Show Original

Florida Homestead Planning

Published: March 28th, 2011

By: Robert J. Naberhaus III

There are many benefits under Florida law applicable to a Florida resident’s primary residence, also known as the resident’s “homestead.” This includes protection from general creditors, ad valorem tax benefits (i.e., homestead exemption and “Save Our Homes” protection) and rights of a surviving spouse (assuming he or she has not validly waived such rights in a marital agreement) and/or minor child to inherit an interest in the homestead. This latter “benefit” is the subject of this blog post.

Section 732.4015, Florida Statutes, and the Florida Constitution prohibit a Florida resident who is married or the parent of a minor child from devising his or her homestead, except that a married Florida resident with no minor child may devise his or her homestead only to his or her spouse. If not lawfully devised (e.g., if married and not devised to the spouse), or if there is a minor child, the surviving spouse (if any) receives a life estate and the remainder interest passes to the owner’s descendants, per stirpes (i.e., equally to the owner’s surviving children with the share of a predeceased child passing to his or her descendants). New Section 732.401(2), Florida Statutes, now provides, however, that in lieu of a life estate, a surviving spouse may elect to take a 50% interest in the homestead as a tenant in common with the owner’s descendants taking the remaining 50% interest. A spouse may be motivated to make this election to reduce the burdens of being a life tenant, to alleviate gift and estate tax issues upon disposition of the life interest or to own an interest in the homestead which may be disposed of by the spouse as the spouse determines.

Oftentimes Florida’s homestead devise restrictions frustrate the owner’s estate planning objectives. For example, a couple may want to devise their homestead to an estate tax sheltered trust on the first death to take advantage of the first to die’s estate tax exemption to minimize estate taxes on the second death. Or an owner with a minor child may want to exclude a child from inheriting any part of the homestead.

An effective waiver of homestead rights by a surviving spouse prior to the owner’s death allows the owner to devise the homestead in any manner provided the owner has no minor child. Such a waiver is generally governed by Section 732.702, Florida Statutes, which sets forth certain formal requirements. There was, however, a recent case (Habeeb v. Linder) which held that a formal agreement to waive homestead rights is not required. Notwithstanding this case, if you want certainty in your estate planning, a formal waiver is necessary.

A spousal waiver will not help, however, if there is a minor child because the waiving spouse cannot waive the minor’s interest. In such case, if the goal is to ensure the surviving spouse owns 100% of the homestead, the owner should consider titling the homestead with his or her spouse as tenants by the entirety. Property titled as tenants by the entirety is not considered homestead subject to the restrictions on devise and passes automatically to the surviving spouse on the death of the first spouse. Tenants by the entirety property is also protected from creditors. Further, Section 739.203(4), Florida Statutes, provides that the disclaimer of the tenants by the entirety interest by the surviving spouse (which may be done so that the homestead will pass to an estate tax exempt trust, for example) does not cause the disclaimed interest to become subject to the devise restrictions applicable to Florida homestead. Thus, the homestead could be titled as tenants by the entirety and the surviving spouse, if solvent, would be able to disclaim the deceased owner’s 50% interest which, with proper planning, would be available for estate tax planning without having any interest pass to minor descendants. In addition, if 50% of the homestead is owned by a trust for the surviving spouse and he or she owns the other 50% interest outright, there may be opportunities to discount the value of the fractional ownership of the spouse’s interest on the spouse’s death.

If the owner does not want the surviving spouse to own the homestead or any part of it upon the owner’s death, then new Section 732.4017, Florida Statutes, allows the owner to transfer the homestead to an irrevocable trust during the owner’s life. If the owner is married, the owner’s spouse will be required to join in this conveyance, but once made, the spouse will only have those rights granted by the trust to the spouse. When the owner subsequently dies, the trust determines how the homestead descends without any frustration of the owner’s intent by Florida’s devise restrictions, even if the owner is survived by a minor child.

Florida’s homestead laws are complicated and need to be contemplated in connection with a person’s estate planning to avoid unintended results.