Understanding Florida’s Homestead Exemption
Florida’s homestead exemption is one of the most generous in the nation, offering significant financial benefits and legal protections. It provides homeowners with crucial tax breaks, shields primary residences from certain creditors, and limits property tax increases. However, while these benefits are substantial, they are not automatically guaranteed when you place your home into a trust.
What is the Florida Homestead Exemption?
The Florida homestead exemption reduces the taxable value of your primary residence by up to $50,000, significantly lowering your property taxes. In addition to these tax benefits, the exemption provides vital legal protections, preventing forced sales by most creditors and capping property tax increases at 3% annually.
However, one of the biggest mistakes homeowners make is assuming they will automatically retain these benefits when transferring their home into a trust. If not done correctly, the transfer could lead to losing these valuable exemptions.
Why Put Your Home in a Trust?
One of the primary reasons homeowners choose to place their home in a trust is to avoid probate. Probate is a legal process that occurs after death, requiring the court to determine who the personal representative or executor should be, who is entitled to inherit, and oversees the distribution of assets.
The Cost of Probate in Florida
Florida’s probate fees are set out in Florida Statutes Section 733.617 and are based on a percentage of the estate’s value - and starts at 3% - which means that the more valuable your assets are, the more expensive the probate process can become. So if all you had was a condo worth $200,000, the compensation on that alone would be $6,000. Additionally, probate can take months or even years to complete, delaying the transfer of assets to your loved ones.
733.617 Compensation of personal representative.—
Probate is Public
Not only is probate potentially expensive and time-consuming, it is also completely public. In order to open a probate proceeding with the Court, someone needs to file a petition. In that petition, you need to list all of the assets and liabilities, as well as provide the names and contact information of family and those who may be entitled to a share of the estate. For a few dollars, anyone can either go online or to the court and obtain a copy of the filings. Unfortunately, many people and companies will do exactly that and then contact the family to “help them spend their inheritance”.
Wills Do NOT Avoid Probate
Many people mistakenly believe that a will avoids probate, but that is not the case. A will must still go through the probate process. If you do not have a written estate plan, the court will determine who the personal representative is and who inherits everything based on state law.
So rather than leave those decisions up to a judge to decide based on state law, you can and should prepare a will. A will is your written instructions to the probate court on who you want to manage your affairs, who you want to inherit everything, and any protections or restrictions you want to place on receipt of your assets. Your family still has to go through probate. However, rather than the court deciding who is charge and who inherits everything, you specify that in your will.
A Trust Avoids Probate
The most effective way to bypass probate is to establish a trust, which allows for a seamless transfer of your home and other assets to your beneficiaries.
A trust provides a solution to this problem by ensuring that your home passes to your beneficiaries without going through probate. However, failing to structure your trust correctly could put your homestead exemption at risk, leading to increased property taxes and loss of creditor protections.
How to Maintain Your Homestead Exemption in a Trust
When transferring your homestead property into a trust, Florida law requires the trust document and deed to contain specific language to retain the exemption. Without this language, you could inadvertently forfeit your homestead benefits.
The Risks of Improper Trust Planning
Failing to structure your trust properly can have severe consequences:
- Higher Property Taxes: Losing the homestead exemption means losing valuable tax breaks, costing you thousands over time.
- Loss of Creditor Protections: Florida homestead laws protect your home from certain creditors, but those protections may be forfeited if the trust is not structured correctly.
- Unnecessary Legal Complications: If your trust does not comply with Florida law, your heirs may face legal challenges when transferring or selling the property.
These issues commonly arise when people move to Florida and use trusts drafted in other states. While your existing trust may have served you well elsewhere, it may not align with Florida’s unique laws.
The Example of John and Mary Highlight the Danger of Improper Planning
John reached out to me after watching one of my videos online. He and his wife Mary used an inexperienced attorney to prepare a trust for them and to transfer their Florida home into the trust. Unfortunately, neither the trust nor the transfer deed contained the required language and so the county reassessed their home; resulting in a significant increase in their taxes.
