Homestead Made Easy, Part II
Part I of this article, “Understanding the Basics,” appeared in last month’s Florida Bar Journal. If you missed it, you should read that article before reading this one. Even if you did read it, a rereading will contribute to your understanding of this article and the concepts on which it is grounded. In any case, you should have available for quick reference Kelley’s Paradigm, which is reproduced with this article.
Part I explained the underlying concepts and rules that apply to probate of and passage of title to real property that was exempt from the decedent’s creditors during his or her lifetime by virtue of being homestead. In summary, we learned that the “homestead” is the homestead of the decedent, not of the estate. At death, the property loses its homestead character, but may gain new homestead character in the hands of the heir or beneficiary. However, such second generation homestead status is not relevant to the process of probate administration or the status of title in the present probate. Instead, of concern is the exemption from forced sale enjoyed by the decedent and whether it inured to the benefit of his “heirs” under art. X, §4(b) of the Florida Constitution. The second consideration is the limitation on devise of the decedent’s homestead real property under art. X, §4(c) where the decedent is survived by a spouse or minor child.
The concepts and rules you learned in Part I regarding limitations on the decedent’s ability to devise his homestead and whether that real property is now subject to creditors’ claims need to be applied to common fact scenarios which we face in everyday practice. Throughout, however, remember the discussion of Part I to the effect that the land’s character as “homestead” terminates with the decedent’s death, and it is merely the residual effects of that legal status (limited proscription on devise and potential exemption from creditors’ claims) that presently concern us.
Now, as we depart the theoretical and arrive in the real world, you may assume the decedent has died and you represent the personal representative of the estate who asks you what his, her, its, or their responsibilities are regarding this property. In order to give a sensible reply to that request and so that we, as lawyers, may be as consistent as possible in this confusing area, I have prepared a model opinion letter to explain homestead and its implications to the client.
The format of the following portion of this article is as an opinion letter sent to a corporate fiduciary client which is the personal representative of the estate. (This is an edited version of a letter actually sent by this author.)
Downsouth Bank Trust Company, N.A.
One Main Street, 4th Floor
Fort Lauderdale, Florida 33301
Re: Estate of Mary Noname, Deceased
This is in response to your letter, requesting my written opinion with regard to administering Mrs. Noname’s condominium apartment, which she used as her personal residence. Your trust real estate division is correct to be concerned regarding administering a personal residence in an estate because the state of the law is very confused at the present time.
The organic law regarding homestead appears in art. X, §4 of the Constitution of the State of Florida. That section provides that the decedent’s homestead is not subject to devise if the decedent is survived by a spouse or a minor child, except it may be devised to the decedent’s spouse if there is no minor child.
The facts that relate to the Noname Estate are that Mrs. Noname was survived neither by a spouse nor a minor child. She was survived by her son; however, since the son is an adult, his survival is irrelevant for purposes of determining whether the decedent’s homestead can be devised, since only a minor child would proscribe the devise.
Further, since the devise was not to Mrs. Noname’s son (her sole intestate heir), but to a trust for his benefit, his existence is also irrelevant regarding whether the exemption from forced sale has inured to anyone. (It has not.)
There are basically three questions that need to be considered with regard to the probate administration of the home. (Note: if the apartment had been a cooperative apartment, it could not be the decedent’s homestead for this purpose because it would not meet one of the requirements of art. X, §4, that it be “real property.” In re Wartels’ Estate, 357 So. 2d 708 (Fla. 1978).) We assume at the outset that the property was the decedent’s homestead. The three questions are:
1) May the decedent’s homestead (real property) be devised?
2) Is the property subject to the claims of creditors?
3) Is the property an asset subject to probate?
With regard to the facts of the Noname estate, the answer is “yes” to all three questions. The legal background required to arrive at these conclusions is somewhat complex.
The law of Florida has been settled for some time that the decedent’s homestead, which may otherwise be devised, may be devised by the residuary clause of a will. Estate of Murph y, 340 So. 2d 107 (Fla. 1976). In Mrs. Noname’s instance, the property is devised by art. VIII (the residuary clause) of her last will and testament to Downsouth Bank Trust Company, N.A. as trustee of her revocable living trust dated July 21, 1989.
