Benefiting From the Florida Homestead Law
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The Florida homestead laws are quite unique. A homestead is real property to the extent of 160 contiguous acres outside a municipality, or one-half of an acre of continuous land in a municipality, owned by a natural person, and the improvements on it.(1) Various legal consequences turn on whether or not real property is a homestead. By constitutional and statutory provisions, there are three areas where the Florida homestead laws are especially meaningful.
The first area is protection against creditors. There is always the possibility of a financial disaster. A wealthy retiree can be driving down the highway and become involved in an accident where several people are seriously injured. A judgment against the retiree could exceed both his insurance coverage and the value of all his assets. For the doctor, dentist, accountant, stock broker, lawyer and other professionals, a successful malpractice claim could exceed policy limits and wipe out lifetime savings. If the retiree is domiciled in New York, the retiree might lose substantially all of his assets, including his home. In Florida, if the retiree's real property qualifies as his homestead, it is generally exempt from a forced sale by his creditors both during his lifetime and after his death.(2)
There is no dollar limitation. The $2 million home is covered as well as the $50,000 condominium.
Does this mean that a New York physician or attorney faced with an uninsured multi-million dollar judgment against him can sell his New York residence, move to Florida, buy a two million dollar home and shield it from his creditors? Maybe so.
If you are faced with this situation, suggest to your attorney that he review the Caggiano case, the Bank Leumi Trust Co. case, and In re Jost. Judges frequently point to the Florida Constitution provision that the Florida residence is exempt from forced sale under process of any court and note that there are only three exceptions: (1) payment of real estate taxes and easements on the homestead; (2) obligations contracted for the purchase, improvement or repair of the homestead; and (3) obligations contracted for labor performed on the homestead. Strange as it may seem, some claim that a criminal can take the proceeds of a crime or fraud, invest them in a homestead and defeat the claims of the state or creditors. Recent attempts to amend the Constitution have failed. At some point, it is bound to change. There are some bankruptcy decisions that appear to have ignored the constitutional mandate. But for those who are in a financial bind, this is a possibility worth exploring.
The second area where the homestead becomes meaningful involves Florida real estate taxes. If the retiree's home qualifies, he will receive a $25,000 homestead exemption on the assessed value.(3) In order to qualify for the exemption, the retiree must hold the property as of January 1, reside there, and be a permanent resident of the State of Florida. Filing an application for a new homestead exemption is the responsibility of the retiree. It must be filed with the county property appraiser's office during the months of January and February, on or before March 1 of each year. After the initial application for the homestead exemption has been granted by the property appraiser, a homestead receipt will be sent to the retiree on an annual basis, indicating automatic renewal. Acceptance of the receipt implies that the retiree continues to use the property as his permanent residence, that the property is not being rented, and that he is a Florida resident. It is the duty of the retiree who has received an exemption and who is not required to file an annual application to notify the property appraiser promptly whenever the use of the property changes (other than a sale of the property) so as to change the exempt status of the property. Any retiree who fails to notify the property appraiser is subject to penalties.(4) The usual procedure is to appear personally at the county property appraiser's office and apply for the exemption. The tax assessor will require a copy of the deed or a tax bill showing the property description and a Florida driver's license and Florida voter registration or declaration of domicile dated prior to January 1. There are other exemptions as well.
There is a $500 widow and widower's exemption. Any widow or widower who is a bona fide Florida resident may claim this exemption. There is a $500 disability exemption for every permanent Florida resident who is totally or permanently disabled. In addition, every Florida resident who is legally blind qualifies for a $500 exemption.(5)
Although a retiree who changes his domicile to Florida will gain the benefit of a reduction of real estate taxes on his homestead, he may lose a similar benefit in New York State. In 1998, section 425 of the New York Real Property Tax Law was enacted to afford homeowners the opportunity to apply for a school tax reduction under the STAR program. But the residence must be a primary residence. There are two types of exceptions. One is only applicable to persons at least 65 years of age and combined income that does not exceed $60,000 (exclusive of social security and tax exempt income). The other exception applies across the board without such limitations if the primary residence test is met. But Beware: If you have changed your domicile to Florida, advise your tax assessor you are no longer eligible. There are both civil and criminal penalties for making material misstatements as to primary residence, age or income.
