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On money

How to leave your house for your heirs

By HELEN HUNTLEY
Published March 6, 2005


The best way to leave your home to your heirs is a perplexing issue for many older Floridians. Often their home is their most valuable asset.

If all you own is your homestead property and no more than $75,000 in other assets subject to probate, you can relax. You're eligible for what's known as "summary administration," which Tampa Bay area lawyers say typically costs no more than $2,500 in legal fees. Get a simple will and you're good to go. Literally.

Many people can bring their assets below the $75,000 threshold through the use of "payable-on-death" accounts at banks and brokerages. Accounts with designated beneficiaries pass outside the probate process.

"If we can have payable-on-death accounts, why don't we have payable-on-death deeds?" a reader asked me recently. The fact is that we do, they just aren't widely used.

I'm referring to revocable "Lady Bird deeds," named after a former First Lady, Lady Bird Johnson, who inherited property from President Lyndon B. Johnson by way of one. The deed conveys the property to another person but retains use of the property for life and, most important, retains the right to revoke the deed. Lawyers say it is preferable to the traditional practice of granting a life estate irrevocably.

"I think it's a good instrument, but we're just not using it very much because it's confusing to people," Clearwater lawyer Alan Gassman said. Gassman and many other lawyers would rather title property in a revocable trust than use a Lady Bird deed. A trust can be written to cover contingencies such as the death of a child before the parent and can provide for management of property in the event of incapacity. However, trusts are more expensive than simple wills and not everybody wants one.

"I prefer for people to keep their homestead in their own names," St. Petersburg lawyer Louis Adcock said. However, he said people who hope to use summary administration should be careful to keep their home legally their homestead. Going into a nursing home won't cost you your homestead status, but renting out your home will, he said.

What you also don't want to do is retitle your house in joint ownership with one or more children. That creates tax issues and potential exposure to the child's creditors as well as risking conflict if one owner wants to sell.

My son is a sophomore. I received a 1098-T form showing tuition paid and the amount of the Bright Futures Scholarship. I also received a 1099-Q showing the Florida Prepaid distribution, earnings and basis. I'm confused! What can I claim for tuition expenses? Do I have to deduct the amount received for the Bright Futures or the Prepaid from the tuition paid? Is it better to take a tuition deduction, Hope Credit or Lifetime Learning Credit? I file married/jointly with an adjusted gross income under $105,000.

I fully understand your confusion. My daughter is also in college with Bright Futures and Florida Prepaid, so I have some personal experience with this issue. Here is my understanding of how these work together:

1. If your son's Bright Futures covers his full tuition, forget about taking any deduction or credit. If Bright Futures plus any other scholarships cover only partial tuition, you can use the difference between the tuition paid on the 1098-T form and the amount of the scholarships as long as you don't have to use these expenses to offset Florida Prepaid (see No. 3). The Hope Credit is best if you are eligible, but if your income is more than $85,000, you will get only a partial credit. In that case, the deduction may be better. Calculate it both ways and see.

2. Bright Futures is tax-free as long as the tuition paid plus required books and supplies exceeds the amount of the Bright Futures. Ideally you should have receipts for the books.

3. Florida Prepaid is tax-free if you can offset it with education expenses not offset by Bright Futures and other scholarships. The big benefit is that for this purpose, in addition to using tuition, you can count room and board as a qualified education expense (room and board do not count for scholarship offsets). Your son's dormitory or apartment rental most likely is enough to make the prepaid distribution tax-free.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified March 6, 2005, 00:13:18]


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