Florida Homestead and Asset Protection Part II

In part I of Florida Homestead and Asset Protection, we concluded the discussion with a broad statement that Florida homestead exemptions are available only to individuals or “natural persons.”

Availability of Homestead for Asset Protection

While it is true that homestead exemptions provide an excellent form of asset protection, they provide such protection on an individual basis.  This is different than the type of planning that requires the formation of limited liability companies or family limited partnerships.  For the most part the Florida homestead exemption is automatic.  All that one need do is own and occupy a residence with the intent to make it a permanent residence.  That’s pretty much it.  The exemption is then unlimited outside of bankruptcy and a few other limited exceptions.

But what if an asset protection plan involves putting homesteaded property into a trust?  This is one area where courts look more to the function of an asset protection plan than to the form.  A number of Florida courts have upheld homesteads held in revocable living trusts.  One reason behind those decisions is that revocable living trusts can be changed or even totally abandoned during the trust maker’s lifetime.  So in theory, the maker of the trust could simply revoke it and deed the homestead property into his or her name individually.

When a Testamentary Living Trust Becomes Irrevocable

When the maker of a revocable living trust dies, the trusts typically become irrevocable.  As a result, it’s often the case that property originally owned as a homestead becomes owned by an irrevocable trust, even though it is still occupied by a family member of the trust creator.  A natural question is whether that property loses its homestead status.  After all, that’s the primary concern from an asset protection standpoint.

A recent Florida case addressed this very question.  In the Aronson case, a husband placed his homestead in a living trust.  When the husband died, the trust became irrevocable.  The wife was the sole beneficiary of the trust.  Creditors attempted to force a sale of the property, arguing that the property could not be considered a homestead.  The court disagreed with the creditors.  It decided that the asset protection afforded by homestead applied to the wife, even though the property was titled to an irrevocable trust, and refused to allow the homesteaded property to be sold.

Keep in mind that homestead laws vary drastically from state to state.  California asset protection laws vary from New Jersey and New York asset protection laws.  That’s why it’s very important that you contact an asset protection attorney who can analyze your individual situation and help you develop a comprehensive strategy for protecting your wealth.