3 Reasons Why Transferring Property To Family Members May Be A Bad Idea
From parents to their children, grandparents to grandchildren, and other family relationships, you often want to leave property to a family member in the best, most cost-effective, and simplest way possible. Transferring it to them before your death may initially sound like it meets those criteria, but it may not be as beneficial as you first believe. In fact, transferring property to family members may be a bad idea for you, for them, or for both of you. From losing a home to seeing your loved one forced to sell a once-beloved asset, there can be significant reasons to rethink this decision and consider some of the alternative methods of giving property to your loved one. At Loughlin Law, P.A., our experienced Florida estate planning attorneys may be able to review your entire estate and assist you in determining the most effective ways to protect your assets and pass them to loved ones before or after your death. Call (561) 677-8384 to schedule a consultation and learn more about your legal options for passing property to a family member.
Definition of Property
When people think of the word “property,” the first thing that often comes to mind is a piece of real estate, such as their primary home or a vacation or rental home. While this is certainly one definition of property, it is not the only one. In estate planning, property refers to anything of value that can be owned and transferred, including real estate, personal property such as jewelry, vehicles, or furniture, and financial assets such as stocks, bonds, and bank accounts.
Exposure to the Family Member’s Debts and Liabilities
Transferring property to family members may be done with the best intentions, and the recipient may be grateful for such a beautiful gift. However, those good intentions will not protect the property if the recipient already has or later incurs a significant amount of debt that they cannot or will not pay. Creditors can make claims against any asset of value to attempt to collect the money they are owed, which means they may potentially make claims against the property to satisfy the debt. If the family member that the property is transferred to experiences financial difficulties, such as bankruptcy, divorce, or a lawsuit, the property could be at risk. This includes real estate, vehicles such as cars, boats, or other recreational vehicles, art, jewelry, or any other asset of significant value.
In a divorce, the property may be considered marital property if it was transferred during the marriage and the family member could be ordered by the family court to sell the property and split the proceeds with their former spouse. Creditors could place liens against the property, preventing the sale of the property unless the lien is satisfied before the sale or from the proceeds of the sale. Unfortunately, the family member cannot give the property back to avoid creditor claims. This could potentially be viewed as a fraudulent transfer or conveyance, causing both the original owner and the family member who transferred it back to them to face legal consequences.
Loss of Control and Living Situation
Except for certain transfers such as joint tenancy with right of survivorship where each owner owns an equal share of the property, transferring property to family members is a complete transfer of ownership when it comes to real estate. This transfer of ownership means that the family member becomes the legal owner of the property, even if the original owner still lives there. This means that the original owner faces a loss of control over their living situation as the family member they transferred the property to may make decisions the original owner does not agree with.
Additionally, the family member could decide to sell the property. This would result in the original owner becoming homeless with no recourse against their family member. Family disputes between the family member and original owner, or between the original owner and others if the family member takes sides against the original owner, could result in the family member evicting the original owner. Whether it is the risk of an unpleasant living situation such as renovations being done without the original owner’s agreement or the risk of being made homeless on a whim, this loss of control over the property and the living situation makes transferring property to family members a bad idea.
Potential Tax Liabilities
Transferring property to family members may present potential tax liabilities for either the family member it is being transferred to or the original owner. If the property has appreciated significantly since it was purchased, gifting it to a family member could result in that family member getting a large capital gains tax bill if they eventually sell the property. This is because gifting during the owner’s lifetime bypasses the step-up in basis that may otherwise occur. Stepping up the basis occurs when the original owner dies and the property’s value is “stepped up” so that the beneficiary inherits it at its current value without paying capital gains taxes. Real estate, stocks, mutual funds, bonds, business interests, art, and collectibles all receive a step-up in basis when they are inherited.
Additionally, while Florida does not have a gift tax, the property may exceed the Internal Revenue Service’s (IRS) annual gift tax exclusion, which is $19,000 in 2025. If it does, then it will likely require a gift tax return and use part of the giver’s lifetime gift and estate tax exemption. The giver is typically responsible for paying the gift tax, which could make transferring property to family members a financial burden for the giver. An estate planning attorney at Loughlin Law, P.A. may be able to assist you in determining the tax implications of transferring property to family members and whether an alternative may be more appropriate.
Alternatives to Transferring Property to Family Members
While transferring property to family members during your lifetime may be a bad idea, there are alternatives that can help to ensure it goes to the loved ones you want to have without the unpleasant, and possibly disastrous, drawbacks. However, it is important to note that everyone’s estate plan is unique based on the assets they own, so consulting with an estate planning attorney can be beneficial to ensure that the chosen option is the right one based on all the factors involved.
Leave the Property in a Will
The most common method for transferring property to family members is using a Last Will and Testament. They simply name the property and who they wish it to go to, along with any other assets they would like to pass to someone through the will. Upon their death, the will will be probated and the assets distributed according to the will’s instructions, unless the will is invalid or the assets need to be sold to settle the creditor’s claims.
While this is the most common method, it does require going through probate, which is a lengthy and public process. The family member will not obtain ownership of the property until probate is complete, which could take months or years, depending on the size and complexity of the estate. Additionally, the property may be subject to estate taxes if the estate’s total value exceeds a certain threshold. Florida does not have a state estate tax. Federal estate taxes apply if an estate is valued at $13,990,000 or more in 2025, according to the IRS. These amounts can change, so consulting with an attorney to confirm whether an estate will be required to pay federal estate taxes can be an important part of planning to ensure that loved ones do not lose their inheritance to unexpected taxes.
Set Up a Trust for the Property
A trust allows the grantor (the person who sets up the trust) to maintain control over their property while they are still alive, and allows them to determine how and when that property is distributed after their death. Revocable trusts give the individual continued control over their property, while irrevocable trusts offer more asset protection and potential tax benefits, but less control over the assets within the trust. Individuals can place a variety of assets in a trust, designate multiple beneficiaries, and include terms that limit when or how property is distributed to offer more protection against creditors, bankruptcy, or divorce.
Use a Ladybird Deed
For real estate, a ladybird deed, also known as a beneficiary deed in Florida or a Transfer on Death Deed in other states, allows the property owner to name a beneficiary who will inherit the property when the owner dies. This helps the property avoid probate, allowing the beneficiary to take immediate ownership of the property. These deeds are simpler than a will. The transfer is not immediate and allows the owner to continue to live on the property and retain control until their death, including the ability to sell, mortgage, or transfer the property, even if those decisions are not what the beneficiary would want.
Consider a Life Estate Deed
Another option for real estate in Florida is a life estate deed. This is another kind of deed that grants the original owner the right to live on the property for their lifetime while the future ownership, or remainder interest, is designated to someone else. While it sounds like a ladybird deed, a life estate deed differs in that the beneficiaries must consent to any sale, mortgage, or transfer of the property.
How a Florida Estate Planning Attorney Can Help
There is nothing wrong with wanting to give your family members an inheritance. There is also nothing wrong with wanting to give them that inheritance in the simplest, most cost-effective way possible. Transferring property to family members while you are still alive may seem like the right way, but it can have some significant disadvantages that may ruin what was intended as a loving and thoughtful legacy. An estate planning attorney with Loughlin Law, P.A. may be able to help you determine the most beneficial options for giving your loved ones the inheritance you want them to have without costing you a fortune or putting the property you want to give them at risk. Call (561) 677-8384 to schedule your free consultation at our Boca Raton, Florida office and learn more about your legal options for planning your estate.