Most probate attorneys dealing with homestead (including your writer) are confused by the current status of the law. Also, the real property attorneys (dirt lawyers) and the title companies are even more confused. Probate attorneys are used to dealing with the question, “What interest, if any, does the personal representative have in a particular parcel of real property?” Real estate attorneys approach it differently. They ask, “Who could conceivably have any interest in this property—and whoever that is, get a deed from everyone in sight.”
To aid in understanding the answers to the three questions posed above, perhaps some contextual definitions are necessary.
A) A “devise” is a disposition of real (or personal) property by will. F.S. §731.201(8).
B) “Subject to the claims of creditors” means that the property may be sold or otherwise converted in some manner to pay the decedent’s debts.
C) “Subject to probate” means that the personal representative is entitled to possession of property during the period of administration and may sell or mortgage it without the consent of the person to whom it is devised and may pass good title without that person’s joinder.
Recall the general law of real property title relating to estate probate. The title to the property passes instantly at death pursuant to the will (if the estate is testate) or pursuant to the intestacy statute (if the estate is intestate) to the beneficiary or the heir. The beneficiary’s or heir’s title is subject to the personal representative’s right to possession during probate administration and the personal representative’s right of sale if there is a general power of sale in the will, or with order of court (in the absence of a general power of sale) if sale is required to pay debts, family allowance, estate and inheritance taxes, claims, charges, and expenses of administration, to enforce contribution, to equalize advancements or for distribution. F.S. §733.613.
There are significant exceptions to these general rules relating to the decedent’s homestead real property.
Perhaps the best way to understand the situation is in a didactic format (the numbers following the fact scenario relate to the questions numbered 1-3 above):
Decedent is survived by a spouse and a minor child.
1) The property may not be devised.
2) It is not subject to the claims of decedent’s creditors.
3) It is not subject to probate.
Authority: art. X, §4(c) of the Florida Constitution; F.S. §732.4015; Cavanaugh v. Cavanaugh, 542 So. 2d 1345 (Fla. 1st DCA 1989).
Comment: Certainly all lawyers are in agreement on this.
Decedent is survived by a spouse but not by a minor child and the property is devised.
1) The property may be devised but only to the spouse.
2) It is not subject to the claims of decedent’s creditors (whether or not devised).
3) It is not subject to probate (whether or not devised).
Authority: art. X, §4(c) of the Florida Constitution; F.S. §732.4015. Clifton v. Clifton, 553 So. 2d 192 (Fla. 5th DCA 1989).
Comment: Item 1 would be universally agreed among lawyers and item 2 nearly so. Most lawyers (but not all) would agree with statement 3. The difference in agreement probably arises from differences in the definition of “subject to probate.”
The decedent is not survived by a spouse or a minor child and the property is devised to those who would have been intestate heirs of the decedent.
1) The property may be devised without limitation.
2) It is not subject to the claims of decedent’s creditors. This is true only if it is devised or passes by intestate succession to those persons who are intestate heirs, as defined in F.S. §731.201(18).
3) It is probably not subject to probate (whether or not devised).
Authority: Public Health Trust of Dade County v. Lopez, 531 So. 2d 946 (Fla. 1988).
Comment: The Lopez case involved a devise of the decedent’s homestead to three adult children. The estate was insolvent and a creditor attempted to reach the property for satisfaction of its claim. The Supreme Court determined that because the property passed to persons who were “heirs” (referring to the language of art. X, §4) it passes free of the claims of creditors. The personal representative’s petition to set aside the property as exempt from creditors’ claims was granted. (Note: although the decision doesn’t specify that the estate was testate, such was the fact.) Lopez does not address whether this exemption from creditors’ claims is available if the property is devised by will only to one of several of the intestate heirs, such as one of several children. However, where the homestead descended by intestate succession to two children, and one then conveyed his interest to the other, the exemption from creditors’ claims was not affected either as to the whole or the part. Cumberland & Liberty Mills v. Keggin, 190 So. 492 (Fla.1939).
