Most of you are familiar with the old adage that an attorney who represents himself has a fool for a client. In that vein I bring to you an interesting case of a retired attorney from a Midwestern state who decided to draft and sign his own will. “Benjamin” died a Florida resident with no assets or monies to speak of except his home worth $400,000 that he had declared as his homestead. Before retirement, he was a practicing attorney from his former home state, he was not licensed nor did he ever practice estate planning law in Florida.
Benjamin knew enough about Florida law to understand that your homestead is not technically a probate asset and it is generally protected from creditors’ reach. As I will soon reveal, while Benjamin may have known the general rule, it doesn’t appear that he was aware of the exceptions to that rule.
Prior to his death, Benjamin ran up credit card debt exceeding $60,000, apparently believing that the credit card companies would be left out in the cold since his only major asset was his Florida homestead. Unsecured creditors such as bank credit cards may file a claim against the probate estate, but usually cannot attach Florida homestead if it is left to a decedent’s heirs as defined under the law.
Here’s where it gets interesting. Benjamin’s last will left 45% to his son, “Thomas,” 45% to his daughter, “Stephanie” and 10% to his church.
Thomas was named as the personal representative (executor) for his father’s estate, and opened the administration. Benjamin’s ex-wife, “Marilyn” who is also the mother to Thomas and Stephanie produced her divorce settlement agreement promising her $100,000 from Benjamin’s estate at his death. She made a claim for that amount against the estate assets.
Thomas sold the home, and deposited the $400,000 proceeds into an estate account. Against his probate attorney’s advice, Thomas immediately paid his mother the $100,000 due to her under the divorce settlement agreement. The creditors properly filed their claims for the $60,000.
Thomas’ probate attorney filed a motion to protect the homestead sales proceeds. The creditors filed an objection, since the homestead protection only applies to spouses or heirs at law. Since Benjamin’s will gave 10% to his church (an unprotected class of beneficiaries), the creditors claimed that up to $40,000 of the sales proceeds were unprotected (10% of the 400,000 sales proceeds) and therefore should be available to satisfy their claims.
Thomas asked his attorney if the $100,000 that he paid his mother in satisfaction of her divorce settlement factored into the equation somehow. The probate attorney informed Thomas that he should not have paid her claim in full, since hers is also a creditor claim that would have to be prioritized with the other creditors’ claims. The amount subject to all of the creditor’s claims totaled $160,000 (the mother’s $100,000 plus the $60,000 credit card debts).
The credit card companies were entitled to a portion of the $40,000 of unprotected monies and the mother was entitled to another portion. But Thomas distributed $100,000 to his mother. If his mother refused to refund her $100,000 payment, Thomas would have to refund money from his own pocket, or take it from his share of his father’s estate.
At the end of this mess, the church received nothing, and Thomas had to refund money to the estate to make everyone whole.
Many of these problems could have been avoided had Benjamin sought proper legal advice before drafting his will, and running up the credit card debt. Thomas also erred by paying his mother’s claim without first consulting with the probate attorney.
Situations like this are made even worse when individuals put a direction in their wills that mandate the sale of the Florida homestead with the proceeds divided between the beneficiaries. While homestead is a creditor-protected asset under Florida law, if a direction in the will requires the personal representative to sell the homestead then those proceeds are not protected at all, even if those proceeds are directed to heirs. In the case of Benjamin’s estate, there was no such direction. When there’s no direction to sell the home, and the personal representative does it of his own volition, then the proceeds are generally protected to the extent that they are to be distributed to heirs.
Believe it or not, situations like the one that I describe here are not uncommon. The law surrounding the descent and devise of Florida homestead is complicated. Moreover, the law surrounding the creditor-protected nature of a Florida homestead, and the sales proceeds therefrom, are equally confusing.
While Benjamin had a fool for a client, another euphemism that applies to his situation is that Benjamin’s limited knowledge as to Florida probate law made him dangerous.
The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.
© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.