The Florida Bar
www.floridabar.org
The Florida Bar Journal
October, 2003 Volume LXXVII, No. 9
Protecting and Preserving the Save Our Homes Cap

by Richard S. Franklin and Roi E. Baugher III

Page 34

The so-called “Save Our Homes” amendment to the Florida Constitution sets a three percent maximum limit on annual valuation increases of homestead property for ad valorem tax purposes. This limit or cap on annual valuation increases saves untold numbers of Floridians thousands of dollars in tax, and in some cases tens of thousands of dollars of tax. Statewide in the year 2002 the Save Our Homes (SOH) cap protected about $80 billion in assessed value from taxation. That is up 68.50 percent over the year 2001, when it was about $47.9 billion.1

The mounting importance to the SOH cap is becoming apparent with the enormous and growing gap between just value and the protected taxable value as Florida real estate appreciates. Some owners of protected homestead properties are opting to stay in their existing homes because the taxes are so low as compared to selling and buying properties of comparable value. Eventually this trend may affect the real estate market in reducing inventory and sales.

The protection from escalating property taxes offered by the SOH cap is a significant tax break available to Florida residents. Anyone considering purchasing a home in Florida or residing in Florida, as a resident or nonresident, needs to understand the implications of the SOH cap on property taxes. Professional advisors need to consider the effect of the SOH cap in any tax or domicile analysis. In many cases, the tax savings offered by the SOH cap may be more significant than the income tax of another state and more significant than the Florida intangibles tax. Suffice it to say that the SOH cap is one of the most valuable rights available to Florida residents.

What is the SOH Amendment?

The SOH Amendment is a state constitutional provision approved by the citizens of Florida on November 3, 1992, designed to limit the annual valuation increases to homestead property for ad valorem tax purposes.2 Article VII, §4(c) of the Florida Constitution provides:

(c) All persons entitled to a homestead exemption under Section 6 of this Article shall have their homestead assessed at just value as of January 1 of the year following the effective date of this amendment. This assessment shall change only as provided herein.
(1) Assessments subject to this provision shall be changed annually on January 1st of each year; but those changes in assessments shall not exceed the lower of the following:

a. Three percent (3%) of the assessment for the prior year.

b. The percent change in the Consumer Price Index for all urban consumers, U.S. City Average, all items 1967=100, or successor reports for the preceding calendar year as initially reported by the United States Department of Labor, Bureau of Labor Statistics. (emphasis added)

The provision became effective on January 5, 1993. On January 1, 1994, all property was assessed at just value.3 Subsequently, assessments of properties subject to the SOH amendment would change annually on January 1 of each year, but those changes in assessments could not exceed the lower of three percent of the assessment for the prior year or the percentage change in the consumer price index. Therefore, 1995 was the first year the SOH cap limited the assessed valuation increases on Florida homestead properties.4

As the first sentence of §4(c) of Article VII of the Florida Constitution indicates, the SOH cap is available to all persons who qualify for the homestead tax exemption under §6 of Article VII of the Florida Constitution. This section of the Florida Constitution provides in part:

(a) Every person who has the legal or equitable title to real estate and maintains thereon the permanent residence of the owner, or another legally or naturally dependent upon the owner, shall be exempt from taxation thereon, except assessments for special benefits, up to the assessed valuation of five thousand dollars, upon establishment of right thereto in the manner prescribed by law. The real estate may be held by legal or equitable title, by the entireties, jointly, in common, as a condominium, or indirectly by stock ownership or membership representing the owner’s or member’s proprietary interest in a corporation owning a fee or a leasehold initially in excess of ninety-eight years.

