In the state of Florida, homestead protections are a significant topic of interest for property owners. These protections serve as a shield against certain types of creditors and offer tax benefits. However, the landscape becomes murky when you decide to put your property into a trust. This blog post aims to shed light on this complexity by examining the Engelke v. Estate of Engelke case and the critical Florida Statute 196.041, which defines legal or beneficial titles to property concerning homestead exemptions.
Florida’s homestead laws are designed to provide a safety net for homeowners. The protections extend not just to the owner but also to the owner’s spouse and heirs. The most apparent advantage is the asset protection against certain creditors, making it challenging for them to force the sale of the home to satisfy debts. The second layer of protection comes in the form of tax advantages, particularly in property tax assessments.
Trusts serve various purposes ranging from estate planning to probate avoidance. However, putting your property into a trust technically means transferring its legal title from your name into the trust. While trusts offer advantages, this transfer of title leads to questions about whether the property still qualifies for homestead protections under Florida law.
A Revocable Trust Still Allows you to Keep your Homestead Protections: Engelke v. Estate of Engelke
Engelke v. Estate of Engelke, which came before Florida’s Fourth District Court of Appeals in 2006, the judges were faced with a unique question: Could a house owned through a trust still qualify as a homestead under Florida law? At the heart of the matter was the late Paul Engelke, who had placed his home in a revocable trust.
The court pointed out that even though the home was technically owned by the trust, it was, for all intents and purposes, owned by a “natural person” when it came to homestead protections under the state constitution. What made the difference was Engelke’s right to revoke the trust at any time. Because of this right, he effectively retained a form of ownership over the house.
The judges concluded that Paul Engelke’s right to dissolve the trust meant that he never really gave up his stake in the home. So, as far as the law was concerned, his primary residence within the trust was indeed his homestead, granting him all the protections that come with that designation.
Critically that means that you can hold Property in a Trust in the State of Florida and still maintain the homestead tax exemptions to allow you to take advantage of the tax incentives Florida affords homeowners.
Homestead Rights in Other Beneficial Property Interests:
The Florida government has also extended the homestead protection to other types of ownership interests. This is codified as follows:
Fla. Stat. 196.041 Extent of homestead exemptions.—
(1) Vendees in possession of real estate under bona fide contracts to purchase when such instruments, under which they claim title, are recorded in the office of the clerk of the circuit court where said properties lie, and who reside thereon in good faith and make the same their permanent residence; persons residing on real estate by virtue of dower or other estates therein limited in time by deed, will, jointure, or settlement; and lessees owning the leasehold interest in a bona fide lease having an original term of 98 years or more in a residential parcel or in a condominium parcel as defined in chapter 718, or persons holding leases of 50 years or more, existing prior to June 19, 1973, for the purpose of homestead exemptions from ad valorem taxes and no other purpose, shall be deemed to have legal or beneficial and equitable title to said property. In addition, a tenant-stockholder or member of a cooperative apartment corporation who is entitled solely by reason of ownership of stock or membership in the corporation to occupy for dwelling purposes an apartment in a building owned by the corporation, for the purpose of homestead exemption from ad valorem taxes and for no other purpose, is deemed to have beneficial title in equity to said apartment and a proportionate share of the land on which the building is situated.
(2) A person who otherwise qualifies by the required residence for the homestead tax exemption provided in s. 196.031 shall be entitled to such exemption where the person’s possessory right in such real property is based upon an instrument granting to him or her a beneficial interest for life, such interest being hereby declared to be “equitable title to real estate,” as that term is employed in s. 6, Art. VII of the State Constitution; and such person shall be entitled to the homestead tax exemption irrespective of whether such interest was created prior or subsequent to the effective date of this act.
At its core, the statute asserts that you don’t have to hold the deed to a house to be considered its owner in the eyes of the taxman. If you’re making honest-to-goodness payments on a land contract, living on property because of specific legal arrangements like dower or life estates, or holding a lease with an original term of 98 years or more, you’re in the clear. Even if your connection to the property is through a lease that predates June 19, 1973, and is for 50 years or more, you’re eligible for the homestead exemption.
The law also makes room for more modern living arrangements. Say you’re a member of a cooperative apartment corporation and your right to occupy an apartment is solely due to owning stock or membership in that corporation. Well, you too can claim a homestead exemption from property taxes, at least as far as your apartment and a proportionate slice of the building’s land are concerned.
But what if your claim to the property is through something called “equitable title,” meaning you have a beneficial interest for life but may not hold the deed? Fear not. The statute is explicit that, in such cases, you still qualify for the tax break, whether your interest was set up yesterday or years ago.
But what about homestead tax exemptions for properties in trust, let’s address the burning question: Can such a property in the state of Florida benefit from this tax break? The answer, in brief, is a resounding yes — with caveats, of course.
According to Section 196.041(2) of the Florida Statutes, it’s entirely possible to retain your homestead tax exemption even if your property is held in trust. The catch? The trust must confer upon you what’s known as a “present possessory interest for life.” This legalese essentially means that the trust should permit you unabated use, occupancy, and possession of your home for your lifetime. Temporary arrangements that last only for a set term of years won’t suffice.
This notion of a “life estate” or equivalent has not only been embedded in Florida’s statutory language but has also received the seal of approval from the state’s Attorney General on multiple instances.
So what’s the takeaway? If your homestead is parked in a trust, there’s no need to forego the benefits of a tax exemption, provided the trust is meticulously crafted to include the requisite language. Considering the complexities involved, it may be prudent to consult a legal expert specializing in trusts, who can guide you through the labyrinthine world of legalese to ensure that your Florida homestead retains its privileged status.
Florida’s homestead protections offer an invaluable safety net for property owners. The protections can be complex to navigate when trusts enter the equation. The Engelke v. Estate of Engelke case and Florida Statute 196.041 provide vital legal precedents and statutes to guide homeowners.
Florida Homestead law is one of the more complex and ever changing components of Florida law. If you have questions about your Estate planning and how to take advantage of a Trust while maintaining your homestead benefits we would love to hear from you. Give us a call for a free, no obligation consultation.
-Brice Zoecklein, Esq.
ADDITIONAL RELATED ARTICLES:
Homestead: Florida Homestead Property
Disclaimer: The information contained in this blog/website is for informational purposes only and provides general information about the law but not specific advice. This information should not be used as a substitute for advice from competent legal counsel as laws change and the facts in your specific case need to be analyzed.