In Florida many parents create Life Estate Deeds with their children in an attempt to avoid Probate on their homes. A Florida Life Estate Deed is a document which changes the ownership of a home or other piece of real estate. Essentially it creates a present interest and a future interest. A traditional life estate would say something like this, " I give my self and my spouse the right to live in the home as long as either of us shall live and the remainder to my child or children."
This example would create a future interest that vests now in the child or children and a present interest or right to use the home for the parents or grantor. While there are many potential problems like loss of tax basis, penalties and interest for failure to do gift tax returns, loss of eligibility for nursing home coverage because of the gift, the issue we are concerned about here is the risk that the home could be lost to the creditor of the child or one of the children.
Here is how it works. If the child or children do no live in the parents home, it is not their homestead, even if they do live in the home, it cannot be their homestead because they do not have a present interest in the home. Remember the child or children only have a future interest in the home. A creditor can levy against that asset just like any other. There are tables that determine the value of a future interest based on the age of the parents, their life expectancy, and the current interest rates.
So besides all the other risks associated with transferring a portion of your home to a child, you may in fact transfer nothing to your child if they end up having a creditor take the child's portion of the home.
There are ways of avoiding probate, reducing risks of loss to creditors, and receiving favorable tax status that may work in your situation but you should discuss these with a Florida Estate Planning Lawyer to see which options offer the best combination of benefits for your situation.
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