The third area where the homestead becomes meaningful involves the ability of the retiree to sell or mortgage his home during his lifetime or devise his home after his death. The Florida Constitution provides that the homestead is not subject to devise if the owner is survived by a spouse or a minor child, except the homestead may be devised to the owner's spouse if there is no minor child.(6) A Florida statute provides that if a decedent is survived by a spouse and lineal descendants, the surviving spouse takes a life estate in the homestead, with a vested remainder to the lineal descendants.(7) The homestead right came into question when John died. He was survived by his wife Madeline and his two adult daughters, one of whom was his daughter by a prior marriage. His Will devised his condominium in Boca Raton to Madeline for life with a vested remainder interest to one of his daughters. The Court held that the devise was ineffective because it did not convey a fee interest to Madeline and that both daughters were entitled to a remainder interest.(8) The same result would follow where John devised the homestead in fee jointly to Madeline and the one daughter.(9)
Whenever a Will is drafted for a retiree domiciled in Florida, care must be taken in drafting the provision which devises homestead property. Normally, real property owned as tenants by the entirety is not considered homestead property for purposes of placing restrictions on the devise of the retiree's home. Most married retirees who have homes in Florida will probably hold title as tenants by the entirety. But where title is held in the name of one spouse only, and they are domiciled in Florida, the estate plan must be fashioned to be consistent with the Florida homestead laws.
The owner of homestead real estate, joined by the spouse if married, may alienate the homestead by mortgage, sale or gift and, if married, may by deed transfer the title to an estate by the entirety with the spouse.(10) Since the owner of homestead real property who has no spouse but does have a minor child can sell or gift the property, one might conclude that the owner, as part of his estate planning, would have the right to transfer the homestead real property to a revocable trust. Not so.
Reginald died testate in 1979 in Palm Beach County survived by a minor child who was then residing with the decedent's second wife in Dade County. In 1977, Reginald executed a revocable trust designating himself as trustee and lifetime beneficiary of the trust. Upon his death, his home was to be gifted to an adult child by an earlier marriage. The decedent transferred his home to the trust. The Court held that by retention of the complete control of the property with an absolute right to revoke the trust, it was apparent that the testator intended to circumvent the constitutional restriction on testamentary disposition of the homestead, while at the same time treating the property as his own during his lifetime.(11) In a concurring opinion, one judge raised the question of whether a transfer to an irrevocable trust might be valid. The estate planner should be especially careful when dealing with homestead property.
The Florida homestead laws can be very confusing. The following examples may clarify their application:
Example A: Retiree has no minor child. He can devise his homestead to his spouse.
Example B: Retiree has a minor child. He cannot devise his homestead to his spouse.
Example C: Retiree has a spouse but no minor children and devises the homestead to a third party. The devise is ineffective even if it is a devise to his adult child.
Example D: Retiree has a spouse but no minor children and devises the homestead jointly to his wife and one of several adult children. The devise is ineffective.
Example E: If the retiree makes no provision in his Will for his homestead, or the devise is ineffective, then the surviving spouse receives a life estate and the remainder will be vested in the testator's lineal descendants who are living at his death.
Example F: Retiree has no spouse but has adult children. He can devise the homestead any way he pleases.
Example G: Retiree has a spouse and children (some of whom may be minors) and wants to sell or mortgage the homestead during his lifetime. He can do so if the spouse consents.
Example H: Retiree has no spouse but has minor children and wants to sell or mortgage the homestead. He can do so.
