SESSION 8
How Can You Benefit From the Florida Homestead Law and the 3% Cap on Assessment Increases?
Once a retiree changes his domicile to Florida, he becomes subject to the Florida homestead laws. With some exceptions, his home generally cannot be taken over by his creditors even if he becomes bankrupt. He will receive a reduction in his real estate taxes and there will be a 3% cap on annual assessment increases. One concern is that there are restrictions on transferring a Florida homestead. Once a homestead is established, both the retiree's spouse and his children have certain rights with respect to the property, and there are limitations on the retiree's ability to transfer the property both during his lifetime and on his death.
The Florida homestead laws are quite unique. A homestead is
real property to the extent of 160 contiguous acres outside a municipality, or
one-half of an acre of continuous land in a municipality, owned by a natural
person, and the improvements on it.(1)
Various legal consequences turn on whether or not real property is a homestead.
By constitutional and statutory provisions, there are three areas where
the Florida homestead laws are especially meaningful.
The first area is protection against creditors. There is always the
possibility of a financial disaster. A wealthy retiree can be driving down the
highway and become involved in an accident where several people are seriously
injured. A judgment against the retiree could exceed both his insurance coverage
and the value of all his assets. For the doctor, dentist, accountant, stock
broker, lawyer and other professionals, a successful malpractice claim could
exceed policy limits and wipe out lifetime savings. If the retiree is domiciled
in New York, the retiree might lose substantially all of his assets, including
his home. In Florida, if the retiree's real property qualifies as his homestead,
it is generally exempt from a forced sale by his creditors both during his
lifetime and after his death.(2)
There is no dollar limitation. The $2 million home is covered as well as the
$50,000 condominium.
Does this mean that a New York
physician or attorney faced with an uninsured multi-million dollar judgment
against him can sell his New York residence, move to Florida, buy a two million
dollar home and shield it from his creditors? Maybe so.
Judges frequently point
to the Florida Constitution provision that the Florida residence is exempt from
forced sale under process of any court and note that there are only three
exceptions: (1) payment of real estate taxes and easements on the homestead; (2)
obligations contracted for the purchase, improvement or repair of the homestead;
and (3) obligations contracted for labor performed on the homestead.
A fourth exception is that homestead property is not exempt from Federal tax liens. See United States v. Rodgers, 461 U.S. 677 (1983).
For bankruptcy purposes, the dollar amount of the Florida homestead exemption from creditors
may well be limited by the provisions of the Bankruptcy Abuse Prevention Consumer Protection Act of 2005.
One provision sets $125,000 as the cap on the amount of the homestead exemption protection
available on equity acquired within 1,215 days of the filing for bankruptcy, unless the
equity was transferred from another homestead in Florida. The House Report accompanying the
legislation, noted that this provision was designed to close the "mansion loophole" that favored
debtors who established their homesteads in Florida immediately before bankruptcy filing.
Another provision also establishes a $125,000 homestead cap if the debtor committed specific
egregious acts in the five years preceding the bankruptcy filing.
The applicability of the provisions of the Bankruptcy Act to bankruptcy proceedings
in Florida is not clear because the strict wording of the new provisions restrict application
to debtors who have elected exempt property under the state or local law. It may be
argued that in Florida, debtors are required to apply state exemptions in a bankruptcy case.
Any New Yorker who seeks to change domicile primarily to obtain creditor protection should
seek advice from an attorney knowledgeable in bankruptcy law and creditor's rights before proceeding.
The second area where the homestead becomes meaningful involves
Florida real estate taxes. If the retiree's home qualifies, he will receive a
$25,000 homestead exemption on the assessed value.(3)
In order to qualify for the exemption, the retiree must hold the property as of
January 1, reside there, and be a permanent resident of the State of Florida.
Filing an application for a new homestead exemption is the responsibility of the
retiree. It must be filed with the county property appraiser's office and may only be filed during certain months.