Key Requirements for Retaining the Homestead Exemption
- The trust must be a qualified revocable trust – This means that the person residing in the home must be a beneficiary of the trust and maintain the right to use and occupy the property for life.
- The trust document must explicitly state homestead protection language – The Florida Constitution mandates that the trust must acknowledge the homestead status of the property.
- The deed transferring the home into the trust must be properly structured – If the deed does not include language preserving the homestead exemption, your tax benefits may be lost.
Common Mistakes That Lead to Losing Your Homestead Exemption
Many homeowners are unaware of how fragile the homestead exemption is when making estate planning decisions. Below are some of the most common mistakes that lead to losing homestead protections:
1. Using an Out-of-State Trust
Many Florida residents move here with an existing trust from another state, assuming it will work the same way in Florida. Unfortunately, Florida has unique homestead laws, and trusts drafted in other states often do not contain the necessary provisions to maintain homestead protections.
2. Improper Deed Language
Even if your trust is properly structured, the deed transferring the property into the trust must also comply with Florida law. A poorly worded deed could result in losing the homestead exemption and paying significantly higher property taxes.
3. Placing the Home in an Irrevocable Trust
Unlike revocable trusts, which allow homeowners to retain control over their assets, irrevocable trusts can sometimes cause a loss of homestead benefits. If the homeowner no longer has legal ownership or a legal right to reside in the property, the exemption may be lost. Again, this risk can be avoided with proper planning.
4. Failing to Update Estate Plans After Moving to Florida
Florida estate planning laws differ significantly from those in other states. If you have recently relocated to Florida, it is crucial to have your estate plan reviewed by an attorney licensed in the state to ensure it complies with Florida law.
Steps to Ensure Your Homestead Exemption is Protected
If you are considering placing your Florida home in a trust, follow these steps to ensure your homestead exemption remains intact:
- Work with a Florida-licensed attorney – An experienced estate planning attorney will understand the specific requirements necessary to preserve homestead protections.
- Review and update your trust – Ensure that your trust document explicitly includes language maintaining your homestead exemption.
- Verify the deed transferring your home into the trust – Your deed must be drafted correctly to comply with Florida law.
- Update beneficiary designations – Ensure that all estate planning documents align with Florida regulations to avoid unintended consequences.
- Consult with an estate planning expert before making changes – Avoid making DIY modifications to your trust or estate plan without professional guidance.
Why Choose Roulet Law Firm, P.A. for Your Florida Estate Planning Needs?
At Roulet Law Firm, we help snowbirds, retirees, and new Florida residents navigate the complexities of Florida estate planning. As an attorney licensed in both Florida and Minnesota - and with offices in both states - I understand the unique challenges of moving between states and can help ensure that your estate plan is structured correctly.
Take the Next Step to Protect Your Home and Assets
If you have recently moved to Florida or are planning to, now is the time to review your estate plan. Let us help you safeguard your homestead exemption and avoid costly mistakes.
Schedule Your Consultation Today
Call our Florida office at (941) 909-4644 or our Minnetonka, Minnesota office at (763) 420-5087 to schedule a consultation. You can also fill out the contact form on this page, and a member of our team will reach out to schedule your consultation.
Not Ready for a Consultation? Here are some additional resources where you can discover more:
Click Here to Download Your Copy of My Book: The Florida Snowbird Guide: A Fast & Friendly Legal Guide for Florida Relocation and Snowbirds. You can purchase it on Amazon or download a digital version for free from my website.
Join Us in My Masterclass where I reveal strategies I use with my private clients to avoid probate, minimize taxes, protect your children’s inheritance in the event they get divorced and much more. Click here to sign up.
Planning ahead ensures that your assets, your home, and your legacy are protected under Florida law. Don’t wait—take action today to secure your future and provide peace of mind for your loved ones.
