Homestead and Trusts

     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