My personal view is that the exemption is available under such circumstance since the law has no interest in enforcing parity among members of a protected class as a condition of the exemption. In a confusing and poorly- written opinion, a contrary view is expressed. In re Estate of Hill 552 So. 2d 1133 (Fla. 3d DCA 1989). That case can be read (or misread) to suggest that any devise will subject the property to the claims of creditors (and to probate), even if that person was an “heir” who, if the property had passed by intestacy, would have taken it free of the claims of creditors. (Even a devise to a spouse?) That interpretation makes no sense and it is not possible to glean more from the opinion. The best that can be said of Hill is that it should not be cited as precedent for anything with the hope that the Third District will retreat from it at the first opportunity.
Scenario 4: (This is the Noname estate situation.)
The decedent is not survived by a spouse or a minor child and the property is devised to a third party who is not one of the heirs of the decedent.
1) The property may be devised without limitation.
2) It is subject to claims of creditors.
3) It is subject to probate.
Authority: (As to statements 1 and 2) State Department of Health v. Trammell, 508 So. 2d 422 (Fla. 1st DCA 1987). Trammell holds that where there was a permitted devise to one who was not an heir (in this case to “my good friend Bessie”) the decedent’s homestead is subject to the claims of creditors. (As to statement 3) City National Bank of Florida v. Tescher, 557 So. 2d 615 (Fla. 3d DCA 1990). In Tescher the personal representative applied to the probate court and obtained an order determining the property to be the decedent’s homestead. The personal representative also obtained a probate court order authorizing the sale of the property. The Third DCA affirmed.
The decedent is not survived by a spouse or minor child and the will directs her homestead be sold and the proceeds divided between decedent’s two children.
1) The property may be devised without limitation, but was not.
2) The proceeds are subject to the claims of creditors.
3) It is subject to probate.
Authority: In re Estate of Price v. West Florida Hospital, Inc., 513 So. 2d 767 (Fla. 1st DCA 1987), cause dism. 518 So. 2d 1274.
Comment: The Price court decided that creditors could reach the proceeds of the sale and, although the issue was not contested or addressed, the property was subject to probate because the will directed its sale and the personal representative sold it.
It is appropriate to generally examine the difference between issue 2 and issue 3. Could, for example, the decedent’s homestead be subject to claims of creditors but not subject to probate? Recall that payment of debts and claims is only one of the aspects of “estate administration” or “probate.” The others are payment of devises, family allowance, estate and inheritance taxes, charges and expenses of administration. F.S. §733.608. For one to admit under Scenario 4 that the property is “subject to the claims of creditors” (as one must) but to deny that it is “subject to probate” or to deny that the personal representative is entitled to possession of or the ability to deal with the property, suggests that there is no way effectively to make the property available for creditors’ claims. If the PR is unable to sell the property to pay claims of creditors (within the proper sequence in which assets are appropriated for purposes of administration), how are the claims to be enforced against the property—by some separate litigation brought by the creditors as a class against the property, in rem, or against those to whom it is devised? This strained interpretation is neither logical nor practical.
If the PR could sell the property to pay the claims of creditors, could it not also sell the property and use the proceeds to pay taxes or expenses of administration? Expenses of administration and taxes, after all, have a higher priority than creditors’ claims. F.S. §733.707. Although nowhere in the case law is this specifically addressed, the logical answer must be “yes.” The property in Scenario 4 must be subject to probate. Even assuming, arguendo, that the decedent’s homestead will stand only for the claims of creditors, then in a limited sense, the PR must also be entitled to possession and have the right to sell the property. That would make it “subject to probate” but for the benefit of the creditors only. If the estate was not insolvent, this would be a distinction without a difference.
What does that mean to the fiduciary? In addition to having possession of the decedent’s homestead property for all the proper administration purposes, it must also be insured, rented (if possible), managed, and secured. Like any other asset, it is subject to administration and the duties and responsibilities of the PR are the same as they would be for any other parcel of improved real property.
With regard to a permitted devise of decedent’s homestead, it makes no difference whether the devise is a specific devise or a residuary devise, since devisable homestead will pass under either type. Murphy, 340 So. 2d 107 (Fla. 1976).
