Florida Homestead Primer
Florida homestead is a multifaceted issue. The failure of a Florida resident to understand how various homestead issues apply to residential real estate, estate planning, and asset protection can lead to unintended and unfavorable results.
A thorough review of Florida homestead issues could be the subject of an entire book. Therefore, this article is just a brief overview of the three main ways that homestead can affect you including:
- Homestead property tax exemption and “Save Our Homes”,
- Florida constitutional protection of homestead from creditors, and
- Florida constitutional limits on the devise of homestead property (i.e. limits on leaving homestead property via your will or trust).
1. HOMESTEAD PROPERTY TAX EXEMPTION AND “SAVE OUR HOMES”
This is the most straight-forward aspect of homestead in Florida, so I’ll address it first.
The Florida Constitution provides that if you own real estate that is your permanent residence, or is the permanent residence of someone who is legally or naturally dependent upon you, then that real estate is exempt from taxation up to the assessed valuation of twenty-five thousand dollars and, for all levies other than school district levies, on the assessed valuation greater than fifty thousand dollars and up to seventy-five thousand dollars. To qualify, you must own the property as of January 1 of the year in question, and to secure a new homestead exemption, you must file an application by March 1 of that year.
Pursuant to statute, there is also an additional $500 exemption for widows and widowers, as well as for blind and disabled persons owning homestead property.
Finally, the Florida Constitution was amended effective in 1995 to limit annual property tax assessment increases on homestead property to the lesser of 3% or the change in the Consumer Price Index for the prior year. A 2008 amendment added the ability to transfer and retain up to $500,000 of previously accumulated capped value when you move within Florida to a different homestead.
Obviously, these laws provide an opportunity to save on property taxes on your homestead if you know about them and act in a timely manner to claim the exemptions.
2. FLORIDA CONSTITUTIONAL PROTECTION OF HOMESTEAD FROM CREDITORS
One reason that Florida is an attractive place to live is that it has relatively favorable debtor protection laws. Perhaps the best example is the constitutional protection of certain homestead property. Specifically, a homestead is exempt from forced sale or liens, unless the lien relates to taxes, or building or improving the home. Importantly, federal bankruptcy law supersedes Florida law to limit the amount protected in certain bankruptcy cases where the homestead was recently purchased.
Article X, §4(a)(1) of the Florida Constitution defines the size of a homestead that is eligible for protection. If located outside a municipality, homestead property up to one hundred sixty acres of contiguous land and improvements is covered. If located within a municipality, one-half acre of contiguous land that includes the residence of the owner or the owner’s family is covered. Regardless of the value of a homestead that meets these requirements, creditors will not be able collect on their claims by taking the debtor’s home.
Very importantly, Article X, §4(b) goes on to provide that the exemption from forced sale by a creditor of the owner of the property shall pass to the surviving spouse or heirs of the owner. Such property is referred to as “protected homestead.” So if a debtor/homestead owner is protected by these provisions during their life, and they properly pass the homestead to a spouse or heirs at death in accordance with related statutes and case law, the homestead can be freely passed to family members. If done property, a creditor of the decedent will need to look elsewhere to satisfy it claim.
As you might imagine, motivated creditors constantly attack debtors’ claims of homestead protection, and this is one reason that a book would be required to completely cover this subject. Is the homestead property too big? Is it really used as a homestead? Was the transfer to heirs done properly to qualify as “protected homestead?” Does owning the homestead in a trust negate the protection?
In summary, constitutional homestead protection reflects a public policy to protect families from being rendered homeless due to debts or the death of the homestead owner. But in order to enjoy this legal protection, you must understand the requirements and implement a plan of ownership and inheritance that meets those requirements.
3. FLORIDA CONSTITUTIONAL LIMITS ON THE DEVISE OF HOMESTEAD PROPERTY
While the property tax exemption and asset protection aspects of homestead provide opportunities for you to use your homestead to your benefit, the constitutional limitation on devise can be a trap that wrecks an otherwise well-developed estate plan. The same public policy to protect families from becoming homeless due to debts applies here to protect surviving spouses and minor children from becoming homeless if the owner of homestead property dies, and attempts to leave homestead property to someone else. Importantly, property held by husband and wife as tenants by the entirety, and property held by anybody as joint tenants with right of survivorship, are not included in this limitation. Therefore, this limitation typically applies only when homestead property is owned by only one spouse, or one parent of a minor child.
Article X, §4(a) of the Florida Constitution provides that the homestead shall not be allowed to be devised (i.e. given through a will or trust) if the owner is survived by a spouse or minor child, except the homestead may be devised to the owner’s spouse if there are no minor children. Therefore, regardless of what any will or trust states, if there is a spouse and minor child when a homestead owner dies, the spouse automatically receives a life estate in the property, and all children of the decedent (both minors and adult), will inherit equal shares of the remainder of the property once the surviving spouse later dies. By statute, the spouse can elect to immediately take a one-half share of the property as a tenant in common with the children instead of taking a life estate. If there is only a spouse and no minor children, the spouse gets the entire property. If there is no spouse but one or more minor children, all children (both minors and adults) take equal shares. Only if there is no spouse and no minor children can the owner leave the property to whomever he/she wishes.
These limitations can interfere with many estate plans that are prepared without awareness or understanding of them. Sometimes, in second marriages for example, a homestead owner might provide for the second spouse in one way, and plan to give children from a prior marriage the homestead property. Obviously, given the limitations described above, that will not work unless proper planning is done, typically through a prenuptial or post-nuptial agreement, or waiver from the spouse. Similar unintended results can arise when an estate plan was prepared in another state, prior to relocating to Florida, and without any concern for Florida homestead laws. Such a plan should be reviewed and updated to address the impact of this limitation.
CONCLUSION
Florida homestead laws are unique. While they are largely beneficial to homestead owners, and implement important public policies, they can cause difficulties if not understood and properly addressed when buying or transferring real estate, preparing your estate plan, or taking prudent steps to protect your important assets.