It is important to recognize that there is a separate body of law addressing the homestead tax exemption from that addressing the homestead creditor protection under Art. X, §4 of the Florida Constitution.5 The statutory scheme and procedures to qualify for the homestead tax exemption are found in F.S. Ch. 196, and Florida Administrative Code Ch. 12D-7.6

The homestead exemption reduces the taxable value of real property by up to $25,000. To qualify, as of January 1 of the year for which the individual is applying for homestead status, the individual must be a permanent resident of Florida, must own and occupy the property as his or her permanent residence, and must hold legal or equitable title to the property.7 The homeowner must also file an application for the homestead exemption with the local property appraiser on or before March 1 of such year.8

Properties that receive the homestead exemption automatically qualify for the SOH cap and may realize additional benefits. Additionally, in a recent case, Powell v. Markham, __ So.2d __, 28 Fla. L. Weekly D1448a (June 18, 2003), the Fourth District Court of Appeal held that the homeowners were entitled to the SOH cap even though they failed to timely file a homestead application. The court analyzed that “the entitlement to a homestead exemption, for the purpose of seeking application of the Save Our Homes cap, is not limited to homeowners that have actually applied for and been granted a homestead exemption, but includes all homeowners who qualify for and thus are entitled to a homestead exemption.”

Example of SOH Cap

In the example below, the homeowner meets requirement for homestead on January 1, 1999, and applies for homestead status in February 1999:

In the example, the percentage adjustment on 1/1/2000 is shown as 2.7 percent and not three percent. That is because the SOH cap for any particular year is the lower of the percentage change in the consumer price index (CPI) for the preceding year or the flat three percent adjustment limit. For the year 2000, the percentage change in the CPI was 2.7 percent. In the history of the SOH cap, only in 1997 and 2001 has the percentage change in the CPI been greater than the flat three percent adjustment limit. The CPI change amounts shown in the chart below are from the year prior to the year listed.9

Under the recapture rule, property appraisers must raise the assessed value of a qualifying homestead property by the maximum of three percent or the percentage change in the CPI, whichever is less, on all properties assessed at less than full market value whether or not that property’s value increased during the calendar year. For example, property A’s market value increases by 10 percent this year. As a homestead property, the property appraiser can only increase the value by three percent or CPI, which ever is less under SOH. In the next year, property A’s market value did not change. Since its assessed value under SOH remains under market value, the property appraiser must increase the assessed value by three percent or CPI, which ever is less, to bring its value closer to full market value.

SOH Disclosure in Real Estate Sales

There is a growing concern among lawyers that buyers of properties in Florida are made aware of the SOH cap and its implications for the buyers’ tax liability after the sale. There is potential liability for all those involved with the sale of a property for not advising the buyer that his or her tax bill may be dramatically higher than that of the seller. Several legislative bills were introduced in February 2003 that would require sellers, real estate brokers, and salespersons to disclose to the purchaser of residential property in writing that 1) the ad valorem taxes subsequent to the purchase may be in excess of the taxes assessed at the time of sale, and 2) the ad valorem taxes are required to be assessed at just value of the property in the year following a sale if a change of ownership occurred. The proposed laws would also require the purchaser to sign a disclosure at or prior to the time of the acceptance of the offer.10 However, these bills died in committee on May 2, 2003.

Placing a statutory burden on sellers, real estate brokers, and salespersons, as proposed by pending legislation, would not necessarily exonerate the closing agent or the purchaser’s attorney from liability. While a closing agent has a duty to conduct the closing in a reasonably prudent manner,11 does that now include adding to the checklist a discussion of the purchaser’s potential increase in taxes?

The duties of the attorney for the purchaser at the closing table are generally to deal with title issues and handle the closing.12 In Maillard v. Dowell, 528 So. 2d 512, 515 (Fla. 3d DCA 1988), those duties did not include inquiring or investigating an issue, for which the purchaser’s attorney was not specifically hired. Courts do not appear anxious to broaden the scope of responsibilities of the purchaser’s attorneys or seller’s attorneys, which create legal duties to purchasers at the closing table and thus liability to the attorney.13 However, the duty of a closing agent to conduct a closing in a reasonably prudent manner has been held to include more than just issuing title insurance. In Florida Southern Abstract & Title Company v. Bjellos, 346 So. 2d (Fla. 2d DCA 1977),14 the title company, acting as the closing agent, failed to give the buyer at the closing a termite inspection report. The contract contained a statement that it was “subject to negative termite inspection paid by seller.”15 The court found that the title agent, by failing to furnish such a report to the buyer, “breached a legal duty to the appellees (purchasers) in failing to carry out its responsibility as a closing agent.”16 If a contract addresses real property tax prorations, and discussions of availability or lack thereof of current year’s tax assessments, does that create a closing agent’s duty to address the potential large increase in taxes as a result of the loss of the SOH cap?17

Welcome Stranger Effect

The SOH cap has caused great variations in what homeowners pay in property taxes on homes of similar value, even among the class of homeowners that qualify for the homestead exemption and SOH cap. These variations in tax liability between qualifying homeowners are based on when the properties were acquired and when homestead status was secured. As such, when a new homeowner moves to an established neighborhood he is “welcome” by the longer term neighbors who know that the new homeowner will contribute a larger percentage of support for local government. This is the “Welcome Stranger” effect, which terminology was originally coined in California. For more about the California experience, see the discussion on equal protection below.