There are three parts of the Florida Probate Code that may be inconsistent with discussions above. The first of these is illustrated by the fact that some lawyers would say if the property is devised, it is both subject to the claims of creditors and must be probated. This is because in the definition of a “devise” under F.S. §731.201(8), it is provided that “[a] devise is subject to charges for debts, expenses, and taxes as provided in this code or in the will.” The argument may be made directly from the statute that if the property is devised (to a spouse when permitted or, absent a spouse, to persons who would be heirs) that it, by definition, becomes “subject to probate.” This would change answers 2 and 3 in Scenarios 2 and 3 to “yes.” This argument fails in the face of Lopez. We have, therefore, a statutory definition that is simply ignored and has never been reconciled or even addressed in the case law.
The second and third instances of conflicting statutes are found in F.S. §733.607 and §733.608. The reference is nearly the same in each. F.S. §733.607 (Possession of estate) — provides: “Except as otherwise provided by a decedent’s wilt, every personal representative has a right to, and shall take possession or control of, the decedent’s property, except the homestead,.. . . “
F.S. §733.608 (General power of the personal representative) — immediately following, provides: “All real and personal property of the decedent, except the homestead,. . . shall be assets in the hands of the personal representative: [for purposes of administration].” These two sections clearly proscribe the personal representative’s possession or control of “the homestead” and make no exception for the instance where it is devised to a nonqualified beneficiary and is, therefore, clearly subject to the claims of creditors just like “[a]ll [other] real and personal property of the decedent.. . . “
How can. these two sections be reconciled to the conclusion stated above (a “yes” answer to question 3 in Scenario 4)? Only with substantial difficulty.
F.S. §733.607 begins with the language, “[e]xcept as otherwise provided by a decedent’s will.” If the will devises the decedent’s homestead to nonqualified beneficiaries, by law, it has subjected that property to the claims of creditors (the exemption will not inure) and thereby to probate administration, just as if the will had said “I devise my ‘homestead to my good friend Bessie, however I direct that my personal representative shall take possession of that property and shall use it for purposes of administration of my estate including, if necessary, the payment of claims of creditors.” Or, as was done in the Price case, if the will directed sale of the decedent’s homestead by the PR, this may fall within the specific exception in the statute. Although there is no such introductory phrase in F.S. §733.608, those two sections pertain to the same subject matter and may be read in pari materia.
The alternative construction is since the case law of the state is clear that under the proper circumstances, the property may be subject to the claims of creditors, the intended meaning of the phrase “except the homestead” is “except the decedent’s homestead not subject to creditors’ claims.” Charles E. Early, a Sarasota lawyer regarded by many (including your writer) as a scholar of the law, has suggested that the two statutes in question be amended to delete the reference to homestead. (A scholar of the law is one who ponders the answers to questions when others do not even recognize the questions.) It might also be appropriate to add clarifying language to the statutory definition of “devise.”
Florida Probate Rule 5.340(a) provides in part: “Real property appearing to be homestead property shall be listed and so designated.” This suggests the reason for the “Homestead Real Property” classification as the first subdivision of The Florida Bar inventory form entitled “REAL ESTATE IN FLORIDA— Homestead.” The committee note to this rule discloses “Constitutional homestead real property is not necessarily a probatable (sic) asset. Disclosure on the inventory of real property appearing to be constitutional homestead property informs interested persons of the homestead issue.” The term used in the note, “constitutional homestead” is not defined; however, it seems to refer to the decedent’s homestead defined in art. X, §4(a) on which the exemption has inured to a qualified heir under §4(b). This language suggests: a) that there is constitutional homestead (which is exempt from creditors), and b) “other” homestead, which is not.
If it is constitutional (exempt) homestead, the rule requires it be reported as such on the inventory. If it is “other” homestead, the rule does not require it be reported on the inventory as homestead at all, and it would be reported under the section appearing on The Florida Bar form entitled “REAL ESTATE IN FLORIDA—Non-Homestead.” My interpretation of the correct procedure as discussed in the committee note and as called for by The Florida Bar form is: If the exemption has inured to a qualified person, the property is reported on the form as “REAL ESTATE IN FLORIDA—Homestead” but if not, the property is reported as REAL ESTATE IN FLORIDA— Non-Homestead. This supports the conclusions to the items 3 in the scenarios above.
