Court Upholds Homestead Protection For Living Trust Property

I have written previously about whether a residence owned by a debtor’s living trust is entitled to protection against creditors afforded by the Florida Constitution. The Constitution protects homesteads owned by “natural persons.” Some creditors have argued that a homestead occupied by the debtor but legally titled in the name of the debtor’s testamentary living trust is not protected because it is owned by an entity (the trust) other than a natural person. Several years ago a bankruptcy court denied homestead protection to a debtor’s property titled in a living trust. However, a subsequent Florida appellate case from the Third District Court of Appeals reached the contrary conclusion an upheld homestead status to a property held in a living trust.

Just last month, February, 2006, the Fourth District Court of appeal in the case of Engelke v. Engelke held that a residence owned by a living trust is entitled to homestead protection. The Court said that a property held in a debtor’s living trust is owned by a “natural person” for purposes of Constitutional homestead protection. There are now two state court cases from different districts decided after the previously mentioned bankruptcy case which have sustained homestead protections to properties held in a testamentary revocable trust.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida