Yes, It's Safe to Put Homestead Property in a Revocable Trust
Engelke v. Estate of Engelke, __ So.2d __ (Fla. 4th DCA February 8, 2006)
Navigating Florida's homestead-protection laws is one of the primary focus points for estate planning attorneys in this state. There were two Florida Supreme Court opinions in 2005 alone attempting to unravel the thorny probate issues inherent to Florida homestead properties (see here and here).
In this case the 4th DCA addressed one of the most common questions faced by Florida estate planning attorneys: should the homestead property be put into the client's revocable trust? According to the 4th DCA, the answer is an unqualified YES. There has been hesitation in the past to put homestead property into a revocable trust because of an unfortunate Florida bankruptcy-court opinion that stood for the proposition that homestead property in a revocable trust was not owned by a "natural person," thus it lost its creditor protection. As far as I know, every published Florida opinion addressing the same issue since then has ruled the other way. The 4th DCA case linked-to above does the same, directly answering two key estate-planning questions as follows:
- "We note that in this case while [the decedent's] residence was held in a revocable trust, it was owned by a "natural person" for purposes of the constitutional homestead exemption. Because [the decedent] retained a right of revocation, he was free to revoke the trust at any point in time. Accordingly, he maintained an ownership interest in his residence, even though a revocable trust held title to the property. We therefore conclude that [the decedent's] interest as beneficiary of his own revocable trust would entitle him to constitutional homestead protections." (Emphasis added.)
- Frequently, as here, the trust contains provisions regarding the payment of expenses of the estate after the settlor's death. We have found no case in which a general direction to pay the estate expenses has trumped the constitutional homestead protections which are the rights of the heirs as much as the decedent. Because revocable trusts are merely will-substitute devices, we see no reason why the reasoning of Thompson v. Laney, precluding use of the homestead to satisfy estate debts, should not apply with equal force when homestead property is transferred through a revocable trust. Therefore, unless the trust specifically directs that the freely devisable homestead be sold, the rights of the heirs attach at the death of decedent, and the property is protected from the claims of all creditors." (Emphasis added.)
Well, at least we have an answer.
Now we get to see all the claims against estate planning lawyers who never advised the Decedent that the specific bequests would not be funded from the homestead, and the estate's insolvent..., and for good measure, maybe the estate planning lawyer also represented the heir, or better yet, maybe the successor Trustee was supposed to get a specific amount, but now can't sell the house to fund the Trustee's gift...
Does a Florida homestead placed in an irrevocable trust still elibile for the "Save Our Homes" exemption?
Is the "Engelke" living trust available online? If yes, where? If no, can anyone send a copy?
Thank you.
Stev - The Engelke living trust is probably part of the court file for this case. You may be able to dig it up there. Otherwise, you could try contacting the attorneys involved in the case and see if they'd be willing to give you a copy. Juan.
I came across a recent bankruptcy court decision that backs up your position: In re Alexander, 346 B.R. 546, 19 Fla. L. Weekly Fed. B 356 (Bankr.M.D.Fla. Jul 25, 2006) (NO. 05-12271-8W7). However, I have heard that the state will argue that a homestead held by a trust will be considered a "countable asset" on a Medicaid application and that trust ownership will disqualify the settlor from taking the veteran's disability exemption for property taxes.
Jeff - Thanks for pointing out the Alexander case. I try to stay away from most Medicaid planning, so I can't say how homestead held by a trust would be treated for Medicaid eligibility purposes. Regards. Juan.
In my humble opinion, the protection offered by homestead exemption is so important that it is not worth the risk of having it challenged. Sure there is a legal argument that it should be ok to put it in a trust, but why take the chance of loosing your home, or having your real estat taxes increase by 10 fold?
You don't lose your homestead property tax exemption when you title your home in the name of a revocable trust. Juan.