Welcome Visitor Effect

Every Floridian knows there is no shortage of part-time, seasonal residents of Florida (“nonresidents”). Nonresident homeowners cannot qualify for the SOH cap, which is only available to homeowners who are permanent residents of Florida eligible for homestead status. The result is great variations (and growing greater each year) in what the nonresidents pay in property taxes on homes of similar value as compared to the permanent residents of Florida eligible for the SOH cap (the “Welcome Visitor” effect). There is a growing sense of unfairness among Florida’s nonresident homeowners that the SOH cap is unfairly favoring the permanent residents of Florida.18

Equal Protection

The California experience is helpful in understanding the constitutional implications of the SOH cap. In the 1970s, Californians saw their property tax bills double and triple. Eventually this lead to the passage of the state constitutional amendment known as Proposition 13, now part of the popular lexicon for the entire country. Essentially, Proposition 13 is an acquisition based property tax system, with limitations on future increases in the tax rate and valuation assessments. Real property is assessed based on the value of the property at the time of acquisition. Thereafter, Proposition 13 combines a one percent ceiling on the tax rate with a two percent cap on annual increases in assessed valuations. The assessment cap is removed in the event of new construction or a change in ownership. However, over age 55 taxpayers who sell their principal residences may carry their previous base year assessments with them to replacement residences of equal or lesser value. A second exception applies to transfers of principal residences between parents and children.19 Finally, and contrary to the SOH cap under Florida law, Proposition 13 applies to all property owners, residents and nonresidents alike.

In Nordlinger v. Hahn, 505 U.S. 1 (1992),20 the U.S. Supreme Court considered a challenge under the Equal Protection Clause of the 14th Amendment to Proposition 13’s method of taxation. Nordlinger complained that Proposition 13 created an arbitrary system which assigned disparate real property tax burdens on owners of generally comparable and similarly situated properties. The Court acknowledged the disparate tax results.

Over time, this acquisition value system has created dramatic disparities in the taxes paid by persons owning similar pieces of property. Property values in California have inflated far in excess of the allowed 2% cap on increases in assessments for property that is not newly constructed or that has not changed hands. As a result, longer term property owners pay lower property taxes reflecting historic property values, while newer owners pay higher property taxes reflecting more recent values. For that reason, Proposition 13 has been labeled by some as a “welcome stranger” system—the newcomer to an established community is “welcome” in anticipation that he will contribute a larger percentage of support for local government than his settled neighbor who owns a comparable home. Indeed, in dollar terms, the differences in tax burdens are staggering. By 1989, the 44% of California home owners who have owned their homes since enactment of Proposition 13 in 1978 shouldered only 25% of the more than $4 billion in residential property taxes paid by homeowners statewide. If property values continue to rise more than the annual 2% inflationary cap, this disparity will continue to grow.[citations omitted]21

The Equal Protection Clause requires only that the classification rationally further a legitimate state interest. The Supreme Court found that the standard is especially deferential in the context of classifications made by tax laws. In rejecting the equal protection challenge, the Supreme Court found two rational reasons to justify the difference in tax treatment caused by Proposition 13.

First, the State has a legitimate interest in local neighborhood preservation, continuity, and stability. The State therefore legitimately can decide to structure its tax system to discourage rapid turnover in ownership of homes and businesses, for example, in order to inhibit displacement of lower income families by the forces of gentrification or of established, “mom and pop” businesses by newer chain operations.

