Ten Homestead Traps for the Unwary

Florida provides its residents very generous homestead protections and exemption but also restricts the ability to transfer the homestead. As a result, it is very important to understand these protections, how to apply for exemptions, common mistakes that can result in your loss of these benefits and how you may be limited in your ability to transfer your homestead.

In order for your home to be considered your "homestead" you must "own" the home and you must reside in the home as your permanent residence. Ownership of the home can include both legal title and equitable title (e.g. owning the property individually or in a trust for your benefit). If your home qualifies as your "homestead" then three different types of benefits and limitations will apply, relating to: (1) real estate taxes; (2) creditor protection; and (3) limits on the ability to transfer your homestead.

The following is a list of Ten Common Mistakes Relating to Florida Homestead.

1. Failure to "Homestead" the Property before December 31^st – If you purchased your dream home and it is your primary residence, then you must get your ducks in a row by December 31^st. This means that you must complete the purchase of the home no later than December 31^st, it must be your primary residence on that date and all documentation evidencing Florida domicile must be dated on or before December 31^st. Homestead protection does not require U.S. citizenship. All that is required is that the property is the individual's primary residence. However, individuals who are not U.S. citizens must be resident aliens and possess a green card.
2. Failure to Apply for Exemption by March 1^st – You must physically apply for the homestead property tax exemption between January 1^st and March 1^st at your local property appraiser's office. Failing to apply by March 1^st will result in your not obtaining a reduction in assessed value of up to $50,000. It also will result in your failing to have the 3% "Save Our Homes" valuation cap put in place.
3. Failing to Apply for All Exemptions for Which You Qualify – In addition to the standard homestead exemption, Florida also provides additional exemptions for surviving widows and widowers, disabled individuals, disabled veterans, individuals who are blind and senior citizens with low incomes. The deadline for applying for these exemptions is also March 1^st.
4. Married Couples Failing to Apply for Exemptions Together – Both spouses should sign the application for exemption. If one spouse dies and the surviving spouse did not sign the original homestead application then the homestead exemption may be lost unless further application is made by the surviving spouse. The loss of exemption may apply to not only the reduction in the assessed value but also the 3% Save Our Homes cap. In addition, although regaining the standard exemption may be easy, the loss of the 3% cap may be more difficult to correct and may result in revaluation of the property and considerably more property tax liability.
5. Couples With Multiple Homes – Generally, a husband and wife may only have one homestead and may only obtain one exemption. As a result, if a husband and wife each own a residence, they must choose one homestead. The penalty for maintaining two competing homesteads may be severe unless each of you is able to meet all of the requirements for the homestead exemption with respect to the separate properties.
6. Adding Family Members to the Deed – It is common to hear that someone has advised a Florida homeowner to add their children to the deed in order to avoid probate. Be aware that while this technique may reduce the likelihood of a Florida probate, unless the child is also residing in the home as their primary residence, it also will result in a reduction in the homestead exemption and can eliminate or destroy the homestead protection from creditors. As a result, before placing your homestead in joint names with your children, you must carefully consider the legal and financial affects.
7. Renting the Homestead – If you own your homestead and decide to rent it while you are up North for the summer, you could easily lose your homestead protections. Generally, only incidental rental of the property is allowed without your homestead being considered abandoned and with it, loss of the Florida homestead protections.
8. Renovations or Improvements to Homestead – Any change, addition or improvement to the homestead can affect the homestead valuation and Save Our Homes exemption. This is true unless the change is due to repairs resulting from a casualty loss and other requirements are met.
9. Failure to Obtain Long-Term Lease (99-year lease) after QPRT Expires – If you place your homestead in a Qualified Personal Residence Trust, in order to maintain the homestead protection and exemption after the expiration of the retained interest, you must maintain an equitable interest in the property. This means you must plan ahead with a long-term lease designed to qualify as an equitable interest in the property.
10. Failure to Obtain Homestead Waiver – There are Florida Constitutional and statutory prohibitions against transferring your homestead away from your spouse or minor children. As a result, devising your homestead to a trust for the benefit of your spouse is not likely effective unless there is a valid waiver of spousal homestead rights. However, even with a valid homestead waiver, if you are survived by a minor child, the devise may still be ineffective. Because of the various Florida Constitutional and statutory issues associated with Florida homestead, any transfers of the homestead or use of the homestead for estate planning should only be entered into after consultation with your legal advisors.

Ed Wollman is a FL Bar board certified wills, trusts and estates attorney with 26 years of experience practicing in the state of FL.

David R. Pash is focused on estate planning, estate administration, business planning and tax planning, with 12 years of experience.