I previously wrote here about Engelke v. Estate of Engelke, a 4th DCA opinion holding that homestead held in a revocable trust remained exempt from forced sale or lien by judgment creditors pursuant to Article X, Section 4(a) of the Florida Constitution. The reason why opinions like Engelke are especially interesting for estate planners is because they chip away at the precedential value of In re Bosonetto, 271 B.R. 403 (Bankr.M.D.Fla.2001), a Middle District Bankruptcy Court opinion ruling that homestead property in a revocable trust lost its creditor protection. Bosonetto has been the subject of heavy criticism every since.
We now have two new Middle District Bankruptcy Court opinions expressly refusing to follow Bosonetto: In re Alexander, 346 B.R. 546, 19 Fla. L. Weekly Fed. B 356 (Bankr.M.D.Fla. Jul 25, 2006), and In re Edwards, — B.R. —-, 2006 WL 3788803 (Bankr.M.D.Fla. Oct 04, 2006).
This is good news for planners, although the issue is not yet dead. Bosonetto hasn’t been overruled. Until it is, planners should remain cautious. The following excerpts from Edwards summarize the well-reasoned analyses underlying both opinions:
The issue for determination is whether real property in which a debtor resides qualifies for the Florida homestead exemption when title to the property is held by a revocable trust. The issue is governed by Florida state statutory and case law. Florida opted out of the federal bankruptcy exemption scheme and a debtor filing for bankruptcy protection in Florida must use Florida’s state law exemptions. The Florida exemptions include a homestead exemption found at Florida Constitution, Article X, Section 4(a)(1):
(a) There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:
(1) a homestead, if located outside a municipality, to the extent of one hundred sixty acres of contiguous land and improvements thereon, which shall not be reduced without the owner’s consent by reason of subsequent inclusion in a municipality; upon which the exemption shall be limited to the residence of the owner or the owner’s family.
Fla. Const. Art. X, § 4 (emphasis added).
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The Trustee relies on the decision In re Bosonetto, 271 B.R. 403 (Bankr.M.D.Fla.2001) in which the Bankruptcy Court held a debtor may not claim real property owned by a trust as exempt homestead property. The great weight of the relevant case law holds to the contrary. Fee simple title of the property is not required, and an equitable or legal interest should afford protection pursuant to the provision.
The Florida Appellate Court ruled in Engelke v. Estate of Engelke, 921 So.2d 693, 696 (Fla. 4th DCA 2004) a revocable trust was constitutionally protected homestead property and could not be used to pay claims and expenses of the grantor’s estate. The grantor of the trust retained an ownership interest in the property since the trust was revocable. The trust, due to its revocable nature, was owned by a “natural person” within the meaning of the Florida homestead exemption. The revocable trust only held title to the property, while the grantor retained ownership.
A recent case decided in the Middle District of Florida, In re Alexander, 346 B.R. 546 (Bankr.M.D.Fla.2006) is in agreement holding fee simple title to the property is not necessary to qualify for the homestead exemption. “… [I]n order to claim property in which the individual resides as exempt it is sufficient that: (1) the individual have a legal or equitable interest which gives the individual the legal right to use and possess the property as a residence; (2) the individual have the intention to make the property his or her homestead; and (3) the individual actually maintain the property as his or her principal residence.” The Bankruptcy Court ruled homestead property titled in a revocable trust can be exempt from a debtor’s bankruptcy estate in a Chapter 7 case.