By Phillip B. Rarick, Esq. and Ashley Fernald
In Florida there is frequently the difficult issue of whether to transfer homestead to a revocable living trust. The client wants to avoid probate and therefore generally wants to transfer the homestead to the trust. However, since the Bosonetto case in 2001, there has been uncertainty as to whether homestead transferred to a revocable trust jeopardizes it’s protection from creditors under Florida’s renowned homestead law.
In Bosonetto, an elderly woman who was about to have a final judgment of more than $100,000 held against her, used most of her invested money to purchase a Florida home. In re Bosonetto, 271 B.R. 403 (Bankr. M.D. Fla. 2001). This was homestead property, but was held in a revocable trust. The Plaintiff argued that trusts cannot claim homestead property as exempt. The court noted that the exemption from forced sale under the Florida Constitution was only applicable to property held by a natural person. The court concluded that because the property was held by the trust, “and because a trust is not a natural person, Defendant Bosonetto may not claim the Florida property is covered by the homestead exemption.” Id. at 407.
However, after Bosonetto, all five courts that have considered this issue, have come to the opposite conclusion, finding that property held by a revocable trust is covered by the homestead exemption from forced sale.
Case #1: In Callava v. Feinberg, Feinberg secured a judgment against Callava for unpaid attorneys fees. Callava v. Feinberg, 864 So.2d 429 (Fla. 3d DCA 2003). Feinberg had an equitable lien imposed on a home that Callava purchased. Callava purchased this home with proceeds from the sale of the home that she was awarded by equitable distribution. The court that distributed the home to her said that the equity in the home could be used to pay her attorneys fees. Feinberg sought foreclosure of the equitable lien on the home and argued that it was not an exempt homestead property because the title was not in Callava’s name, but was instead in a trust. This argument failed. The court found that “the individual claiming homestead exemption need not hold fee simple title to the property.” Id. citing Southern Walls, Inc. v. Stilwell Corp., 810 So.2d 566, 569 (Fla. 5th DCA 2002).
Case #2: In Engelke v. Estate of Engelke, the court found that regardless of the fact that the house was held in a revocable trust, it was still owned by a “natural person” within the meaning of the constitutional homestead exemption. Engelke v. Estate of Engelke, 921 So2d 693 (Fla. 4th DCA 2006). Even though the revocable trust held the title to the house, the beneficiary still had an ownership interest.
Case #3: In In re Alexander, the court refused to follow the reasoning in In re Bosonetto. In re Alexander, 346 B.R. 546, 551 (Bankr. M.D. Fla. 2006). The debtor, in this case, transferred the property to a revocable trust. The debtor was the trustee and sole beneficiary of the trust. The court concluded that the debtor could claim the property as homestead-protected property under the Florida Constitution.
Case #4: Citing to Engelke v. Estate of Engelke and In re Alexander, the court in In re Edwards found that property titled to a revocable trust can be protected homestead property within the meaning of the Florida Constitution. In re Edwards, 356 B.R. 807, 810-11 (Bankr. M.D. 2006).
Case #5: The court in Cutler v. Cutler found “property held in trust may be impressed, legally speaking, with the character of homestead.” Cutler v. Cutler, 994 So. 2d 341 (Fla. 3d DCA 2008). In this case, the decedent transferred title to her homestead property to her trust. Her trust had the property passing to her estate upon her death. The estate did not have enough funds to satisfy all the decedent’s creditors. However, this court found that the property was protected from creditors under the Florida Constitution.
It is apparent from these five cases that the Florida courts are choosing not to follow Bosonetto. However, the issue of whether Florida homestead loses its protection from creditors upon transfer to a revocable trust has not been heard or resolved by the Florida Supreme Court.
Take Away Points:
1. With these five reported post-Bosonetto cases, there is very low risk of losing the homestead protection from forced sale by creditors if the homestead is transferred to a revocable living trust. However, since most clients have a zero risk tolerance for jeopardizing their homestead protection, this risk should be explained to the client prior to any transfer.
2. Clients in high-risk professions (doctors, dentists, etc.) should likely not transfer their homestead to their revocable living trust because the issue raised in Bosonetto has still not been overturned by the Florida Supreme Court.
Special Note
The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult a Miami Trust attorney experienced in Florida estate planning law. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.