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Losing Homestead Rights By Renting |
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During these difficult times, many homeowners have had to rent their homesteads in order to survive, even though they may risk losing the benefits of homestead status. Owners may take this approach in order to cope with their financial difficulties and NOT with the intent to abandon their homestead. Essentially, the continued uninterrupted occupancy of the owner is not mandatory to maintain homestead status. F.S. Section 196.061 provides that to abandon homestead there must be a "rental" (in contrast to a "license") of the "entire" dwelling and then essentially it becomes a question of intent. Maintaining rights to store clothes in a small closet may not be sufficient to maintain homestead status, but maintaining access rights to larger and more intergrated areas might. If an owner of homestead property qualified for hometead on the first day of the year and then the owner rents the home on the second day, homestead would NOT be lost for that year because it qualified on that critical first day of the year. This approach cannot be utilized two years in a row. The loss of homestead issue may be occurring more frequently in the future because property tax appraisers are seeing diminished revenues. This is a situation in which I strongly recommend the homeowner consult with a real estate attorney, as there are cases and statutory law that may provide "some" guidance. For additional information, see the 2010 issue of the Florida Bar Journal, "The Loss of Homestead Through Rental" by Mark A.Rothenberg and Kara L. Cannizzaro and/or call us |
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Most Floridians are aware that Florida has a "œprotected homestead", but most of us are not aware of what, exactly, a homestead consists of, or to what extent that homestead is protected.
The parameters of a "œhomestead"are based on whether the property is located inside or outside of a municipality. If the property is located within a municipality, one-half acre may be protected. If the property is located outside of a municipality, one hundred and sixty acres may be protected. In order for property to be considered homestead, the homeowner must live in the property and treat it as a permanent residence. If you are a part-time Florida resident, you may still be able to enjoy the homestead protection, as long as you intend that your Florida address is your "œprimary"home.
There are four primary exceptions to homestead protection: taxes, assessments (i.e. HOA or POA), mortgages, and obligations contracted for improvement or repair on the home.
The homestead may be held as a tenancy by the entireties, as joint tenants with rights of survivorship, as tenants in common, or in a revocable trust if the homeowner set up the revocable trust, the homeowner is the lifetime beneficiary of the revocable trust, and the homeowner has the right to revoke the living trust.
If you use a portion of your home for commercial purposes, your property may still be protected. A bankruptcy court recently held that using property commercially does not necessarily disqualify the property from homestead protection. This case, however, is in direct conflict with earlier cases, so the question is far from settled, and must be approached cautiously.
If your property is held in a QPRT, you may lose the Constitutional homestead. A QPRT is a qualified personal residence trust, which has often been used as part of an estate plan, to reduce the owner's taxable estate, thereby reducing the owner's estate tax liability. The Constitutional homestead protection is extended to "œnatural persons". By transferring to a QPRT, the property probably loses its homestead protection.
There are other "œhomestead"advantages, outside of the Constitutional protection. Other types of homestead include:
-Homestead protection is extended to the surviving spouse and children of a decedent. If a person has a spouse and/or children, he or she cannot devise the real property to a third party. The surviving spouse may continue to live in the property for their life, and the children have a remainder interest- the children receive the property upon the death of the surviving spouse.
-Property tax exemption: to qualify for the property tax homestead exemption, you must have legal title to the property on January 1, and live there permanently. To qualify, you need to fill out a Homestead Exemption form from the property appraiser, and submit it with a copy of your deed and proof of residency. |
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We would like to explore asset protection. A comprehensive asset protection plan will provide a level of protection for your assets in the event of an external creditor attack. Generally, an asset protection plan will consist of several layers of defense
In addition to the statutory homestead protection, Florida provides additional exemptions via statute. These exemptions are predicated on Florida residency. In order to establish residency, you may need to cut ties with your former state of residence and become domiciled in Florida. This may be accomplished by, for example, obtaining a Florida driver's license, establishing a Florida bank account, changing your voter registration to Florida, joining civic/religious/philanthropic organizations in your local community, and, of course, filing for Florida homestead status, if you own your home.
Florida's additional exemptions:
1. Automobile Exemption: Up to $1,000.00 of equity in a vehicle is protected. Equity is determined by subtracting the debt owed on the vehicle from its fair market value.
2. Salary or Wages: The head of household may protect his or her wages, earnings, or other compensation. If the compensation is due for personal labor or services, it will be exempt from garnishment.
3. Life Insurance: The cash value of any life insurance policy is exempt from the claims of creditors. The death benefits received by a beneficiary are exempt from the insured's creditors, but not from creditors of the beneficiary.
4. Annuities: Qualified annuities are protected from a creditor's attack. This protection extends to identifiable proceeds which are withdrawn from the annuity by the owner.
5. Disability Benefits: Generally, disability income benefits are exempt from creditors.
6. Prepaid College Plans: Any prepaid college plan, as well as Florida 529 plans, are protected.
7. Retirement Plans: Money payable to either a participant in, or a beneficiary of, a qualified retirement plan is exempt from creditors' claims. This exemption includes IRAs.
In addition, adequate levels of insurance should be seriously considered. While you may already have homeowner's insurance, or a renter's insurance policy, you may want to consider purchasing a supplemental umbrella insurance policy. This type of policy will expand the protection provided by your other policies, and will likely cover most of your legal fees in the defense of certain claims against you.
Please keep in mind, a good asset protection plan will not make you judgment proof, but it will add layers of complexity which may give you some leverage in negotiating settlements, while protecting many of the assets which matter the most. |
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Over the past couple of years, we have seen real estate values plummet, the stock market has been racked by scandal, and the employment figures are troubling. However, there have been some bright spots on the horizon- there are increased incentives for first time home buyers, and the sales of new single family homes have increased recently.
Even in this volatile real estate market, a homeowner has options. In an era of decreasing home values and increasing financial obligations, there are still interested buyers. If you have found yourself upside down with respect to your real estate, you may be a candidate for mortgage modification, a short sale, or a deed in lieu of foreclosure. These alternatives are not without cost or consequence. Treatment of your loan varies based on usage (whether the property is your homestead, a second home, or investment property); your financial condition (you must be able to show a general hardship); tax consequences (you may receive a 1099, and you will want to discuss the ramifications with your tax preparer, prior to making any decision); and the effect on your credit score. None of the alternatives perfect solutions, but they are preferable to foreclosure and/or bankruptcy.
If you are in this situation, you should also review your estate plan and ensure your assets are adequately protected. An estate plan is a valuable tool in ensuring proper distribution of your assets and maximizing asset protection measures. The mode of estate planning- will, revocable trust, irrevocable trust, or other devices- should be discussed with your attorney. While considering an estate plan, you should also consider creating a power of attorney and a health care surrogate designation. Effective asset protection can help to protect your estate assets against creditor attack. Many alternatives may be available to provide some protection. "œOne size"does not fit all. |
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