value but also significant emotional value. Ownership of a vacation home by a trust or limited liability company (LLC) can be advantageous because it addresses two main priorities: ease of transfer to the next generation and asset protection.
With a trust or LLC, you are able to establish rules for how the property is to be used and maintained, as well as designate what is to happen to the vacation home once you pass away. This can be a great solution if you want to ensure that the vacation home stays in the family for generations with minimal family conflicts.
An additional benefit of having an LLC own your vacation home is that it provides limited liability from outside claims. If a judgment is entered against the LLC, the creditor is limited to the accounts or property owned by the LLC to satisfy the creditor’s claims and cannot look to your personal accounts or property or those of the other members. Also, if a judgment is entered against you or another member for a claim unrelated to the LLC, it will be harder for a creditor to force a sale of the vacation home. This can be incredibly helpful if you wish to pass the vacation home on to the next generation without worrying about the individual financial situation of each new member.
Note: In some states, a single-member LLC (an LLC in which you are the only member) does not enjoy the same protection from your personal creditors. The rationale of these laws is that your creditors should be able to seek relief through your LLC interests to satisfy their claims because there are no other members that will be negatively impacted by seizure of money and property owned by the LLC.
If the vacation home has been in the family for many years, it is important to consult with an estate planning attorney and your tax advisor to make sure that transferring your vacation home to a trust or LLC will not cause an increase in your property taxes or other unintended consequences.
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Whether you are concerned about your primary residence, family cabin, or rental property, we are here to assist you in protecting your valuable property. Given the various considerations for selecting a form of ownership, it is important to have the right advisors helping you along the way. Give us a call at 727-371-9769.