Tony owned a home on Sanibel for several years before claiming Florida residency. He was a resident of New Jersey, but he noticed the tax savings were worth the change of residency status. Twelve years ago, when he and his wife Carmela last updated their estate plan, they created New Jersey-based trusts. When Tony died last year, the trusts were not up-to-date with Florida law.
Back when they last completed their planning, the New Jersey attorney told Tony to put the Sanibel home into his trust to use against his estate tax exemption. At Tony’s death, his trust was to be held for Carmela for the remainder of her life, with Carmela as the trustee and the primary beneficiary.
When Tony died, Carmela was surprised to learn that the devise of the Sanibel residence, which was now their primary residence, was invalid under Florida law. Under Florida law, absent a nuptial agreement to the contrary, one must leave their home to his or her spouse. A devise into a trust, even for that spouse’s benefit, is invalid.
Once there’s an invalid devise, Florida law does not consider what Tony’s trust says about who should now own and enjoy the home. Instead, Carmela, as the surviving spouse, may choose between a “life estate” interest or half of the home as a Tenants-in-Common interest. The decedent’s children, in this case their son Anthony and daughter Meadow, take the remainder.
In other words, Anthony and Meadow have current vested ownership in the residence. The only fact that changed relative to the Sanibel residence between the time that Tony and Carmela prepared their New Jersey estate plan and the time of their death was that they became Florida residents. Yet, the disposition of the home changed dramatically because Florida law regarding the descent and devise of the home now applied.
Many attorneys up north do not recognize the nuances of Florida law, and they commonly instruct their clients that the estate plan drafted in the northern state is “just fine.” This is bad advice. While the will and trust remain valid if properly signed in another state in accordance with that state’s laws, the disposition of the assets may be different because of Florida law.
This is especially true when one owns a Florida homestead residence, as evidenced by Tony and Carmela’s dilemma.
Due to this invalid devise, Anthony and Meadow can prevent Carmela from selling the Sanibel residence. They need to sign off on any contract of sale and must sign a deed to a buyer. Anthony and Meadow are also entitled to a portion of the sales proceeds. If either Anthony or Meadow go through a divorce or have creditor problems, this may affect the title to the residence.
These problems are difficult enough to navigate when the children of the decedent are also the children of the surviving spouse. When step-relations are involved, however, it can become a completely different and oftentimes more adversarial process.
If you’ve become a Florida resident, whether you claim homestead status on your primary residence or not, these descent and devise laws apply.
I’ve been practicing estate planning law for 29 years here in Southwest Florida, and am a board-certified specialist in wills, trusts and estates. Most of the clients that I visit with already have estate plans that were drafted in their former state of residence, and the invalid devise of the homestead is a common issue that I find in many of the plans that come across my desk.
I’ll admit my frustration at my colleagues up north who tell their clients that their “wills and trusts are perfectly valid in Florida.” Yes, they’re valid, but they may have unintended consequences. That’s why it’s important to update your documents to Florida law when you become a Florida resident. The Florida homestead is just one issue. There are several more, for example, with a Durable Power of Attorney.
Carmela was fortunate that Anthony and Meadow cooperated to quit claim their interests back to Meadow. While those are “taxable gifts” requiring the filing of a Federal Gift Tax Return 709 (and consumed a portion of each of their lifetime exemptions from federal gift and estate tax), neither Anthony or Meadow have an estate that is likely to be taxable, so the problems were resolved.
It’s always better to head off those problems in the first place. If you’re a homeowner and have become a Florida resident or are considering Florida residency, have an estate planning specialist review your plan for these and other common problems.
© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.