***
Second, the State legitimately can conclude that a new owner at the time of acquiring his property does not have the same reliance interest warranting protection against higher taxes as does an existing owner. The State may deny a new owner at the point of purchase the right to “lock in” to the same assessed value as it enjoyed by an existing owner of comparable property, because an existing owner rationally may be thought to have vested expectations in his property of home that are more deserving of protection than the anticipatory expectations of a new owner at the point of purchase.22

Nordlinger and the California experience illustrate that the Welcome Stranger effect of the SOH cap would likely survive constitutional scrutiny, though the reasonable basis for the classifications under the Florida law may be slightly different than those in California.

The California Supreme Court’s opinion in Amador Valley Joint Union High School Dist. v. State Bd. of Equalization, 22 Cal. 3d 208, 583 P.2d 1281 (1978), and the California Court of Appeals opinion in Nordlinger also addressed challenges to Proposition 13 on the basis that it would impair the fundamental right to travel because nonresidents or newly arrived residents would be subject to higher property taxes than established residents. The courts, however, found that the acquisition system of taxation in Proposition 13 was “intended to benefit all property owners, past and future, resident and nonresident, by reducing inflationary pressures in assessments, by limiting tax rates, and by permitting the taxpayer to make a more careful and accurate prediction of future tax liability.”23

Consider SOH Cap in Tax and Domicile Analyses

Professional advisors frequently consult clients on whether becoming domiciled in Florida will be advantageous for tax and estate planning purposes. Often comparisons are made considering income, intangible, estate, inheritance, and other personal and business taxes. As more states elect to establish new estate and inheritance taxes to stem the tide of lost revenue following the phase out of the state death tax credit pursuant to the Economic Growth and Tax Relief Reconciliation Act of 2001 (this is commonly referred to as states “decoupling” from the federal system), this type of analysis may become more common once again. It is critical for advisors to also consider the impact of the SOH cap in any analysis of this kind. If the prospective resident owns a home in Florida that experiences rapid appreciation, the property tax costs of not being domiciled in Florida could be substantial. In some cases, the potential property taxes in Florida could be the most significant tax to consider. The SOH cap will be the driving force for some to establish domicile in Florida.

Don’t Delay Qualification for SOH Cap

Professional advisors need to educate their clients to qualify for the homestead exemption and therefore the SOH cap at the earliest opportunity. The costs for a one-year delay can be substantial! For example, in the past it was not uncommon for advisors to suggest to new prospective residents to delay their status as tax residents of Florida until just after the first of the year. This strategy was designed to save the new resident the costs of having to pay the Florida intangibles tax for that initial year. This strategy, however, has the additional and perhaps unintended effect of precluding the new resident from applying for the homestead exemption until the following year. If there is a chance that the new resident’s home may appreciate substantially, this strategy of delay may be more costly to the new resident in property taxes than the intangible tax savings, especially considering that the intangibles tax is so easy to avoid. And remember, if the value of the residence increases, that increased value is permanently represented in the property tax bill, as the SOH base will be set a higher assessed value. As such, over the lifetime of a new resident’s homeownership, the costs of a one-year delay could become quite large. The chart below illustrates the costs of the initial one-year delay in qualifying for the SOH cap.

Costs of Valuation Adjustment

Valuation Collier Co. Dade Co.
Adjustment Tax Increase Tax Increase
@13.63 mills @24.07 mills

$ 50,000 $ 682 $ 1,204
100,000 1,363 2,407
200,000 2,726 4,814
500,000 6,815 12,035

Transfers Trigger Revaluation

If a change in ownership occurs in a homestead property protected by the SOH cap, the property is subject to being assessed at just value on January 1 of the year following the change in ownership. For this purpose, a change in ownership includes a sale, foreclosure, or transfer of legal title or beneficial title in equity (hereinafter sometimes referred to as reassessment events).24 The Florida Legislature provided that a few types of transfers or changes in ownership would not be considered a “change of ownership” for SOH purposes. Uncertainty abounds regarding the extent of these exceptions and the extent to which one type of excepted transfer may be combined with another type of excepted transfer.

Before making any change in ownership to protected homestead properties, Florida attorneys would be well advised to become very familiar with these exceptions. There are four categories of excepted transfers.