It is my practice to report the dece dent’s homestead on which the exemption has inured to a qualified person or persons (Scenarios 1, 2, and 3) in the homestead subdivision of the Bar form, and to report nonexempt homestead (Scenarios 4 and 4A) in the nonhomestead subdivision.
If F.S. §733.607 and §733.608 are to be read literally (the PR has no possessory right to the decedent’s homestead property), the Tkscher case, where the Second DCA affirmed entry of an order of the probate court finding a property to have been the homestead of the decedent and then confirming the probate court’s order authorizing its sale, reached the wrong result. If the property is not subject to probate, how could the PR sell it? In Price, how could the PR sell the house in order to make the proceeds available to the creditors? Does anyone suggest that a provision in the decedent’s will that “I direct my homestead be sold and the proceeds be applied first to the payment of my debts, and any amount then remaining shall then be paid to my son” has no validity? Under that circumstance, is the PR entitled to possession of the property? Of course. Can the PR sell it? Of course.
A further homestead consideration is found in F.S. §733.817(l)(d) which provides that “[r]eal property homesteads that are exempt from execution by law shall be exempt from apportionment of taxes.” This is one unique statutory expression that recognizes that some decedent’s homesteads are not exempt from execution (the exemption did not inure) and are then subject to the requirement to contribute to the payment of tax. In this instance, the decedent’s homestead (a nonexempt homestead) is an asset “in the hands of the personal representative: (1) For the payment of. .. estate and inheritance taxes.. . . ” It is subject to probate. This statute (F.S. §733.817(l)(d)) is the only one in the Florida Probate Code that clearly recognizes and mentions the distinction between a decedent’s homestead where the exemption inures to a qualified person and a decedent’s homestead where such exemption does not inure. The former is exempted both from creditors’ claims and the requirement to contribute to taxes, the latter is exempted from neither. The former is subject to probate; the latter is not. The real world approach is that the law should be construed to produce a practical and logical result if possible. This is possible here and the ultimate answer is that if the property is subject to claims of creditors then it is subject to probate, and if it is not subject to creditors’ claims, it is not subject to probate. That is the only logical sense of a confusing morass of cases.
Is the “yes, yes, yes” trilogy of affirmance in Scenario 4 so certain? No. There is general agreement for the first 2 yeses. The third is more in doubt.
In an article published in the May-June 1990 issue of Action Line, the periodic publication of the Real Property, Probate and Trust Law Section of The Florida Bar, written by G. Robert Arnold (a leading dirt lawyer) who is also vice president of Attorneys’ Title Insurance Fund, Inc., Mr. Arnold, although acknowledging authorities to the contrary, arrives at a conclusion which disagrees with the opinion I suggested above, “The Fund’s long-standing policy is that a personal representative is not empowered to convey [the decedent’s] homestead property, even where the [decedent’s] homestead is validly devised. See TN 2.06.01.”
Arnold’s position, however, is not expressed so much as one of legal certainty, but rather one of prudence and caution (the hallmark of the dirt lawyer and the antithesis of the successful probate lawyer). He prefaces the earlier statement with: “[t]he reported Florida appellate cases, when dealing with devisable homesteads, have given mixed and sometimes confusing signals on whether the [decedent’s] homestead is a probatable asset which would allow a personal representative to deal with and sell the homestead property.”
As authority for the position that the PR is not empowered to convey any decedent’s homestead, the title insurance companies rely upon a line of cases beginning with Spitzer v. Branning, 184 So. 770 (Fla. 1938). The quotation from that case, which has trickled down through a later series of cases, is “Neither executors nor administrators have at any time in this State had any jurisdiction over homestead of a deceased person. The homestead is in no wise an asset of the estate of a decedent.” (Appearing at page 772-773).
The facts of Spitzer, however, are distinguishable in that the decedent was survived by his spouse. The authorities (and the conclusions reached in this article) are basically agreed under such situation, the decedent’s homestead is not an asset subject to probate, is not subject to the claims of creditors, and may not be devised (except to the spouse in the absence of a minor child). The material quoted from Spitzer is exactly correct as regards the law where the decedent is survived by a spouse. I suggest, however, that it is not correct where the decedent is survived neither by a spouse nor a minor child. (See Scenario 4 above.)
