THE PERILS OF PROBATE

By:  Robert J. Myers, Esquire

In an attempt to avoid probate when she dies, Mary decides to put her son's name on her two
hundred thousand dollar home. Mary recently was involved in the probate of her husband's estate
when he died and Mary wanted to make sure that her son, Al, did not have to experience the same
expensive procedure on her death. After the deed was recorded on the home, Al became a joint
owner with his mother.

Since Al is now legally recognized as a part owner of Mary's home, Mary no longer has total control
of the real estate. In fact, Mary must get Al's consent and signature before she can list the home for
sale, enter into a lease of the home or put a mortgage on the home. In addition, Mary runs the risk
of losing fifty percent of her homestead exemption which would then increase  the amount of taxes
on the home. Since Al is now a part owner of the home, his creditors could potentially make a
claimagainst the home because it is now one of his assets.
         
By giving Al a half-interest in the home, Mary has made a gift of one hundred thousand dollars to
Al. The Internal Revenue Service only allows individuals to make tax-free gifts of up to twelve
thousand dollars per year. As a result, Mary is required to file a gift tax return and her estate may
have to pay gift taxes upon her death. In addition, if there is a mortgage and note on the home,
each time Mary makes a mortgage payment, she is considered to be making a gift to Al.

Mary could have avoided all of these potential problems. She could have retained the home only
in her name and passed the home to Al under the State of Florida's Homestead Law which allows
that one's solely owned homestead property goes directly to her child or children upon death.

If Al inherits the home upon Mary's death, Al would then own the home at its "stepped-up basis.
" What that means is that Al's cost is only the fair market value of the home on the date of Mary's
death. If Al were to then sell the home he would have little or no income taxes to pay because of
reduced profits resulting from the stepped-up basis in the home. On the other hand, if Mary deeds
a one-half interest in her home to Al during her lifetime, Al's basis in the home would be what
Mary paid for the home which could potentially be far less than today's market value. In this case,
if Al sold the property, he would likely would have a sizeable profit on which taxes would have to
be paid.

All considered, Mary's desire to avoid probate expenses by deeding part of her home to Al during
her lifetime could have some less than favorable consequences for both Mary and Al.

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Robert J. Myers is managing attorney of the Estate and Trust Division of  Maney l Gordon P.A.,
located at 1135 Pasadena Avenue South, Suite 140, St Petersburg, Florida. The telephone number is 727-347-5131.  Mr. Myers welcomes calls regarding these articles and other related legal topics.  This column outlines general legal principles and is not intended to give you legal advice. If youhave a specific question about the law, please consult an attorney.