Excerpt from Chapter 2, Estate Planning and Asset Protection in Florida: A Plan to Survive Unexpected Financial Threats by Barry A. Nelson
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Chapter 2 - Table of Contents
2-1 Introduction
2-2 Homestead – A Hornet’s Nest
2-3 Constitutional Protection From Forced Sale
2-4 Purpose of the Exemption
2-5 General Discussion Florida State Law vs. Bankruptcy Court Law
2-6 Residency Requirement for Homestead Status
2-7 Acquisition of Homestead Using Non-Exempt Funds with Intent to Hinder, Delay, or Defraud a Creditor
2-8 Prohibiting Fraud and Egregious Conduct
2-9 How Do You Establish a Florida Residence as Homestead? Florida Law and Bankruptcy Law
2-10 What Constitutes Acquisition of Homestead During 1,215-Day Period Under BAPCA?
2-11 Effect of Florida Statute § 222.25 on the Homestead Exemption
2-12 Ownership Requirement
2-13 Acreage Limitation for Homestead Status
2-14 When Does a Home Under Construction or an Adjoining Lot Become Protected as Homestead?
2-15 Conversion of Exempt Assets Into Homestead
2-16 Other Homestead Issues – Asset Protection
2-17 Homestead Must Be In Florida/Protection Applies to Claims of Municipalities
2-18 Boats and Mobile Homes – Florida State Court and Bankruptcy Court
2-19 Tax Liens and Federal Preemption Statutes with Homestead
2-1 Introduction
The reason homestead is at the top of the Pyramid for Florida residents is because the protection is provided by the Florida constitution as well as statutorily. The homestead exemption has no dollar limitation so Florida residents can own a Florida homestead (subject to acreage and other limitations) regardless of its fair market value and the entire equity in the home would be protected if the requirements are satisfied. Homestead protection is available regardless of whether the owner is single or married. If asset protection is a priority, owning a Florida homestead is far better than renting a home because of Florida’s favorable homestead laws. Many who have purchased well located homesteads have found that in addition to the favorable asset protection benefits, their homesteads significantly appreciated in value.
Numerous rules must be followed to qualify for Florida homestead protection. Although the value of the protected homestead is unlimited, the size of the lot is limited to ½ acre if the home is located within a municipality. The ½ acre limitation does not apply if the debtor acquired the home before the incorporation of the municipality, in which event the home could be on up to 160 contiguous acres and still be protected. Any homestead located in an unincorporated area (i.e., not within a municipality) may be on no more than 160 contiguous acres and maintain homestead protection. To qualify for homestead, the owner or family members residing in the homestead must be a United States citizen or permanent resident of the United States for immigration purposes, and the owner, or at least one member of the owner’s family who lives in the residence, must be domiciled in Florida. The home must be owned by an individual or certain qualified trusts. Homestead protection is unavailable if the home is owned by a corporation, partnership or limited liability company (“LLC”).
The identity of the legal owner of the homestead can have dramatic impact on the availability of the homestead exemption. Whether fee simple ownership of homestead is required to benefit from homestead protection varies based upon whether the homestead issue relates to: (i) asset protection, (ii) property tax reduction, or (iii) limitations on the ability to devise or encumber the homestead. For asset protection and property tax exemption qualification purposes, a co-op can benefit as homestead but a co-op is not homestead for limitations on descent.[1]
2-1.1 What are the Greatest Traps for the Homestead Owner for Asset Protection Purposes?
Homeowners must be certain to satisfy all statutory and administrative requirements to avoid the loss of homestead status. For example, homestead benefits are unavailable while a new home is under construction until a certificate of occupancy is granted and the homeowner resides in the residence. Only the equity in the homestead is protected. Therefore, if the home is valuable but is subject to a mortgage securing 80% of the value of the residence, then only 20% of the homestead value will be protected from creditors, because the mortgage holder will benefit from 80% of the sales proceeds.
2-1.2 What are the Biggest Traps for Professionals in Advising Homestead Issues for Asset Protection?
Florida’s homestead laws encompass three separate areas: asset protection, property tax reduction and limitations on the ability of the homeowner to devise a Florida homestead. Professionals practicing outside of Florida (as well as Florida attorneys who are unfamiliar with homestead law) may be unaware as to the differences in homestead protection based upon the three separate sets of homestead laws. If a Florida homestead is retitled in the name of an LLC or limited partnership at the recommendation of an attorney not conversant in Florida homestead law, the county property tax appraiser will reassess the home, which in many cases (as described in Chapter 4) will result in a significantly higher property tax assessment for the rest of the time the owner resides in the homestead. The home will also no longer be protected homestead from creditors’ claims.
2-2 Homestead – A Hornet’s Nest
As the Florida Supreme Court noted in Snyder v. Davis,[2] there are three kinds of homestead with one purpose: preserving the family home for its owner and heirs. The first kind…provides homestead with an exemption from taxes.[3] The second protects homestead from forced sale by creditors.[4] The third delineates the restrictions a homestead owner faces when attempting to alienate or devise homestead property.[5]
Establishing Florida homestead protection is addressed in this chapter. The process of how to safely abandon homestead and reinvest the sales proceeds in a new homestead, as well as a discussion on how to avoid an unexpected loss of homestead exemption, is addressed in Chapter 3. Property tax savings resulting in a three percent (3%) annual Cap (the “Save Our Homes Cap”) in property tax increases for owners of Florida homestead and planning to avoid the loss of such Cap is addressed in Chapter 4. Florida homestead cannot be devised in a Will or revocable trust if the owner is survived by a spouse or a minor child. Referred to as alienation limitations, these provisions create malpractice traps and frequently undesirable or unanticipated transfer limitations. Florida’s limitations on the homestead owner’s ability to devise or encumber a Florida homestead are addressed in Chapter 5.
Footnotes
[1] See In re Wartels’ Estate, 357 So.2d 708 (Fla.1978) (holding that a co-op is not homestead for purposes of descent because it is not an interest in realty).
[2] 699 So.2d 999, 1001 (Fla.1997).
[3] Fla. Const. Art. VII, § 6.
[4] Fla. Const. Art. X, § 4(a)-(b).
[5] Fla. Const. Art. X, § 4(c).
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