In Burdick v. Burdick, 399 So. 2d 410 (Fla. 3d DCA 1981), the concurring opinion indicates “the property in question was neither a probatable (sic) asset over which the personal representative had any right of possession nor did the probate court even have jurisdiction over it.” (Appearing at page 413). In Burdick, however, once again, the decedent was survived by a spouse and under those circumstances, the stated language is eminently correct.
The next case cited by those who feel that the decedent’s homestead, in those circumstances, is not subject to probate is the case of Cavanaugh v. Cavanaugh, 542 So. 2d 1345 (Fla. 1st DCA 1989). This case repeats the Spitzer language but “explains” that language as to its limited application. “As concerns the interest in or title to the homestead passing to the surviving spouse and lineal descendants, it has been said, ‘Neither executors nor administrators have at any time in this State had any jurisdiction over the homestead of a deceased person. The homestead is in no wise an asset of the estate of a decedent.'” (Appearing at page 1351, citing Spitzer ). Cavanaugh explains Spitzer and indicates that the law quoted from Spitzer applies to situations where there is a surviving spouse. The Bar is agreed that is the law where there is a surviving spouse. The question is, what is the law where there is no surviving spouse and no minor child (and hence, no constitutional limitation on devise of the decedent’s homestead)?
Bob Arnold’s admonition, “The Fund’s long-standing policy is that a personal representative is not empowered to convey [the decedent’s] homestead property, even where the homestead is validly devised,” is overly simplistic and understated. If the Fund suggests that I can insure the title to the property based only on a deed from the decedent’s “good friend Bessie” Trammell (the permitted devisee in Trammell ) or the step-daughter (the devisee in the Hill case) during the period that the time for filing claims against the respective estate is still open, it is wrong. If you conclude that the property is not subject either to the claims of creditors or to probate, then go ahead and do just that. But when the creditors find the estate to be insolvent, and petition the court for an order requiring the personal representative to sell the property, then the title company is going to be high and dry when the tide goes out. In actual practice, the title company also requires that the claims period be closed and that the creditors have been paid or provided for before they will insure the title based only on Bessie’s deed. It, too, feels that the property is somehow touched by the probate process.
The title company is covering all bases in typical dirt lawyer style, and that is what they should be doing. But until there is more clarity in the law, either from case law construction or from an amendment to the statute, I intend to follow logic and reason through this chaos and to probate the decedent’s homestead where it is devised to a person who would not have been an heir in intestacy.
The prudent, practical arid tidy procedure under these facts, and one suggested by Downsouth’s general counsel, John G. Grimsley (another legal scholar), is to obtain an order of the court determining the property to be the decedent’s homestead, specifying that it has been devised as permitted by law, that the property is subject to the claims of creditors, and that the personal representative has the right to possession and full authority to sell it pursuant to the general power of sale contained in the will. I will prepare such a petition.
I conclude, therefore, that Downsouth Bank may properly list the property for sale, but I also suggest that the title will not be insurable without a deed from the bank as personal representative, the bank as trustee of the living trust, and possibly (although incorrectly) from Mrs. Noname’s son, the trust beneficiary.
This article is adapted from Law Note 19, Florida Bar Probate System (2d ed. 1990), available from CLE Publications. Part I of Mr. Kelley’s article was published in the March 1991 issue.
Rohan Kelley is a shareholder in Rohan Kelley, P.A., in Ft. Lauderdale. He is board certified in estate planning and probate and is past chairman and present member of the Probate and Estate Planning Certification Committee of The Florida Bar. He is chancellor of the Academy of Probate and Trust Litigation Attorneys and the author of The Florida Bar Probate System; Ch. 20 “Probate Litigation” in Basic Practice Under Florida Probate Code.
Mr. Kelley’s practice is limited to wills, trusts and estates, and estate and trust litigation. This column is submitted on be half of the Real Property, Probate and Trust Law Section, Roger O. Isphording, chairman, and James P. McDonald and Julie Ann Williamson, editors.