Same Person Entitled to Homestead Exemption Following Change

No change in ownership occurs if subsequent to the change or transfer, the same person is entitled to the homestead exemption as was previously entitled and 1) the transfer of title is to correct an error or 2) the transfer is between legal and equitable title. This exception is particularly useful, as under it the identity of the transferor is immaterial. The transferor could be the trustee of a revocable trust transferring legal title back to the settlor/homesteader. Perhaps the transferor could be the remaindermen in a property subject to a legal life estate transferring their remainder interest to the life tenant/homesteader.

Transfers Between Husband and Wife

No change in ownership occurs if the transfer is between husband and wife, including a transfer to a surviving spouse or a transfer due to dissolution of marriage. Under this exception, one of the spouses must be a transferor and the other a transferee. There is no guidance as to whether the transferor spouse must be a transferor of a legal versus equitable interest. Likewise, there is no guidance as to whether the transferee spouse must receive a legal versus equitable interest. For example, would this exception protect a transfer of homestead property by a husband as trustee of his revocable trust (i.e., in his fiduciary capacity verses his individual capacity) during his lifetime to his wife outright and free of trust? If the transferee is a trust that provides the spouse of the transferor with equitable title sufficient to qualify for the homestead exemption, is the transfer to the “spouse” for purposes of this exception?

Transfers by Operation of Homestead Laws

No change in ownership occurs if the transfer occurs by operation of law under homestead rules for descent and distribution purposes (i.e., life estate in spouse and vested remainder in lineal descendants).25

• Transfers Upon Death to Dependent

No change in ownership occurs if upon the death of the owner, the transfer is between the owner and another who is a permanent resident26 and is legally or naturally dependent upon the owner. What is the extent and scope of “legally or naturally dependent” upon the owner?

Examples

Older Sister Adds Younger Sister as Co-owner. Suppose that an older sister, who is currently receiving the homestead exemption and protection of the SOH cap, adds her younger sister as a joint owner of her residence. Both sisters are Florida residents and intend to reside in the residence as their permanent residence. The transfer would be a reassessment event, not subject to any of the exceptions. In AGO 2001-31, the sole owner of property receiving a homestead exemption added another nonspouse person as co-owner. Since the person added as co-owner was apparently not a spouse, the transfer did not qualify for any of the exceptions to the reassessment events.

The attorney general addressed the question of whether the property should be reassessed in its entirety or in part on the January 1 following the transfer. The attorney general found that neither §4(c) of Art. VII of the Florida Constitution nor F.S. §193.155(3) provides for a partial reassessment of the property. “The change in ownership constitutes a triggering event for which the property, not that portion of the property affected by the change in ownership, is to be reassessed at just value.”27

Older Sister Creates Life Estate in Herself and Remainder to Younger Sister. Rather than adding the younger sister as a co-owner as in the above example, suppose that the older sister transfers the property to her younger sister and retains a life estate to herself. Under the first exception, after the change in ownership the same person is entitled to the homestead exemption as was previously entitled to it (i.e., older sister) and the change in ownership is merely between legal and equitable title. Therefore, this type of change qualifies under the first exception. The Florida Department of Revenue has ruled that “a conveyance to reduce a fee interest to a life estate held by the same owner is not regarded as a change in ownership within §193.155(3), Florida Statutes.”28

Younger Sister Removed as Co-owner. Suppose that the sisters jointly own the homestead property and they later agree to remove the younger sister as a joint owner of the homestead property. In this example, there would be a transfer from the younger sister to the older sister. Arguably under the first exception, after the change in ownership the same person is entitled to the homestead exemption as was previously entitled to it (i.e., older sister), but the change in ownership is not to correct an error and is not merely between legal and equitable title. Therefore, this type of change could not qualify under the first exception. As such, this would be a reassessment event, not subject to any of the exceptions.

