One request we frequently receive is to prepare a deed to transfer a person’s Florida Homestead into the person’s revocable living trust. The reason for the request is always to avoid probate.
This is a summary of the discussion that should occur with one’s attorney before the person decides to make that transfer. There are at least four options to consider if one is married before taking action (three options to consider if one is unmarried):
- Do nothing at all and retain ownership in the person’s individual name, assuming the person is single or retain ownership in the joint names of husband and wife. If married and ownership is jointly held, there is not a probate at the first spouse’s death;
- Transfer ownership to one’s trust if single. If married and there is a joint trust, transfer ownership to that trust;
- If married and each spouse has a trust, ownership may be transferred by conveying an undivided one half interest to each person’s trust. (This article does not discuss the issues associated with splitting ownership between two trusts. This option has its own set of issues to consider.); or
- Establish a life estate interest so that the “remainder” interest would be transferred to one’s beneficiaries after death by operation of Florida law.
Please keep in mind there are advantages and disadvantages in each of the above options. The person must decide which is the best option for their particular circumstances and in keeping with their tolerance for risk.
Just so the reader knows where I stand on this issue, in my own trust-based estate plan I have not transferred my Homestead to my trust. I have not done so because The Supreme Court of Florida has not yet decided the issue of whether a person would lose the protection from the claims of third-party creditors. Lawyers have learned over the years that suspecting what the Court may say on any question is hardly a sure thing.
If ownership of one’s Florida Homestead is transferred to a trust, will the person retain the protection provided by the Florida Constitution from the claims of third-party creditors against the person’s Homestead? Saying this more bluntly, will the person give up protection from creditors being able to take their home for failure to pay a debt, e. g. a car accident and the person’s insurance coverage does not cover all of the damages because the person was underinsured?
Because the Supreme Court of Florida has yet to decide whether a person would retain the protection from the claims of third party creditors, there is a chance that one would lose that protection if they transfer ownership of their Homestead to a trust. Most legal commentators now say that one will not lose their protection from third-party claims by transferring ownership to a trust; however, there remains some risk, probably small, that the protection from third-party creditor claims may be lost if ownership is transferred.
Until The Supreme Court of Florida speaks to the question, there is no guarantee that one would not lose the protection from the claims of third-party creditors if Homestead ownership is in a trust. If one is willing to assume the risk of the loss of that protection, which I agree is probably small, then making the transfer is a viable option to avoid probate. If one is conservative, as I am when it comes to this question, one would not transfer ownership of their Homestead to their trust.
A person may also avoid their Homestead being the subject of a probate process by having a life estate in the Homestead with the remainder interest going equally to beneficiaries when the life tenant or tenants have both passed away. The use of a life estate will retain the protection against the claims of third-party creditors and yet allow beneficiaries to avoid the probate process.
Please do not select any action discussed in this article before thoroughly discussing the pros and cons with your real estate attorney or your estate planning attorney.