What happens to the residence is one of the most anxiety-inducing questions that most surviving spouses endure. When there is no surviving spouse, the home is nevertheless one of the major assets of the estate, and may have a great deal of emotion wrapped up in it.
To make matters even more interesting, Florida’s homestead laws can throw some curves into the estate administration.
When a person owns a Florida residence, and it is their primary residence, chances are it qualifies as Florida homestead and will be subject to the laws that I outline in this blog. This is true even if the homeowner never formally declared the residence as their Florida homestead to benefit from the tax exemptions.
Florida homestead includes condominiums, townhouses, and manufactured homes. The rules I describe in this blogapply to almost any structure that serves as the decedent’s primary residence.
Declaring the residence as Florida homestead results in certain property tax benefits, including a Florida homestead exemptions that reduces the annual property tax burden. More importantly, the Save Our Homes constitutional amendment limits the increase to a Florida homestead’s annual assessed values to no more than three percent (3%), even if the home appreciated more than that over the course of the year. Over several years, this limitation can lead to several thousand dollars of property tax savings.
Another quirk to the homestead laws involves how your home can be devised. If you are married and/or have minor children, you cannot devise the homestead to anyone other than your spouse. If you do so, even if you devise the homestead to a trust that benefits your surviving spouse, you will have made an invalid devise and the surviving spouse is entitled to either a life estate in the home or can choose a one-half (½) joint interest as tenants in common.
A renowned Florida homestead benefit is its asset protection feature. A Florida homestead is generally exempt from the claims of any unsecured creditors, both during the owner’s lifetime and at his death. Luminaries being chased by creditors, such as O.J. Simpson and Bowie Kuhn, have dumped wealth into a Florida home, declaring it as their primary residence to thwart creditors.
The home is not deemed to be an inventory asset of your probate estate, even if it is owned solely in your name at the time of your death. So if you have $500,000 of unsecured credit card debt at the time of your death, and you only own a $500,000 home free and clear of any mortgages, so long as you leave your home to a legal heir at law (spouse and children qualify as such), then they can inherit your home free and clear of the unsecured creditor debt!
When someone dies with homestead, then the attorney for the estate will work with the trustee and/or the personal representative to ensure that the proper party inherits the home in the correct and best way.
First, let’s tackle the easy issues. If the home is owned jointly as husband and wife or as tenants by the entireties with a spouse, then the spouse will inherit the home free and clear of any probate estate and/or trust administration process. The homestead property tax exemptions and the Save Our Homes property tax assessment cap will stay in place without change.
The attorney will work with the surviving spouse to record a certified copy of the death certificate, an affidavit of continuous marriage, and an affidavit of no Florida estate tax due. Combined, these documents will vest legal title in the surviving spouse, and he or she is free to do with the home as he or she pleases.
The fact pattern becomes stickier when the will or trust contains an invalid devise. This is actually quite common with clients who became Florida residents and never updated their estate plans. Here, the home might be owned by one spouse or the other, and upon the death their will and/or trust creates a testamentary trust for the benefit of the surviving spouse.
This is not a devise to the spouse outright, as the law requires. Absent a nuptial agreement where the surviving spouse expressly waived her Florida constitutional and statutory homestead rights, the will and/or trust now becomes irrelevant. Florida law dictates the disposition of the home.
The surviving spouse receives a life interest in the home, with the remainder vesting in the decedent’s children. The law says that the spouse and children are supposed to share the ongoing expenses relating to the home, even if the spouse is the party who continues to reside in the residence, as he or she would have every right to.
If the surviving spouse makes a timely election, she can instead take an undivided one-half (½) interest as tenants in common in the home. This allows her to decide how her one-half of the home will be bequeathed in her estate—and could potentially disrupt an estate plan, especially in second marriage situations.
When the surviving spouse inherits through the descent and devise laws, she will maintain the homestead property tax exemptions, as the Save Our Homes property tax assessment cap will also continue.
Where an invalid devise results in unintended consequences, all is not lost if the affected parties can all agree in the desired end result. Legal tools, such as “qualified disclaimers,” where a party who is entitled decides to forgo their rights, are often used to get the desired result.
When there is no surviving spouse in the picture, and if the beneficiaries qualify as “heirs” under Florida law (spouses, children, and grandchildren all meet the definition), then they can inherit the property free and clear of any unsecured creditors. Secured creditors, such as mortgage lenders, are not affected by the proceedings.
Normally, in order to pass clear title of the homestead to a beneficiary, a Petition to Determine Homestead is entered in the probate court, resulting in a court Order Determining Homestead. Once recorded on the public records, this Order will tell future title examiners that the parties who inherited the home had the legal right to do so in accordance with Florida’s descent and devise laws described above.
This court order may therefore be important when the family wishes to sell the residence at some future date.
One final note—when anyone other than a surviving spouse inherits a Florida homestead, the homestead property tax exemption as well as the Save Our Homes property tax exemption cap disappears, even if the subsequent owner intends to make the residence their own primary Florida homestead. The loss of these benefits usually results in higher property taxes. The new owners will have to start over with the assessment caps and in declaring their own homestead exemptions.
If the personal representative or the trustee is going to sell the home (or any other residence owned by the estate or trust), the attorney should be asked to review the Realtor’s listing agreement and then any sales contract prior to its signing.
The standard listing agreement and Florida sales contract are not appropriate in most estate situations without amendment. This is because a standard listing agreement usually provides that the Realtor is entitled to his or her commission regardless of whether closing occurs, so long as the Realtor provides a “ready willing and able” Buyer.
Sometimes, however, through no fault of the personal representative/trustee, closing is delayed, which could cause a Buyer to back out. Tax liens, beneficiary disputes, creditor issues, or even the probate process itself (which may require a court order to sell the home) could result in unintended delays. For this reason the Realtor’s listing agreement should indicate that a commission is only due upon closing.
Likewise, the standard FAR/BAR (Florida Association of Realtors/Florida Bar) residential sales contract contains provisions which should normally be struck. One such provision, for example, is the warranty that Seller knows and has disclosed all of the residence’s possible problems and defects. The personal representative/trustee may not have personally resided in the home and therefore would have no knowledge of any problems such as termites, plumbing, or structural problems.
The attorney could instead provide that the residence is sold “As is,” and would give the Buyer adequate time to hire his or her own inspectors to ensure that there are no major problems.
Failure to modify the listing agreement and sales contract could subject the personal representative/trustee to liability for a period of years after the close of the administration.