In AGO 2002-28, the attorney general reviewed whether the removal of a joint owner from property receiving a homestead exemption would be a reassessment event for SOH purposes. The facts as submitted to the attorney general did not disclose whether any of the exceptions applied. The attorney general found that this situation was similar to AGO 2001-31, except that here an owner was removed instead of added. As such, and assuming that none of the exceptions applied, the attorney general determined that the removal of a joint owner constituted a reassessment event so as to require the entire property to be reassessed at just value.29

Older Sister as Joint Owner Dies. Suppose that the sisters from the above examples own the homestead property as joint tenants with rights of survivorship and that the older sister dies. In this example, there would be a transfer of legal title from the older sister to the younger sister. Arguably under the first exception, after the change in ownership the same person is entitled to the homestead exemption as was previously entitled to it (i.e., younger sister), but the change in ownership is not to correct an error and is not merely between legal and equitable title. Therefore, this type of change could not qualify under the first exception. Arguably under the fourth exception, the transfer to the younger sister is to a person who is a permanent resident, but it is unlikely that the younger sister could be considered legally or naturally dependent on the older sister. As such, this would likely be a reassessment event, not subject to any of the exceptions.

Marital and Family Trusts

Typically, estate planners in Florida try to avoid using homestead property to fund a marital or family trust. There are, however, situations when that is appropriate. The homestead property may be the only asset available to fund a family trust (also known as the credit shelter trust or applicable exemption trust). The decedent may be in a second marriage and desire to use a QTIP marital trust to ensure the home’s value eventually passes to the children of a previous marriage. In each of these cases there may be a prenuptial or post-nuptial agreement waiving the homestead devise restrictions.30 In these situations, the planner will need to ensure that the marital or family trust grants the spouse an equitable interest for life in the homestead property. Existing trusts should be reviewed for this concern.

F.S. §196.041(2) provides in part: “A person who otherwise qualifies . . . shall be entitled to such exemption where the person’s possessory right in such real property is based upon an instrument granting to him or her a beneficial interest for life, such interest being hereby declared to be “equitable title to real estate . . . .”31 Florida Administrative Code §12D-7.011 provides: “The beneficiary of a . . . trust has equitable title to real property if he is entitled to the use and occupancy of such property under the terms of the trust . . . . Homestead tax exemption may not be based upon residence of a beneficiary under a trust instrument which vests no present possessory right in such beneficiary.”32 A clause similar to that provided below should be sufficient to provide the requisite beneficial interest for life:

Homestead Possessory Right. Notwithstanding anything herein to the contrary, if any portion of my homestead residence is an asset of the [Marital/Family] Trust, my spouse shall have the exclusive and continuous present right to full use, occupancy and possession of such homestead residence for life. It is my intention that my spouse’s interest in such property shall constitute a “beneficial interest for life” and “equitable title to real estate” as contemplated by Florida Statutes Section 196.041(2) and this instrument shall be so construed.

The second exception for transfers between husband and wife should apply to preserve the SOH cap upon the transfer of the property from the decedent spouse to the trust for the surviving spouse.

Qualified Personal Residence Trust

In October 2002, the Naples Daily News published a story about a Bonita Springs couple who in 1988 built a home in what is now an exclusive waterfront community for $250,000.33 The couple transferred the home to a QPRT with a term that ended in 1997, whereupon the property passed to their children. At the time of the article, the property’s value was estimated to be $1.9 million. With the SOH cap lost, the taxes on the property had risen over $20,000.

Pursuant to Robbins v. Wellbaum, 664 So. 2d 1 (Fla. 3d DCA 1995), a term interest in a qualified personal residence trust is sufficient to support the claim of beneficial title for purposes of qualifying for the homestead tax exemption. The court determined that the §196.041 language to the effect that “persons residing on real estate by virtue of dower or other estates therein limited in time by deed, will, jointure, or settlement …” supported the claim of homestead exemption. Furthermore, according to Robbins, there is no minimum time period required to support the claim of beneficial title. “It is enough that the Wellbaums held beneficial title, under the definition of §196.041, during the year in which they claim the exemption.”34 Without further action, however, upon termination of the retained term in the QPRT the property would no longer qualify as the settlor’s homestead property for purposes of the homestead tax exemption and the protection of the Save Our Homes Amendment would be lost.

