Should Florida homestead property be held in trust? This is a question I get several times a week. I'm going to tell you what I tell my clients when I get this question. Probably not, and here's why.
The issue of Florida homestead is very complex. Most people think of homestead as just your ad valorem tax exemption - the one where you get a discount on your Florida real property taxes and you get the Save Our Homes cap on assessment increases. If this were the only issue related to homestead, I'd say, go ahead and put the property in your trust. As long as you include the proper language to preserve your ad valorem homestead exemption you'll have no problems. But therein is a problem - you have to have the proper language or your taxing authority may deny your ad valorem homestead exemption.
But in Florida we have to make homestead more complex. In addition to ad valorem taxes there are two Constitutional provisions that make for interesting dinner conversation. One is the protection from creditors. Under the Florida Constitution your homestead property is essentially your castle. This means that as long as you own the requisite property amount both inside and outside of a municipality, your homestead is protected from the claims of creditors. This protection does not include your mortgage company so don't go getting any ideas. It also doesn't include mechanic's liens or liens from your homeowner's association, but other debts or judgments you may incur cannot attach to your homestead property.
Here's the rub. At one time there were a couple of Florida courts that didn't agree on whether you could benefit from the Constitutional protection from the claims of creditors if you put your property in a trust. One court said you maintained your protection, another one say you lost your protection. As a result, we (Randy Bryan and our attorney team at the Law Offices of Hoyt & Bryan) have not recommended putting your homestead property into your trust. If the Florida Supreme Court would decide the issue once and for all, then we would feel completely comfortable with a recommendation that was consistent with that decision. So, for now, we do not recommend putting your homestead property into your trust.
But that's not the end of the story or where it really gets complicated. There's another aspect to homestead and that's the restriction on descent and devise? What? That's the look I get from most people when I start explaining this part. Basically, Florida law says if you are married and/or have a minor child and you own your homestead in your individual name, you are not free to leave your property to anyone you want. Well how can they do that? By law. The law was intended to protect widows and minor children. The State of Florida doesn't want them to be homeless. It's this part of the homestead discussion where even most attorneys get lost.
Any attempt to leave your homestead property outside of the descent and devise restrictions is invalid. I'll give you an example. I'm a single person and I own a home in my individual name. Okay, no problem there - I can leave my property to anyone I want. Then I get married (no prenuptial agreement) and I never change the title on my home, it's still in my individual name. If I die, Florida law says the only person I can leave my home to is my spouse. Any other attempt to leave my property, say to my best friend or adult child from a previous marriage, is invalid. If I get married and have a minor child, even if I try and leave my property to my spouse, I still didn't get it right. There's a minor child so the law says my spouse gets a life estate with the remainder interest to my lineal descendants. This includes all my children, not just the minor ones. Confused yet? This is where most people's eyes glaze over in the conversation.
Then, to complicate matters even more, you've got legal professionals (attorneys) advising married people to put their homestead property into their trust - presumably so they can avoid probate. Well, if they owned their home as husband and wife (tenants by the entirety) they would avoid probate. Problem solved. Then, if the surviving spouse wants to transfer the homestead to the trust and he or she doesn't get remarried or have a minor child, then we might be able to talk. As long as they are okay with the indecision in the Florida courts regarding the protection from creditors issue.
Here's my current client situation. Husband and wife place their homestead property in a joint trust (why I dislike joint trusts is a totally different subject, so stay tuned for a different day). The joint trust has language about what happens when the first spouse dies in order to preserve the estate tax exemption. The bottom line is the devise inside the trust violates the restrictions on devise and descent. In this case, no minor kids so the spouse becomes the only valid devisee. When the devise fails, spouse gets a life estate, remainder to the lineal descendants. Okay, maybe not such a bad result - they have three kids. But...they don't want all three kids to have the property. Only one kid gets the property when mom dies because he's the one that lives with mom!
Now I'm faced with figuring out how to tell mom (and the kid who lives with her) that the last attorney who advised putting the property in the joint trust caused a violation of the restrictions on devise and descent and we have a result that that isn't going to accomplish their goals. This attempt to avoid probate is actually going to result in the necessity of a probate so we can get an Order Determining Homestead - mom get's a life estate with the remainder to the lineal descendants. Then, we have to ask each of the three kids to deed their remainder interest to mom so we can get it back in her individual name. Then, mom can decide what she wants to do - leave it to her next door neighbor or to her son as originally planned. There are a whole bunch of title related issues regarding why we want the Order Determining Homestead, but I'm not going to get into that now.
If life were simple and everyone always agreed on a particular outcome then this may just be some paperwork, attorneys fees and filing costs. However, I'm willing to bet the family didn't count on this particular outcome and since I'm the messenger with the bad news, I become the bad guy. If for some reason one or more of the children decides they don't think it's fair that the son who lives with mom gets the house, then we've got a whole bunch of additional family fun to deal with.
So what do you think, should we put homestead property in trust? I'm thinking NO - most of the time. There are exceptions, but they are few. Questions? Call Randy.
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