Check with your local county assessor to determine the deadline. After the
initial application for the homestead exemption has been granted by the property
appraiser, a homestead receipt will be sent to the retiree on an annual basis,
indicating automatic renewal. Acceptance of the receipt implies that the retiree
continues to use the property as his permanent residence, that the property is
not being rented, and that he is a Florida resident. It is the duty of the
retiree who has received an exemption and who is not required to file an annual
application to notify the property appraiser promptly whenever the use of the
property changes (other than a sale of the property) so as to change the exempt
status of the property. Any retiree who fails to notify the property appraiser
is subject to penalties.(4)
The usual procedure is to appear personally at the county property appraiser's
office and apply for the exemption. The tax assessor will require a copy of the
deed or a tax bill showing the property description and a Florida driver's
license and Florida voter registration or declaration of domicile dated prior to
January 1. There are other exemptions as well.
There is a $500 widow and widower's exemption. Any widow or widower who is a
bona fide Florida resident may claim this exemption. There is a $500 disability
exemption for every permanent Florida resident who is totally or permanently
disabled. In addition, every Florida resident who is legally blind qualifies for
a $500 exemption.(5)
Although a retiree who changes his
domicile to Florida will gain the benefit of a reduction of real estate taxes on
his homestead, he may lose a similar benefit in New York State. In 1998, section
425 of the New York Real Property Tax Law was enacted to afford homeowners the
opportunity to apply for a school tax reduction under the STAR program. But the
residence must be a primary residence. There are two types of exceptions.
One is only applicable to persons at least 65 years of age and combined income
that does not exceed $60,000 (exclusive of social security and tax exempt
income). The other exception applies across the board without such limitations
if the primary residence test is met. But Beware: If you have changed
your domicile to Florida, advise your tax assessor you are no longer eligible.
There are both civil and criminal penalties for making material misstatements as
to primary residence, age or income.
In 2002, by a Florida constitutional amendment, real estate tax relief was made available to snowbirds who qualify for a Florida homestead “lid” on additional annual tax assessments. (See Section 4 of Article VII and Fla. Stat. §193.155(i)).
As a consequence, many New Yorkers who own a home in Florida will be paying substantially more Florida real estate taxes than their Florida neighbors who own the exact same type of dwelling unit. To avoid this inequity, many more New Yorkers in the last few years have changed their domicile to Florida than would otherwise be the case. Let’s take a look at the amendment.
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Assessments on a homestead may be changed on January 1st of each year but cannot exceed the lesser of 3% of the assessment for the prior year or the percentage change in the Consumer Price Index for the preceding calendar year.
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If the homestead is sold, there is no ceiling on the assessment as of January 1st of the year following but the “lid” is applicable to the following year if it is homestead exempt.
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Any improvements to the homestead are outside the 3% assessment “lid” but there may be an exception if the improvement is to provide living quarters for the owner’s spouse, parent or grandparent.
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If homestead status terminates -- the 3% “lid” expires.
Although the constitutional amendment provides that no “assessment shall exceed just value,” New Yorkers are likely to be hard hit in future years. Budgetary requirements may result in higher tax rates per thousand of dollars of assessments with a resulting increase in the gap between those that benefit from homestead status and those who do not.
The Florida Constitution provides that every person who has a legal or equitable title to real estate and maintains thereon the permanent residence of the owner, or another legally or naturally dependent of the owner, is entitled to the 3% “lid” on annual assessments. (See Article VII, Section 6). To date, most Florida counties have been quite liberal in granting homestead status and have been accepting a filed Declaration of Domicile or proof of voter registration as proof of homestead status qualification. Some counties require a sworn statement that any STAR exemption on any New York home owned by the applicant or a spouse has been terminated.
But be aware that if any false statement results in real estate tax savings, not only must the tax savings be returned but there are substantial interest payments and fines that may be imposed.
