After purchasing a second home in Orlando, some buyers decide they want to change how they took title to the property by adding a family member or spouse, or even transferring the property to a corporation or trust. However, it’s important to know that such a transfer could create unintended tax liabilities. That’s why Team Donovan recommends that you consider how to take title to a property before you enter into a purchase contract.
There are several ways to take title to Florida real estate. Each variation has its own potential advantages and limitations. Here are the most common options to consider when buying an Orlando vacation home:
1. Sole Ownership – Buyers who wish to hold property in their own names may use this form of ownership. However, married people who wish to hold property in their own names may have to take an additional step if the property they’re buying benefits from a homestead exemption. In that case, Florida homestead laws require the other spouse to sign the deed for the transfer or otherwise formally relinquish rights to the property.
2. Joint Ownership as Tenants in Common – In this form of ownership, any number of people can hold title with the share of the property owned depending on the person’s contributions. In addition, each owner has the right to sell, lease or give away at death their interest in the property.
3. Joint Tenancy with Right of Survivorship – Any number of people can hold title to a property in this type of ownership. However, unlike Tenants in Common, all owners have equal rights to their share in the property. Another major difference between this form of ownership and Tenants in Common occurs when a joint tenant dies. In this case, his or her share is automatically distributed among the remaining joint tenants.
4. Tenancy by the Entirety – This form of ownership is only available to married couples. It allows the couple to hold title to the property in the name of both spouses. Each spouse has equal possession rights to the property, and when one spouse dies, his or her share is automatically distributed to the surviving spouse.
This type of title offers several advantages to the real estate buyer. For one thing, it protects the asset if a creditor pursues a judgment against one spouse. Another benefit is that it offers control over how a property is disposed of. In this instance, unlike with Tenancy by the Entirety, both parties must sign a deed transferring any interest in the property. One spouse cannot act without the other’s consent/signature to sell, dispose of or mortgage the other’s one-half interest in the property. One spouse also cannot gift their interest in the property to someone else without the consent/signature of the other spouse. This stipulation protects the other spouse from unknowingly losing an interest in the property.
5. Ownership through an Entity – Sometimes, it may make financial sense for a person or persons to own property through a separate legal entity, such as a corporation or limited liability company (LLC). A corporation and LLC can have any number of shareholders or members. But the rights to the property of individual shareholders or members will be limited to the face value of the shares or membership interests that each person holds. A legal partnership may also hold title to a property in Florida. In this instance, the partners would have equal right to possession of their respective share of the property.
6. Ownership through Land Trust – If a property buyer wishes to keep his name off the public records, he or she may choose to hold the title in the name of a Florida Land Trust. In this type of ownership, legal title of the property is transferred to a trustee for the benefit of the named beneficiaries. As a result, the deed does not state who the owner is or the amount of the purchase price.
As with any real estate transaction, it’s wise to consult an attorney and financial adviser before purchasing a home to see what options make the most financial sense for you. This is especially important if your primary residence is outside of the United States, since tax laws are different here.
At Team Donovan, we have a mix of European and American-born agents who can help you navigate your real estate transaction, wherever you live. Contact us at 407-705-2616 so we can help you find your ideal Orlando vacation home.