Revocable Trusts are a common estate planning tool and can
be effective in assisting in avoiding probate if properly created and
funded. However, not everyone needs a
revocable trust and certain issues can arise if a homestead property is placed
as a trust asset. Homestead in Florida
is a unique legal doctrine, and it is enshrined in the Florida Constitution
under Article X, Section 4.
As it relates
to estates and probate, the Florida Constitution states that: "The
homestead shall not be subject to devise if the owner is survived by spouse or
minor child, except the homestead may be devised to the owner’s spouse if there
be no minor child." Florida
statutes provide further restrictions on the descent of constitutionally
protected homestead property. Under
Florida Statute Section 732.401(1) it provides:
If not devised as authorized by law and
the constitution, the homestead shall descend in the same manner as other
intestate property; but if the decedent is survived by a spouse and one or more
descendants, the surviving spouse shall take a life estate in the homestead,
with a vested remainder to the descendants in being at the time of the
decedent’s death per stirpes.
This means
that regardless of what any will or trust states, the homestead property is
restricted from sale or transfer upon death of any owner. This issue can affect
the best laid estate plans, especially in second or third marriages where long
held property owned by one spouse in a carefully setup trust can be removed
from a trust based estate plan by the act of marriage and moving into the
subject home with a new spouse.
This issue
was recently the subject of a bitter battle between a widow and her deceased
husband's two children from a previous marriage. The case of Aronson v. Aronson resulted in two separate appeals and provides a
cautionary tale for proper estate planning amidst a second marriage,
step-children, a revocable trust, a condo in Florida owned pre-marriage and a
retirement to Florida.
The facts of
the Aronson case are simple. Mr. Aronson, while living outside of Florida,
transferred his solely owned Florida condo to his own revocable trust. The trust provided that upon his death, all
of his assets would transfer to his wife, for life, with the remainder to his
two children from a previous marriage.
In 2000, the couple sold the out of state residence (owned solely by the
wife), and she used over $100,000.00 from the sale to satisfy the existing
mortgage on the Florida condominium. They then moved into the Florida
condominium as their permanent residence.
The first
mistake, which eventually led to the first appeal, was when Mr. Aronson individually
tried to convey the condominium to his wife in 1997, even though he had already
transferred the property to his trust.
The Appeal Court ruled that even though it was his revocable trust, the
deed by him individually was a nullity and did not convey any title. This issue could have easily been corrected
by either having him convey from the trust, or, convey to himself first from
the trust, then convey directly to his spouse.
Mr. Aronson
died in 2001, and the sole asset of the trust at his death was his homestead
property in Florida where he resided with his wife. The trust provided, in addition to giving the
wife a life estate in all assets, that she retained the yearly right to
withdraw from the trust “the greater of Five Thousand ($5,000.00) Dollars or
five (5%) per cent of the market value of the principal of this Trust”
After her
loss in the first appeal, Ms. Aronson began making demands on the successor
trustees (her step-children) for the annual trust payment, for reimbursement of
the funds she paid to satisfy the mortgage on the condominium and for taxes and
assessments due on the condominium, claiming that these were all obligation of
the property owner (the Trust). Instead
the successor trustees sought to sell the condominium to satisfy the Trust’s
obligations to their step-mother, with the remaining funds distributed to
themselves as beneficiaries.
At trial, Ms.
Aronson said that the property was her constitutionally protected homestead and
therefore could not be devised by the successor trustees, even though the trust
gave them that power. In addition, the
trial court awarded her all of the requested reimbursements, plus the power to
demand a five percent interest in the title to the condominium unit each year
beyond her life estate.
The Third District
Court of Appeals reversed the trial court and found that while the property was
homestead, it passed by law outside of the trust, and title vested in Ms.
Aronson for life and the remainder passed to his two children. The Trust’s interest in the homestead
property ended upon Mr. Aronson’s death.
Further, since the trust no longer had any interest in the property, the
obligation for all expenses remained with the surviving wife, as life
tenant. As the trust had no other
assets, the reimbursement for the annual payment was void, and the money Ms.
Aronson paid to satisfy the mortgage was also not reimbursable, because even
though she paid due to a mistaken belief the property was hers, Florida law did
not provide for reimbursement from the two children as remaindermen.
The moral of
this story is to properly plan for distribution of property and to uses trusts
with homestead property carefully. If special distribution plans are needed for
homestead property, it may be better to avoid using a trust and to properly
convey the property under the guidance of a knowledgeable estate planning
expert.
Michael J Posner,
Esq., is a partner in Ward Damon a mid-sized real estate and business oriented
law firm serving all of South Florida, with offices in Palm Beach County. They specialize in real estate and estate
planning, and can assist with trust and estate planning including homestead
issues. They can be reached at
561.594.1452 or by e-mail at mjposner@warddamon.com