Penalties

The penalties for taking advantage of the SOH cap when not entitled could be costly. The property appraiser is authorized to collect wrongfully exempted taxes for up to 10 years, along with 15 percent interest per annum and a penalty of 50 percent of the taxes exempted.35 However, there is an exception for situations where the owner receives the SOH cap protection “inadvertently” following a change in ownership, in which case the mistake has to be corrected but the person is not liable for unpaid taxes, penalties, or interest.36

Reapplication After Any Transfer

After any change in ownership, even those changes qualifying for the exceptions to the “change in ownership” rules as discussed above, a new homestead application should be submitted in accordance with F.S. §196.011(9). Several Florida Department of Revenue technical opinions have been generous in allowing the SOH cap to remain intact without a timely new application.37

To be cautious, however, a new application for homestead should be filed after any change in ownership and an explanation should accompany the application if the SOH cap is to remain intact under one of the exceptions.

Conclusion

The importance of the SOH cap looms large in Florida’s future. Increasingly the divergence between just value and protected taxable value will widen. In just one year, from 2001 to 2002, the value of property the SOH cap exempted from taxation almost doubled. Increasingly the tax burden will be paid by businesses and residential properties not qualifying for SOH protection. Increasingly owners of SOH protected properties will choose to stay in their existing homes because the taxes are so low as compared to selling and buying properties of comparable value. Increasingly the SOH cap will be the driving motivation for some to establish domicile in Florida. Increasingly the SOH cap will be viewed by Florida lawyers as one of the most valuable rights available to Florida residents. Increasingly Florida lawyers will focus their efforts on carefully protecting and preserving the Save our Homes cap.

1 See Table 41, Florida Dept. of Rev.’s 2002 Florida Property Valuations and Data Book (available at www.myflorida.com/dor/property).

2 The SOH amendment survived several constitutional challenges on its way to the ballot. See Fla. League of Cities v. Smith, 607 So. 2d 397 (Fla. 1992); In re Advisory Opinion to the Atty General—Homestead Valuation Limitation, 581 So. 2d 586 (Fla. 1991).

3 Interestingly, one of the proponents of the SOH amendment filed suit shortly after the passage of the constitutional amendment asserting that January 1, 1993, should be the assessment date setting the SOH base under the new law rather than January 1, 1994. In Fuchs v. Wilkinson, 630 So. 2d 1044 (Fla. 1994), the Florida Supreme Court held that the clear language of the amendment established January 1, 1994, as the first “just value” assessment date, making January 1, 1995, the first year of the SOH cap.

4 See Fla. Stat. §193.155 (quoted in full in Appendix B).

5 There are numerous articles addressing Florida’s “creditor protection” homestead. See Nelson and Packman, Florida’s Unlimited Homestead Exemption Does Have Some Limits—Part I, 77 Fla. B.J. 60 (Jan. 2003); Nelson and Packman, Florida’s Unlimited Homestead Exemption Does Have Some Limits—Part II, Fla. B.J. 60 (Feb. 2003).

6 Beyond the scope of outline are the additional exemptions for persons who are widowed, disabled, blind, or over age 65. See Fla. Stat. ch. 196.

7 For a more scholarly discussion of the homestead tax exemption see Maines & Maines, Our Legal Chameleon Revisited: Florida’s Homestead Exemption, 30 U.Fla.L.Rev. 227, 289–95 (1978).

8 Fla. Stat. §196.011; FAC §12D-7.001.

9 Information for the chart obtained from the Florida Department of Revenue Web site: sun6.dms.state.fl.us/dor/property/limitations.html.

10 See Florida Senate Bills 1636 and 512 (2003).
11 Sommers v. Smith and Berman, P.A., 637 So. 2d 60, 61 (Fla. 4th D.C.A. 1994).

12 Maillard v. Dowell, 528 So. 2d 512, 515 (Fla. 3d D.C.A. 1988).

13 See, e.g., Amey v. Henderson, Franklin, Starnes & Holt, 367 So. 2d 633 (Fla. 2d D.C.A. 1979) (rejecting plaintiff’s argument that lender’s attorney who reviewed title for the lender was responsible for a title defect that impacted purchaser); Maillard, 528 So. 2d 512 (refusing to expand duties of purchaser’s attorney to investigate condominium litigation involving association where purchaser was buying a unit); Adams v. Chenowith, 349 So. 2d 230 (Fla. 4th D.C.A. 1977) (affirming dismissal of a complaint alleging seller’s attorney was liable to the buyer for the negligent preparation of a closing statement resulting in the buyer paying the seller too much at the closing).