Even though the retiree may have no right to devise homestead property at the time the Will is executed, the retiree should provide in his Will for its disposition since it may not have that status on his death. The homestead status may be abandoned by moving into a new home and renting the former homestead. Also, the homestead may terminate if the retiree's spouse dies or a divorce occurs. Likewise, it will be lost if the retiree changes his domicile back to New York State or it is determined that his change of domicile to Florida was never effective.(12)
The retiree may inquire whether there is some solution to the potential homestead problem. It has been suggested that a plausible solution is to transfer the homestead property to an irrevocable trust in which the retiree simply retains a life interest in the trust. At the retiree's death, the trust asset would pass pursuant to the trust instrument and not according to the homestead laws. Unfortunately, the retiree must act at his peril since there are no cases directly on point. However, based upon analogous cases, it would appear that the irrevocable trust may well allow the retiree to continue to live in the residence and still avoid potential homestead problems.(13)
The retiree may have entered into a prenuptial agreement with his spouse pursuant to which she waives any interest in the homestead. The waiver should be effective. (14)
If a retiree who has married for a second time holds title to homestead property and desires to pass title to his children upon his death, the retiree should enter into a marital agreement wherein the new spouse waives all rights to the homestead. Otherwise, the second spouse will take a life estate in the homestead and the children will receive a vested remainder.
If a retiree desires for the homestead to pass to his step-children who are the deceased spouse's children, the owner must enter into a marital agreement wherein the new spouse waives all rights to the homestead.
Although it is likely that a spouse can legally waive homestead rights after the marriage there is no case directly on point and it is possible that a court might hold that the children have vested homestead rights once the second marriage occurs and that the second spouse cannot waive those rights.
Formerly, although the Florida Statute authorized the conveyance of homestead property through a power of attorney, such transactions were not practically effective.(15) Uniform Title Standard 18.4, published by the Florida Bar indicated that the conveyance constituted a cloud on title. As of July 1992, the title standard has been amended to authorize such a conveyance if specifically authorized in the power of attorney. The power of attorney should specifically include power to convey or mortgage the property and preferable should include a legal description of the property. The power must be executed with the formalities of a deed and be recorded, along with an affidavit, by the attorney-in-fact. Although a joinder of a spouse is still required, that joinder can be accomplished through a power of attorney.(16)
In 1992 the Florida Legislature modified the homestead law to make it clear that title to real property held in a revocable living trust remains homestead if it would have been homestead if it had remained titled in the settler's name alone.(17)
CAUTION: Before making any changes that may affect the retiree's Florida homestead, he should review the matter with his attorney, taking into account the most recent laws, regulations and cases.
1. Florida Constitution, Art. X, § 4(a).
2. Fla. Stat. §§ 222.01, 222.05.
3. Fla. Stat. § 196.031(3)(d) and (e).
4. Fla. Stat. § 196.011.
5. Fla. Stat. § 196.202.
6. Article X, Section 4(c), Florida Constitution .
7. Fla. Stat. § 732.401.
8. In re Estate of Finch, Fla., 401 So.2d 1308 (1981) .
9. Iandoli v. Iandoli, Fla., 504 So.2d 426 (1987) .
10. Article X, Section 4(c), Florida Constitution.
11. In re Estate of Johnson, Fla. App., 397 So.2d 970 (1981).
12. Since the real property is located in Florida, the test probably is whether there was an effective domicile change under Florida law. This is probably so even though the Will is probated in New York State.
13. See Homestead Devise Trap by Krause and Franklin in the Florida Bar Journal (Nov. 1990)
14. See, City National v. Tescher, 557 So 2d 615 (1990); Hartwell v. Blasingame, 15 F.L.W. 1770 (1990); Wadsworth v. First Union Nat. Bank No. 89-272 (Fla. App. 1990)
15. Fla. Stat. § 709.08(3).
16. Fla. Stat. § 709.08(3).
17. Fla. Stat. § 732.4015(2)
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