We receive frequent requests to prepare a deed to transfer ownership of one’s Florida homestead to their revocable living trust. The reason for the request is always to avoid having one’s homestead involved in probate.
Before you make the decision to transfer ownership of your homestead to a trust, discuss the implications to your estate plan with your attorney. Here are five considerations to discuss with your estate planning attorney before making a change:
1. Retain ownership of your homestead in your individual name if you are single, or if you are married, in the joint names of you and your spouse. If married and ownership is held jointly between spouses, the homestead would avoid probate at the death of the first spouse to die. When the sole, individual owner of real property has passed away, the property must be probated in order for it to be transferred to the rightful beneficiary(ies).
Keep in mind that your spouse may have homestead rights. If you are married, your spouse has rights concerning your Florida homestead. Those rights may not be set aside or minimized without a written agreement between spouses that complies with Florida law.
2. Have One Trust. Transfer ownership of your homestead to your trust if you are single. If married and you have a joint trust with your spouse (both spouses have one trust), ownership may be transferred to your joint trust. Your homestead would avoid probate in both scenarios and the homestead would be distributed according to the applicable trust terms.
3. Have Two Trusts. If married and each spouse has their own trust, ownership of the homestead may be transferred by conveying an undivided one-half interest to each spouse’s trust. Alternatively, the homestead may be owned by one spouse’s trust with the other spouse having the exclusive right of possession if they survive the trustmaker-spouse. The homestead would avoid probate in both scenarios and after both spouses have passed away, the homestead would be distributed according to the applicable trust terms.
Note: This article does not discuss the issues associated with splitting spouses’ ownership between two trusts. That option has its own set of issues to consider.
4. Create a Life Estate with the Remainder Going to Your Beneficiaries. Whether you are single or married, you may establish a life estate in your homestead for you, or you and your spouse. When all life estate holders are deceased, the “remainder” interest in the homestead is transferred by law directly to the named remainder beneficiary(ies). A properly drafted life estate deed avoids probate upon the death(s) of the life estate holder(s).
5. Create a Life Estate with the Remainder Going to Your Trust. The same life estate deed described above can name your trust as the reminder beneficiary. When all life estate holders are deceased, probate is avoided and the remainder interest in the homestead would transfer directly to the trust, to be distributed according to the trust terms.
Advantages of using a life estate deed. You retain exclusive possession of your homestead and the protection against the claims of third-party creditors is not lost. A life estate is usually better suited for a homestead not encumbered with a mortgage, and is likely to remain your long-term homestead.
What is Homestead Protection and Why Does It Matter? The Florida Constitution protects your Florida homestead from the claims of third-party creditors. If ownership of your Florida homestead is transferred to your trust, will you retain that protection? Or do you give up your protection from creditors being able to take your home for failure to pay a debt?
An example of a debt might be a debt owed from a car accident where your insurance coverage did not pay all of the damages because you were under-insured. Most legal commentators, supported by Florida case law, say a Florida resident will not lose their protection from third-party claims if they transfer ownership of their homestead to a revocable living trust; however, there still remains some risk (probably very small) that the protection from third-party creditor claims may be lost if ownership is transferred to your trust.
Please select no action discussed in this article until you discuss the advantages and disadvantages with your real estate or estate planning attorney. With his or her guidance, you can then select the best option for your own circumstances.