Question 1

What is nominal consideration in Florida contract law?

Accepted Answer

Nominal consideration is a token amount paid to satisfy the legal requirement that a contract be supported by consideration (something of value exchanged by each party). Common examples: a token sum such as ten dollars stated in a deed or contract. In Florida, nominal consideration is legally sufficient to support a contract (the courts generally do not inquire into the adequacy of consideration; a nominal sum is as legally valid as a substantial one). However: nominal consideration may raise issues in: gift transfers (a conveyance for a nominal sum may be treated as a gift rather than a sale for tax and creditor purposes), fraudulent transfer claims (a transfer for nominal consideration may be voidable as a fraudulent transfer under Section 726.105), and tax implications (the IRS may treat a transfer for nominal consideration as a gift for gift tax purposes).

Question 2

When is nominal consideration used in Florida real estate?

Accepted Answer

RE uses: interfamily transfers (transferring property between family members for a nominal sum "and other good and valuable consideration"), trust transfers (transferring property to a trust for nominal consideration), easement grants (granting an easement for nominal consideration), and option agreements (granting an option to purchase for a nominal sum, with the purchase price payable upon exercise). The phrase "ten dollars ($10.00) and other good and valuable consideration" is commonly used in Florida deeds and contracts. The "other good and valuable consideration" language indicates that additional consideration (love and affection, assumption of obligations, etc.) exists beyond the nominal amount.

Question 3

What are the risks of nominal consideration transfers in Florida?

Accepted Answer

Risks: creditor attack (a transfer for nominal consideration may be attacked as a fraudulent transfer; the creditor can argue that the transfer was made to avoid paying debts), Medicaid look-back (transfers for less than fair market value within the Medicaid look-back period, 5 years, may result in a penalty period of ineligibility), tax consequences (gift tax may apply; the donor may need to file a gift tax return), and documentary stamp tax (Florida documentary stamp tax is based on the consideration paid; a transfer for nominal consideration may still trigger minimum documentary stamp tax). Consult with an attorney and tax professional before making a transfer for nominal consideration.

Nominal Consideration

Nominal Consideration in Florida

Legal Sufficiency

Common Uses

Risks

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