Florida Asset Protection Blog

Homestead Protection Of Parent's Home Occupied By Child With Homestead Tax Exemption

An attorney called me to discuss whether a debtor could protect as homestead a house they owned which was occupied by their children. The case involved a divorced woman (the client) which children and her mother. The client and her mother each owned and occupied a Florida home. The client is in the process of leaving her home and moving in with her mother to help care for her, and she is also adding her name to the legal title of her mother’s home for estate planning purposes. The client gave permission to her two sons to occupy her home after she moved in with the mother. The client filed for homestead tax exemption on the home she owned; her mother claim a homestead tax exemption for her home. The client was being sued and anticipated a judgment being entered against her. She asked her attorney, and the attorney asked me, if the client/debtor could protect her home occupied by her son as a homestead property.

This client is confusing the homestead tax exemption with homestead’s creditor protection. A Florida resident can protect the home they occupy as their permanent residence provided they have legal or equitable interest in the home. This client can protect her interest as co-owner of the mother’s home (after she is added to the title) because it will be her new legal residence. After she moves out of her house and into the mother’s home the client cannot protect her interest in her former home because it is no longer her primary residence. The fact that the mother (improperly) continues to claim the homestead tax exemption of hher home after she moves out does not extend creditor protection. 

The attorney who called me said he would argue that the client’s former residence can remain protected because it will be the homestead of her family members. I think the family would have a better argument if the mother conveyed legal title to her home to her son after he moved in. The mother’s creditors would argue that the transfer is a fraudulent conveyance; they would be correct. The mother’s creditors could not take the home from the transferee son after he has legal title as well as possession. The mother’s creditors could possibly get a general money judgment against the son for the value of the property received, but the general judgment is a better alternative for the debtor’s family than loss of the mother’s house.

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

Fraudulent Transfers By Disclaimer To Estate Planning Trust

An attorney wrote to me with an interesting asset protection question involving a typical estate planning tool. A homestead property was owned by husband and wife as tenants by entireties. The husband died. The couple had established a typical living trust which included a credit shelter trust that became irrevocable after the first death. The surviving spouse and children were the beneficiaries of the credit trust. The husband died. The wife disclaimed her survivorship interest in the jointly titled homestead so that the house automatically passed to and was titled in the husband’s credit shelter trust. The question was whether the disclaimer jeopardized the homestead protection from creditors. I think the protection would remain intact for the wife’s benefit during her lifetime.

There are many Florida cases which hold that a debtor’s primary residence is protected from forced sale if the debtor has either a legal or an equitable interest in the property. In this case, the surviving wife has an equitable interest in the homestead because she is the beneficiary of the credit shelter trust which trust holds the legal title.

The result may be different if the wife disclaimed an entireties asset other than the homestead. The entireties title ends upon the husbands death and the entireties asset automatically pass to the wife. If the wife had creditors at the time of her husband’s death the creditors could go after what has become the wife’s individual assets. If the wife tried to avoid ownership by disclaiming the non-homestead entireties asset to a credit shelter trust the disclaimer could be reversed as a fraudulent transfer. There are cases holding that estate planning disclaimers are transfers for the purpose of Florida’s fraudulent transfer statutes.

posted by Jonathan Alper, asset protection and estate planning attorney, Orlando, Florida