The third area where the homestead becomes meaningful involves the
ability of the retiree to sell or mortgage his home during his lifetime or
devise his home after his death. The Florida Constitution provides that the
homestead is not subject to devise if the owner is survived by a spouse or a
minor child, except the homestead may be devised to the owner's spouse if there
is no minor child.(6)
A Florida statute provides that if a decedent is survived by a spouse and lineal
descendants, the surviving spouse takes a life estate in the homestead, with a
vested remainder to the lineal descendants.(7)
The homestead right came into question when John died. He was survived by his
wife Madeline and his two adult daughters, one of whom was his daughter by a
prior marriage. His Will devised his condominium in Boca Raton to Madeline for
life with a vested remainder interest to one of his daughters. The Court held
that the devise was ineffective because it did not convey a fee interest to
Madeline and that both daughters were entitled to a remainder interest.(8)
The same result would follow where John devised the homestead in fee jointly to
Madeline and the one daughter.(9)
Whenever a Will is drafted for a retiree domiciled in Florida, care must be
taken in drafting the provision which devises homestead property. Normally, real
property owned as tenants by the entirety is not considered homestead property
for purposes of placing restrictions on the devise of the retiree's home. Most
married retirees who have homes in Florida will probably hold title as tenants
by the entirety. But where title is held in the name of one spouse only, and
they are domiciled in Florida, the estate plan must be fashioned to be
consistent with the Florida homestead laws.
The owner of homestead real estate, joined by the spouse if married, may
alienate the homestead by mortgage, sale or gift and, if married, may by deed
transfer the title to an estate by the entirety with the spouse.(10)
The Florida homestead laws can be very confusing. The following examples may
clarify their application:
Example A: Retiree has no minor child. He can devise
his homestead to his spouse.
Example B: Retiree has a minor child. He cannot
devise his homestead to his spouse.
Example C: Retiree has a spouse but no minor children
and devises the homestead to a third party. The devise is ineffective even if it
is a devise to his adult child.
Example D: Retiree has a spouse but no minor children
and devises the homestead jointly to his wife and one of several adult children.
The devise is ineffective.
Example E: If the retiree makes no provision in his
Will for his homestead, or the devise is ineffective, then the surviving spouse
receives a life estate and the remainder will be vested in the testator's lineal
descendants who are living at his death.
Example F: Retiree has no spouse but has adult
children. He can devise the homestead any way he pleases.
Example G: Retiree has a spouse and children (some of
whom may be minors) and wants to sell or mortgage the homestead during his
lifetime. He can do so if the spouse consents.
Example H: Retiree has no spouse but has minor
children and wants to sell or mortgage the homestead. He can do so.
Even though the retiree may have no right to devise homestead property at the
time the Will is executed, the retiree should provide in his Will for its
disposition since it may not have that status on his death. The homestead status
may be abandoned by moving into a new home and renting the former homestead.
Also, the homestead may terminate if the retiree's spouse dies or a divorce
occurs. Likewise, it will be lost if the retiree changes his domicile back to
New York State or it is determined that his change of domicile to Florida was
never effective.(12)
The retiree may inquire whether there is some solution to the potential
homestead problem. It has been suggested that a plausible solution is to
transfer the homestead property to an irrevocable trust in which the retiree
simply retains a life interest in the trust. At the retiree's death, the trust
asset would pass pursuant to the trust instrument and not according to the
homestead laws. Unfortunately, the retiree must act at his peril since there are
no cases directly on point. However, based upon analogous cases, it would appear
that the irrevocable trust may well allow the retiree to continue to live in the
residence and still avoid potential homestead problems.(13)
The retiree may have entered into a prenuptial agreement with his spouse
pursuant to which she waives any interest in the homestead. The waiver should be
effective. (14)
If a retiree who has married for a second time holds title to homestead
property and desires to pass title to his children upon his death, the retiree
should enter into a marital agreement wherein the new spouse waives all rights
to the homestead. Otherwise, the second spouse will take a life estate in the
homestead and the children will receive a vested remainder.
If a retiree desires for the homestead to pass to his step-children who are
the deceased spouse's children, the owner must enter into a marital agreement
wherein the new spouse waives all rights to the homestead.
