When setting up an estate plan, it is common for Floridians to have a revocable living trust in which to transfer their Florida homestead. Unbeknownst to many, there may be negative consequences to this transfer, but there are things that can be done to avoid such issues:
- Transferring the homestead into the trust should not affect the homestead tax exemptions: An individual setting up a trust and transferring property into that trust remains the owner of the property and may consume or encumber the property during his lifetime; therefore, transferring the Florida homestead to the revocable trust should not jeopardize the Save Our Homes property tax cap, unless the Florida homestead does not remain the individual’s primary residence as of January 1st of each year, in which case the benefits are lost. The Save Our Homes property tax cap is an amendment to the Florida constitution that limits the annual increase in the tax assessment of homestead property to a maximum of 3% of the prior year’s assessment; and its purpose is to encourage the preservation of homestead property and to ensure that Floridians will not lose their homes on the tax block because of rising values of property in Florida.
- The trust must comply with the Florida constitutional provisions regarding descent and devise: The Florida Constitution and statutes limits who a person may bequeath his homestead when survived by a spouse or minor child; so, if the person’s trust does not comply with the provisions of Florida law, the devise of the homestead may be deemed “invalid,” and state law would, then, dictate who is to take the person’s homestead after the person’s death.
- Due on Transfer Clause: When a person transfers a property that has a mortgage on it, the unpaid balance under the mortgage becomes due under a “due on transfer” clause, which serves to avoid properties from being sold or gifted without being paid in full. However, when the transfer is to a revocable trust and not a third party, the payment in full is not required. Nevertheless, the person making this type of transfer should notify his lender of the transaction and why the “due on transfer” clause does not apply before recording the new deed.
- Name the trust correctly: The deed transferring property to a specific trust should include the name of the trust, e.g. “The John Doe Trust,” as well as the trustee of that trust and the date of the trust. Properly naming the trust on the face of the deed avoids problems with subsequent sales, disposition, gifts, or transfers.
- Florida statute granting power to the trustee: In order to avoid problems when a title examiner is determining whether the trustee of a trust has the requisite authority to transfer, mortgage, encumber or convey the real property in question, the deed should contain the Florida Statute §689.073 on its face.
If you feel as though you’ve made any of these mistakes on your Florida Homestead, contact EPGD Business Law as soon as possible to make sure they are corrected.