Cutler v. Cutler, — So.2d —-, 2008 WL 4057751(Fla. 3d DCA Sep 03, 2008)

When I first wrote about this case the 3d DCA upheld a probate court order refusing to apportion any probate expenses to a devise of freely-devisable homestead property under the “inuring clause” of Article X, section 4(b) of the Florida Constitution, effectively frustrating the testator’s clearly expressed testamentary intent [click here].

In a decision that just goes to shows it’s never over ’till it’s over, in response to a motion for rehearing en banc the 3d DCA completely reversed itself and ruled that the freely-devisable homestead property in this case could in fact be sold to pay probate administrative expenses.  For those of us who follow Florida’s byzantine homestead laws, this is pretty shocking stuff.  Here’s how the 3d DCA explained its ruling this time around:

While we agree with the trial court’s conclusion that the property devised to Cynthia was Edith’s homestead, we cannot agree that the constitutional exemption from creditors’ claims inured to Cynthia’s benefit.

It is a cardinal rule of testamentary construction that “the primary objective in construing a will is the intent of the testator .” McKean v. Warburton, 919 So.2d 341, 344 (Fla.2005) (“a person can dispose of his or her property by will as he or she pleases so long as that person’s intent is not contrary to any principle of law or public policy” (citing Mosgrove v. Mach, 133 Fla. 459, 182 So. 786, 791 (1938))); Marshall v. Hewett, 156 Fla. 645, 24 So.2d 1, 2 (Fla.1945) (“In will construction the primary objective of the courts is to ascertain and give effect to the intentions of the testator. In the ascertainment of such intention the will in its entirety will be considered, and when once the intention has been discovered the wording of the will will be given such liberal construction and interpretation as will effectuate the intention of the testator so far as may be consistent with established rules of law.”) (citation omitted); Phillips v. Estate of Holzmann, 740 So.2d 1, 2 (Fla. 3d DCA 1998) (“The polestar in construing any will is to ascertain the intent of the testator.”).

In this case, the trust agreement expressly stated that the corpus of the trust, that is, the interests in Edith’s residence and the adjacent vacant lot, were to pass to, and be administered as part of, her estate upon her death. Edith’s will provides that the interest in her residence held by the trust should be passed to her daughter and that the interest in the adjacent vacant lot should pass to her son. She also directed that her debts be satisfied equally from both properties should the funds in her estate be insufficient to satisfy those debts.

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.  .  .  It has long been recognized that the owner of homestead property may devise that property in a manner that terminates the protections accorded by article X, section 4. In Estate of Price v. West Florida Hospital., Inc., 513 So.2d 767, 767 (Fla. 1st DCA 1987), the court confirmed that where a testator directs the sale of homestead property and distribution of the proceeds, the proceeds lose their homestead character and become part of the estate subject to administrative costs and creditors’ claims. As the court explained, this is because the same result would have obtained had the testator sold the property and either gifted or used the proceeds while alive. Id. (“[I]f Mrs. Price had sold her house during her lifetime and distributed the proceeds to her two children, those proceeds would unquestionably lose their homestead character and would be subject to the claims of her creditors.”); see Knadle v. Estate of Knadle, 686 So.2d 631, 632 (Fla. 1st DCA 1997) (holding that because a will specifically directed that homestead property be sold and the proceeds placed in the residue for distribution along with other assets, it lost its homestead character); see also Thompson v. Laney, 766 So.2d 1087, 1088 (Fla. 3d DCA 2000) (confirming that where a will directs that homestead property be sold and the proceeds distributed, the proceeds lose their homestead protection).

Although Edith did not direct that her home be sold, she did direct, in a specific manner, that it be used to satisfy her debts. This was the equivalent of ordering it sold and the proceeds distributed to pay debts, actions which Price and its progeny confirm results in loss of homestead protections.FN1 While the benefits of homestead protections vest in a qualified beneficiary at the moment of a testator’s death,FN2 the property in this case passed into the beneficiary’s hands impressed with the obligation to pay the testatrix’s debts, an obligation that deprived the property of homestead protection under article X, section 4.

This is, of course, wholly consistent with article X, section 4 which expressly confers the power on the owner of homestead property to sell, mortgage, or give it away. See Art. X, § 4(a)(2)(c), Fla. Const. (“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 title to an estate by the entirety with the spouse.”). If a homestead owner (with no spouse and children) can sell, mortgage or give homestead property away while alive and use the proceeds from any such transaction as he or she sees fit, that same owner may give the property away upon death and order it to be used to satisfy debts even if such a devise means the property will no longer enjoy homestead protection.

In this case, rather than selling or mortgaging her homestead interests while alive and using the funds recognized to pay debts, Edith devised her homestead property to her daughter and expressly directed that this devise be used to satisfy a portion of her debts. This devise is wholly consistent with Tescher, Snyder, and Warburton and with article X, section 4 of the Florida Constitution and should be given effect.

Lesson learned?

In his dissent Judge Shepherd made the following observation:

By requiring the devise to Cynthia to abate to pay estate expenses, we incorrectly become the first court to hold that a general direction to pay estate expenses trumps constitutional homestead protections.

Whether you agree with the majority’s decision or Judge Shepherd’s dissent, why take the risk? If there’s any risk your client’s homestead property will be needed to pay probate administrative expenses, I think it still makes sense to include specific language in the will or trust authorizing sale of the homestead property for this purpose.  Here’s how Judge Shepherd described the specific-sale language needed to make sure your client’s estate doesn’t become the next homestead test case:

Nor do the “sale cases” cited by the majority offer any comfort to the majority. See supra p. 8. In both Estate of Price v. West Florida Hospital, Inc., 513 So.2d 767 (Fla. 1st DCA 1987), and Knadle v. Estate of Knadle, 686 So.2d 631 (Fla. 1st DCA 1997), the testators expressly directed their homestead properties be sold upon their respective deaths and the proceeds distributed either equally to their surviving adult children in Estate of Price or under the residuary clause of the will in Knadle. These and a whole host of other Florida cases hold that, in a contest between the application of Article X, section 4(b) and a will directive-as was the circumstance in the two cases cited by the majority-protected homestead becomes an estate asset if and only if “the will specifically orders that the [homestead] property be sold.” Estate of Hamel, 821 So.2d at 1279; see also McKean v. Warburton, 919 So.2d 341, 147 (Fla.2006) (quoting Knadle); Engleke v. Estate of Engleke, 921 So.2d 693, 696 (Fla. 4th DCA 2006) (stating that unless a trust specifically directs homestead to be sold, rights of heirs attach at death and homestead property is protected from creditors). Thompson, cited by the majority, confirms the degree of specificity required in a sale provision in a will to overcome a “protected homestead” challenge:

Florida law specifically provides that homestead property is not subject to the administration of the court unless the will specifically requires that the property be sold. See §§ 733.607608 Fla. Stat. (1995); Knadle v. Estate of Knadle, 686 So.2d 631 (Fla. 1st DCA 1996) (where a testatrix directs in her will that her homestead be sold and the proceeds divided between her adult children, the proceeds lose their homestead character and become subject to the claims of creditors); Estate of Price v. West Florida Hosp., Inc., 513 So.2d 767 (Fla. 1st DCA 1987) (proceeds of sale of testatrix’ homestead, pursuant to will directing sale and distribution of proceeds to adult children, lost their homestead character and were subject to creditors’ claims). The will in the present case makes no such provision.

Thompson, 766 So.2d at 1088.