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Homestead Protection – New Decisions

There have been a few recent decisions from Florida’s appellant courts that are providing some additional directions regarding Florida’s homestead protections. One of those decisions involves joint tenants with right of survivorship and the other involves the loss of homestead protection from creditors upon the termination of a life estate.

In previous articles written by this author, you would have learned that Florida’s Constitution provides that a person’s homestead is generally protected from forced sale by a creditor unless the creditor is a mortgagee or a person who improved another person’s real property or when a person fails to pay their property taxes. Florida statutes also provide that a surviving spouse is entitled to either a life estate or tenancy in common to homestead property should such homestead property: 1) not be titled in the surviving spouse’s name at the other spouse’s death; 2) there are minor children living in the residence and the property is not titled in the surviving spouse’s name; or, 3) the decedent did not devise the homestead property to the surviving spouse upon the other spouse’s death and the property was not titled in the couples names. The following recent Court decisions have carved out some unique exceptions to the general protections mentioned above, they are:

CASE #1

In one of the recent cases, the court was faced with a situation where a husband and wife purchased a life estate from a condominium association. The contract with the condominium association read that at the death of the surviving spouse, the condominium association would buy back the property and the proceeds from the buy back would then pass to the decedent’s estate. The question the Court was faced with was whether the proceeds from the buy back by the condominium association was protected from creditors.

A life estate is an ownership in property that is only as good as the owner’s life. Thus, at the owner’s death the property immediately transfers to a named person whose name is generally contained on the deed to the property as a remainderman. In this case, upon the surviving spouse’s death the property was to transfer back to the condominium association upon payment of the agreed contract price. The issue here is whether the buy back proceeds will be considered protected homestead.

Under normal circumstances the proceeds from the sale of homestead property is exempt from creditor claims (with the 3 major exceptions mentioned earlier). As a result, the heirs of a person’s estate would normally receive the sale proceeds of their parents homestead free and clear of any creditor claims. Because the parents held a life estate in the property with a buy back provision, the Court ruled that there was no homestead protection following the surviving spouse’s death under Florida’s Constitution. In essence the proceeds that would transfer to the decedent’s estate and out to the heirs was open to creditor claims.

The message delivered from this case is that the sale of a life estate by a person does not always protect the proceeds from creditor claims. The additional consequence of this ruling gave the personal representative and the administrating attorneys the right to include the sale proceeds of the homestead as an inventoried asset. This resulted in the ability to include it as additional compensation when calculating their fees for the personal representative and attorneys.

CASE #2

In another recent case, the Court was faced with a situation where a son with minor children purchased a residence with his mother. Upon closing the sale, the mother and son elected to title the property as joint tenants with right of survivorship. Unfortunately, the son died without a Will or surviving spouse. The son’s mother claimed full title to the property following her son’s death.

Florida statutes provide that in the event homestead property is titled in the name of a decedent and there are surviving minor children, the property will pass as a life estate to a surviving spouse with a vested remainder to the decedent’s lineal children who are alive.

In this case, the Court ruled that the mother took the property upon death because the son’s interest in the homestead terminated at this death by reason of the joint tenancy with right of survivorship. Although the Court ruled strictly to the consequence of the passing of the property to the mother, there was no discussion of what would happen had the son had a Will and devised his estate outright to his sons. In this author’s opinion the outcome would have been the same because the son’s interest in the homestead property terminated at his death. There simply was nothing to devise.

The message from this case is the same as that of the previously discussed life estate, if it is your intention to pass one of the major assets of your estate to your spouse or children, re-think how you take title to the property being purchased.

CASE #3

In an even more unique case involving homestead, the Court was faced with the situation where property previously titled in the names of a husband and wife was changed such that the husband conveyed his interest by warranty deed to his wife. The issue the Court had to decide was whether the transfer of the husband’s interest to his wife was a relinquishment and waiver of all spousal rights under Florida’s Constitution.

Florida’s Constitution states that a person cannot devise their homestead property if that person is survived by a spouse or minor children. However, a decedent can devise their homestead property to their surviving spouse provided there are no surviving minor children. The Constitution goes on to state that a person can alienate (sell, mortgage or gift) their homestead property provided the spouse joins in on the alienation.

In this case the husband transferred his interest in the homestead property to his wife as her sole estate. The wife then died and devised the homestead property as a life estate to her husband with the remainder going to her sister at the husband’s death. The Court ruled that the Warranty deed from the husband to the wife did in fact act as a waiver of all spousal rights to Florida’s Constitution and Statutes. The court noted that the husband and wife clearly expressed their right to convey their interest upon the execution of the Warranty deed. The Court relied upon the language contained in the Warranty deed where the husband waived his right to his “heriditaments” which is the equivalent of anything capable of being inherited.

The message to be derived from this case is new and will likely result in some new estate planning techniques involving spousal devises of homestead property. Some classic examples will include those situations involving second marriages where there are children on both sides of the marriage.

Upon reading the above recent appellant court decisions, the author strongly recommends that you contact an attorney when it comes to titling your homestead property. You should discuss with your attorney what you want to accomplish at death such that your testamentary documents and homestead property can pass according to your desires. It could save your heirs and estate a significant amount of expense and time should it become necessary to initiate court proceedings to determine the intent of the parties.

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