Florida Land Trust For Retiree - Any Pitfalls?
A single, retired relative of mine who hasn't owned a home in 15 years is planning to take title to a home he will live in through a Florida land trust.
This is more for asset protection than for estate planning, though the potential issues are very old and cold and actually nearing expiration.
Are there any pitfalls that bear mentioning here?
Thanks.
I presume you mean that your relative has some outstanding creditors and you are worried the creditors might attach or execute against the home. If that is the case, realize that homestead in FL is exempt from creditor claims. You can have outstanding judgments, buy a homestead, and still not lose the home to creditors. There's no better asset protection in the USA.
By contrast, homestead protection is not available if the property is bought in a land trust. Its true that taking title in a land trust can keep your relative off the radar screen, but if he is sitting in a depostion in aid of execution and he's asked "do you own any property in your name or in trust", he either commits perjury or loses the vaunted asset protection of the land trust.
Some people also misuse land trusts for asset protection when applying for public benefits such as medicaid. Again, homestead in your own name is exempt in these calculations, but trying to hide property in a land trust gets you an orange jumpsuit.
unless I'm misunderstanding the question- a homestead exemption can be granted in a Florida Land Trust with proper verbiage on the deed or Trust Agreement- at least in my county.
Quote:
On 2004-11-14 18:37, joeyd wrote:
unless I'm misunderstanding the question- a homestead exemption can be granted in a Florida Land Trust with proper verbiage on the deed or Trust Agreement- at least in my county.
I believe DavidM is talking not about the ability to garner exemption from taxation on the first $25k of the home's value (that's been OK for many years), but about the shield from creditors being lost if the property is owned in a Florida land trust.
Of course, if the beneficial owner of the trust is living in the property, I would find DavidM's assertion, if true, to be a surprising result--it should make little to no difference if the ownership is indirect. Alternatively, under fraudulent transfer theory, the court would unwind the transfer that gave the trustee legal title, again deeming the home to be held in the name of the beneficial owner/resident, who would then be able to claim homestead directly, with the result that the property should still be out of the creditors' reach.
So I guess my follow-up question to DavidM would be: is there some case law that actually vitiates the homestead rights of the occupying homeowner where a Florida Land Trust has been used to hold the property?
It looks like it can be a problem in Florida's Middle District in a bankruptcy scenario. Of course, state courts might handle things differently.
http://www.rmwlaw.com/trustownership.htm
Quote:However, the strength and predictability of the asset protection feature of homestead property has come into question recently because of a ruling by a U.S. Bankruptcy Court for the Middle District of Florida. In Bosonotto et al. v. Bosonotto et al., (271 B.R. 403, www.Bankr.lexis 1667, December 12, 2001) the Federal Bankruptcy judge ruled that where a Florida resident had previously conveyed ownership of her primary residence to her revocable trust, she lost the protection of the Homestead Exemption.
The case indicates that the debtor could have terminated or "revoked" her trust, and she would not have had the problem. And, of course, an individual could convey the personal residence back to herself as an individual before declaring bankruptcy, but then the individual loses the convenience, as outlined above, of utilizing a trustee during incapacity rather than enduring a guardianship proceeding.
Really the only way that a trust provides asset protection is in that the beneficial interest of trusts is clearly (by law) personal property.
If you do not hold 100% of the beneficial interest of the trust but rather something like 90% or less, then the court can't partition that property because personal property (by law) is non-partitionable. It's like having the court order that the new leather sofa you and someone else purchased needs to be cut in half because one of the owners has a judgment or such against them.
I don't know what the situation with this gentleman is but there are plenty of legal ways to accomplish his goals. The key, more than likely, will be to make sure that this gentleman is only a co-beneficiary and not the sole beneficiary.
GOOD LUCK
I think he'd need to be the sole current beneficiary in order to get the homestead tax break.
And given the breadth of the Florida case law that says all sorts of personalty (trailer, houseboat, etc.) can be homestead property, the bankruptcy court's decision seems to be an outlier.
But, perhaps it's not worth taking the chance.