14 See Askew v. Allstate Title & Abstract Co., Inc., 603 So. 2d 29 (Fla. 2d D.C.A. 1992) (Affirming title insurance company’s duty to prepare the documents in accordance with the contract).

15 Bjellos, 346 So. 2d at 635.

16 Id. at 637.

17 See, e.g., Florida Association of Realtors and The Florida Bar Contract for Sale and Purchase (FAR/BAR – 6S, 10/01). Standard L deals extensively with the issue of tax prorations and how to determine the amount to prorate.

18 See, e.g., Herrera, Part-Time Residents Want in on Law Limiting Property Tax Increases, Naples Daily News, February 23, 2003.

19 See, e.g., Amador Valley Joint Union High School Dist. v. State Bd. of Equalization, 22 Cal.3d 208, 583 P.2d 1281 (1978) (rejected a constitutional challenge to the disparities in taxation resulting from Proposition 13).

20 Nordlinger v. Hahn, 505 U.S. 1 (1992). The Nordlinger case came up through the California courts. The California Court of Appeals affirmed the trial court finding Proposition 13 constitutional. Nordlinger v. Lynch, 225 Cal. App.3d 1259, 275 Cal. Rptr. 684 (1990). The Supreme Court of California denied review and the U.S. Supreme Court granted certiorari.

21 Id.

22 Id. The court in Nordlinger also rejected the claim that the exemptions for transfers by over age 55 taxpayers and for transfers between parents and children were discriminatory.

23 Nordlinger v. Lynch, 225 Cal. App.3d 1259, 275 Cal. Rptr. 684, 692 (1990).

24 Fla. Stat. §193.155(3).

25 See Fla. Stat. §§732.401, 732.4015 for purposes of determining the descent of homestead property by operation of law.

26 Permanent resident is defined in 196.012(18) for homestead exemption purposes and logically the same definition should apply for this purpose.

27 AGO 2001-31 (April 26, 2001).

28 Fla. Dept. of Rev. Tech. Op. 1999-0014 (December 8, 1999). cf. Fla. Dept. Rev. Tech. Op. 1996-0010 (March 28, 199) (life estate created subsequent to transfer is a reassessment event).

29 AGO 2002-28 (April 16, 2002).

30 See Fla. Stat. §732.4015.

31 See Fla. Stat. §196.041(2).

32 FAC § 12D-7.011.

33 Layden, Hold on to Homestead Exemption, Naples Daily News, October 13, 2002 (www.naplesnews.com/02/10/realestate/d827366a.htm ).

34 Id. at 2. See also Nolte v. White, 784 So. 2d 493 (Fla. 4th D.C.A. 2001) (adopted the Robbins rationale), rev. den., 805 So. 2d 808 (Fla. 2001). These cases essentially overrule a prior attorney general opinion that denied the homestead exemption to property held in a QPRT: AGO 1994-50 (June 2, 1994). In Information Bulletin DAV-96-003, the Florida Department of Revenue indicated that following the Robbins decision the law is not settled and that individuals seeking a homestead exemption through a QPRT should reapply for the exemption to preserve the issue.

35 Fla. Stat. §193.155(9).

36 Id.

37 See Fla. Dept. Rev. PTA 2001-007 (May 8, 2001); PTA 1999-006 (March 19, 1999).

Richard S. Franklin is counsel at Shaw Pittman LLP, in McLean, Virginia. Mr. Franklin concentrates in trusts and estates, tax planning, and estate administration and probate. He is board certified in wills, trusts and estates by The Florida Bar and has previously been published in The Florida Bar Journal.

Roi E. Baugher II is a partner in the law firm of Steel Hector & Davis LLP. He received a B.S. from Purdue University, an M.B.A. from University of Cincinnati, and a J.D. from Northern Kentucky University. He is Florida Bar board certified in wills, trusts, and estates.

The authors acknowledge the significant assistance of Guy S. Emerich of Farr, Farr, Emerich, Sifrit, Hackett & Carr, P.A., Punta Gorda, who provided the material on duties of closing agents and the idea for the 98-year lease approach to preserving the SOH cap upon termination of a QPRT retained term, as well as other helpful guidance in this article’s preparation.

[Revised: 02-10-2012]