Most Florida residents are aware that Florida has a homestead exemption law, but there is more to it than one might think. There are actually three different sets of laws in Florida that deal with the homestead. One of those is the “save our homes” exemption. The save our homes exemption limits how much the value of the homestead can be increased from year to year for purposes of assessing the property tax on the homestead. A second set of rules protects the homestead from creditors. Finally, a third set of rules addresses to whom the ownership of the homestead passes on the death of the owner.
The save our homes exemption dictates that for purposes of calculating the property tax on the homestead, the value of the home cannot be increased by more than 3% (or the rate of inflation if less than 3%) per year. To receive the benefit of the save our homes exemption, the owner of the homestead must apply for this exemption at the property appraiser’s office in the county where the home is located. The limit only puts a cap on the increase in the property’s value from year to year, but not the tax rate used in calculating the tax. If the owner sells the homestead and acquires a new homestead, the appreciation that was not taxed due to the homestead exemption can be transferred to the new homestead, but the untaxed appreciation that can be carried over to the new homestead is limited to $500,000 of appreciation. As a result, the advantage of the untaxed appreciation (up to $500,000) is not lost if the homestead is sold and a new homestead is purchased. The save our homes exemption can result in substantial savings in property taxes over years when real estate is appreciating in value, and it can make the difference between continuing to be able to afford to live in an appreciating home or having to sell the homestead because it has become too expensive to maintain.
A second set of rules regarding the homestead provides that the homestead cannot be seized by creditors. Unlike the homestead rules for the save our homes protection where the homestead owner must apply for the homestead exemption for purposes of property taxes, the homestead rules for creditor protection apply automatically if the property is the owner’s homestead. There is no limit on the value of the property for the homestead protection from creditors to apply. However, for creditor protection purposes, there is a limit on the size of the land on which the homestead is located. If the homestead is in the city limits of a municipality, it only applies to a home on a lot of up to one-half an acre. If, for example, the homestead is on one acre of land and it is in a municipality, then only one-half of the homestead is exempt from seizure by creditors. If the homestead is located out of the city limits, then up to 160 acres is protected from seizure by creditors. If the homestead is located on a parcel that exceeds one-half of an acre (or exceeds 160 acres if the property is located out of the city limits) then a creditor can seize the homestead and sell it, but the creditor can only keep the portion of the proceeds from the sale that apply to the portion of the of the property that exceeds the size limit. For example, if the homestead is located on one acre of land and it is in the city limits, a creditor could have the homestead seized and sold, but the creditor would only be allowed to keep one-half of the proceeds from the sale, and the owner of the homestead would receive the other one-half of the proceeds. Florida has a very strong public policy of protecting the homestead from creditors, and the Florida Supreme Court has ruled that a homestead is protected from creditors even if the homestead is purchased by the owner of the homestead for the purpose of defrauding his creditors. However, in cases where the homestead was purchased with funds obtained with money acquired through illicit means, creditors have been successful in seizing the homestead in spite of the homestead asset protection rules as to the homestead. Finally, the homestead creditor protection rules can be overridden by the federal bankruptcy rules if bankruptcy is filed within a short period of time after the homestead is acquired.
The last set of rules deals with devise of the homestead, or to whom the homestead passes at the death of the owner. This set of rules is not as well known by the general public, and it can be a trap for those who are unfamiliar with these rules. If the owner of the homestead has a surviving spouse and one or more descendants, on his death the surviving spouse receives a life estate in the homestead and the descendants of the owner receive a remainder interest in the homestead. However, if there are no minor children, the decedent can leave the homestead outright to the surviving spouse. In lieu of the life estate, the surviving spouse can elect to take an undivided one-half interest in the homestead, in which case the deceased owner’s descendants will receive the other one-half interest in the homestead. These rules can result in two issues. The first is that the homestead may not go to the persons to whom the decedent left the homestead under his or her will. The second problem is that it can be difficult to administer a homestead in which the surviving spouse has a life estate and the descendants hold a remainder interest. The life tenant cannot sell the home without the permission of the remaindermen, and if the home is sold the law does not provide how the proceeds from the sale are to be split between the life tenant and the remaindermen. Unless the life tenant and the remaindermen are in agreement, the homestead cannot be sold. This can be even more difficult in the case of a second marriage where the descendants are not the descendants of the surviving spouse. Not being able to sell the property unless everybody is in agreement can lead to a very bad situation where the property is expensive to maintain, the surviving spouse wants to sell it and the parties are not in agreement. Under the Florida uniform Principal and Income Act, the holders of the remainder interest are required to contribute to capital improvements where the useful life of the capital improvements is greater than the remaining actuarial life expectancy of the life tenant, which can give the surviving spouse some bargaining power over the descendants, but this can be a difficult situation to navigate.
Under some circumstances the homestead rules as to devise can be avoided. If the homestead owner has no minor children, the spouse can waive his or her rights as to devise of the homestead, and then the homestead owner can leave the homestead to anybody he or she wishes. The waiver must take place before the owner dies. Once the owner dies, the descendants have a vested remainder interest in the property, and the wife’s waiver after the owner’s death cannot take the vested remainder away from the descendants. This also does not work if there are minor children, because the existence of minor children at the owner’s death causes all descendants to have a right by law to the remainder (or one-half in full ownership if the surviving spouse elects to take an undivided one-half interest), which cannot be taken away from them by a surviving spouse’s waiver. Another way to avoid these rules in the case of a married couple is to title the homestead in the joint names of both spouses as tenants by the entirety, in which case the homestead will pass to the surviving spouse on the death of the first spouse to die. However, titling the homestead in the spouses’ joint name only works if the goal is to leave the property outright to the surviving spouse, but it does not work if the goal is to leave the homestead to somebody else. If the homestead is held in the owner’s revocable trust, the homestead rules as to devise still apply, and the disposition of the homestead is governed by the homestead laws, not by the provisions of the revocable trust. However, if there are no minor children and the spouse waives his or her interest in the homestead as to devise, then upon the owner’s death the terms of the revocable trust will control the disposition of the homestead.
There are significant benefits provided by the Florida homestead laws in the case of the save our homes exemption and the creditor protection of homesteads. However, the homestead rules as to devise of the homestead, which were meant to protect the surviving spouse and the minor children with regard to the homestead on the death of the owner, can lead to complications, particularly in the case of blended families, and need to be planned for in advance of the owner’s death, otherwise the result may be contrary to the owner’s wishes.