Although it is likely that a spouse can legally waive homestead rights after
the marriage there is no case directly on point and it is possible that a court
might hold that the children have vested homestead rights once the second
marriage occurs and that the second spouse cannot waive those rights.
Formerly, although the Florida Statute authorized the conveyance of homestead
property through a power of attorney, such transactions were not practically
effective.(15)
Uniform Title Standard 18.4, published by the Florida Bar indicated
that the conveyance constituted a cloud on title. As of July 1992, the title
standard has been amended to authorize such a conveyance if specifically
authorized in the power of attorney. The power of attorney should specifically
include power to convey or mortgage the property and preferable should include a
legal description of the property. The power must be executed with the
formalities of a deed and be recorded, along with an affidavit, by the
attorney-in-fact. Although a joinder of a spouse is still required, that joinder
can be accomplished through a power of attorney.(16)
In 1992 the Florida Legislature modified the homestead law to make it clear
that title to real property held in a revocable living trust remains homestead
if it would have been homestead if it had remained titled in the settler's name
alone.(17)
In 2008, Florida approved a constitutional amendment that, among other things, allows portability constitutional amendment that among other things will allow portability of the existing Save Our Homes benefits that have placed a cap of 3% on increases in annual assessments. The amendment allows homestead owners with an accumulated tax assessment benefit to transfer 100% of the benefit (up to a $500,000 benefit) to a new homestead if they “upsize” to a home with a greater or equal just value. If “downsizing” to a home with a lower just value, the homestead owner can transfer the benefit that protects the same percentage of value as it did the former homestead, up to a $500,000 benefit. In other words, if the benefit equaled 25% of the just value of the former home, the new benefit will equal 25% of the just value of the new home. The new homestead must be established within two years of the sale of the former homestead in order to transfer the benefit. The homestead owner may transfer the benefit to a new homestead anywhere in the state and is not limited within a county or any other jurisdiction. The transferred benefit on the new homestead will apply to school tax levies.
The amendment also provides savings for every homestead owner by creating a new, additional $25,000 homestead exemption for non-school taxes. It also creates a new 10% assessment cap for all non-homestead properties including those owned by snowbirds who are not eligible for a homestead exemption. The assessment limitation does not apply to school tax levies and will expire in 10 years. Residential properties of nine units or less will surrender accumulated protections at change of ownership or control. For all residential properties of 10 or more units, the Legislature must define how the property will surrender protections when there is a “qualifying improvement” to the property and may define by general law how the property will surrender accumulated protections at a change of ownership or control. The cap will use a base year of 2008, which means the cap began shielding properties from taxation in 2009.
CAUTION: Before making any changes that may affect
the retiree's Florida homestead, he should review the matter with his attorney,
taking into account the most recent laws, regulations and cases.
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1. Florida
Constitution, Art. X, § 4(a).
2. Fla. Stat. §§
222.01, 222.05.
3. Fla. Stat. §
196.031(3)(d) and (e).
4. Fla. Stat. §
196.011.
5. Fla. Stat. §
196.202.
6. Article X, Section
4(c), Florida Constitution .
7. Fla. Stat. §
732.401.
8. In re Estate of
Finch, Fla., 401 So.2d 1308 (1981) .
9. Iandoli v.
Iandoli, Fla., 504 So.2d 426 (1987) .
10. Article X, Section
4(c), Florida Constitution.
11. In re Estate of
Johnson, Fla. App., 397 So.2d 970 (1981).
12. Since the real property is located in Florida, the test
probably is whether there was an effective domicile change under Florida law.
This is probably so even though the Will is probated in New York State.
13. See Homestead Devise Trap by Krause and
Franklin in the Florida Bar Journal (Nov. 1990)
14. See, City
National v. Tescher, 557 So 2d 615 (1990); Hartwell v.
Blasingame, 15 F.L.W. 1770 (1990); Wadsworth v. First
Union Nat. Bank No. 89-272 (Fla. App. 1990)
15. Fla. Stat. §
709.08(3).
16. Fla. Stat. §
709.08(3).
17. Fla. Stat. §
732.4015(2)
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