Posted in Asset Protection,Wills, Trusts & Estate Planning

When it comes to estate planning, one of the most significant assets that Florida residents must consider is their homestead (i.e. primary residence). The homestead exemption in Florida offers valuable property tax benefits and protections against creditors, making it a crucial element of a homeowner’s financial planning.

1. The Purpose of a Revocable Living Trust

A revocable living trust is a legal instrument that allows you to manage your assets during your lifetime and efficiently distribute them after your passing. One key advantage of a trust is that it bypasses the probate process, saving time, money, and potential aggravation for your loved ones.

2. Should You Transfer Your Homestead to the Trust?

From a probate avoidance perspective, the answer is “yes.” Transferring your homestead into the trust ensures that it passes outside of probate. This will save time and money by allowing your chosen beneficiaries to swiftly take ownership or receive the benefits from a sale.

3. Understanding the Homestead Exemption

Before delving into the process of transferring a homestead to a trust, it’s important to understand what the homestead exemption entails. In Florida, the homestead exemption can reduce the taxable value of a primary residence, leading to significant property tax savings. Additionally, the homestead creditor protection in Florida is one of the most robust in the country, offering unlimited financial protection against unsecured creditors for the primary residence (subject to acreage and other limitations).

4. The Bosonetto Case

In the past, a bankruptcy case known as In re Bosonetto, 271 B.R. 403 (Bankr. M.D. Fla. 2001) raised concerns about whether homestead protection extended to a situation where the homestead was transferred into a trust. The court ruled that a trust was not a “natural person,” potentially jeopardizing homestead protection.

5. Florida Courts’ Clarification

Thankfully, Florida’s own courts have clarified this issue in subsequent rulings. When a person’s primary residence is titled in a trust, it is still considered held by a natural person. For instance, in the case of Engelke v. Estate of Engelke, 921 So. 2d 693 (Fla. 4th DCA 2006), the court affirmed that a trust does not negate homestead protection. Having said this, there is still a risk as these subsequent court rulings did not explicitly overrule the decision in In re Bosonetto.

6. The Bottom Line

• Homestead Creditor Exemption: A house inside a Florida revocable trust can still qualify for the homestead exemption. A question may still remain though in the context of a bankruptcy proceeding.
  
• Avoiding Mistakes: Ensure that the homestead remains your primary residence as of January 1st each year to retain benefits like the Save Our Homes property tax cap.
  
• Descent or Devise Restrictions: Funding title of your homestead into a revocable trust does not change the homestead descent or devise restrictions. That concept is not addressed in this blog post (i.e. homestead may not be devised if the owner is survived by a spouse or minor child, except that it may be devised to the owner’s spouse if there is no minor child).

Remember, consulting an experienced estate lawyer is crucial when setting up or reviewing your revocable living trust. They can guide you through the process and ensure your homestead remains protected while achieving your estate planning goals. It is also recommended that, before transferring homestead property to a trust, the lawyer contact the local property appraiser to ensure all local rules are met in order to continue the homestead status for ad valorem tax purposes.