Home Properly Titled in Name of Revocable Trust Can Still Be Homestead
Many of us use a Revocable Trust, also known as a Living Trust, instead of a simple Will to keep assets outside of court when we die or if we become incapacitated. Whether a homestead would remain exempt from creditor claims when title was held in a revocable trust, however, has been questionable. Recent decisions by the Fourth District Court of Appeal of Florida and United States Bankruptcy Court for the Middle District of Florida now recognize that conveyance of homestead property to the trustee of a revocable trust in Florida does not necessarily change its homestead status.
In the case of Engelke v. Estate of Engelke, 921 So.2d 693 (Fla. 4th DCA 2006), the trustee of a decedent’s trust appealed an order of the probate court that required the trust, which held as its primary asset the one-half interest in decedent’s residence, to pay expenses that were not covered by the estate assets. The court held that expenses of the administration of the estate (i.e. creditor claims) could not be paid by the trust, even though the trust provisions directed that expenses of the administration be paid from the trust, because the only asset of the trust was the constitutionally protected homestead. For real property to qualify for homestead protection the owner must: (1) have legal or equitable interest in the property entitling the person to use and possess the property as a residence, (2) have the intention to make the property his or her homestead, and (3) actually maintain the property as his or her principal residence. The court reasoned that since the trust was revocable, the decedent retained an ownership interest in the property as required for homestead protection.
The United States Bankruptcy Court for the Middle District of Florida followed the reasoning of Engelke in In re Alexander, 346 B.R. 546 (Bkrtcy. M.D. Fla. 2006). When Merry Alexander filed bankruptcy and asserted that the property qualified as her homestead, therefore, exempt from the claims of creditors, a judgment creditor objected to the claimed exemption stating that she was not entitled to the exemption because the property was not in the name of a “natural person” as required by the Florida Constitution. The court overruled the creditor’s objection and held that an individual claiming the exemption does not need to hold actual title to the property. It is sufficient that the individual have an equitable right to use and possess the property as a residence.
In light of these favorable decisions, it may be time to consider transferring your homestead to a revocable trust. You still retain control over your assets and how they are managed if you put them into a revocable trust, yet you get peace of mind that your assets can be managed without court intervention should you become incapacitated and avoid probate at death. In the meantime, the trust can be changed at any time should you desire. For more information why you should have a revocable trust, please see Your Second to Last Will.
Be wary though. Most Florida counties have special requirements to maintain the homestead tax exemption and special language may be required in the trust agreement and the deed. You should consult an attorney who specializes in this area who can discuss your particular situation more fully before making the decision to transfer your homestead property to a revocable trust.
By: Michelle N. Shupe-Abbas, Esq.
Ph: (305) 444-7662
Email: MSA@AristaLaw.com |
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