THE UNEXPECTED HEIR

Winter Park Home, Volume 5 / Issue 2, 2007

I met recently with a client for whom our law firm had previously prepared a will. Jeremy, who owns a home and two investment properties, told me he had remarried, and asked that we revise his will to provide for his new wife, Emily. Fortunately he had remembered our firm’s earlier advice that certain events, including remarriage, can impact the provisions of an existing will. He and I discussed what he hoped to achieve in revising his will. Our firm then prepared a codicil (amendment) to his will, adding the new provisions. He signed the codicil in front of the requisite witnesses and notary public.

Jeremy is now confident that he has made all the appropriate provisions for his new family, and will contact me again if certain events should occur in his life, or if he otherwise wishes to change any of the dispositions in his will.

A will, with certain limitations, can be amended whenever the intentions of the Testator change. (The Testator or Testatrix is the person making/signing the will.) Amendments can be in the form of a new will (automatically revoking any prior existing will) or by codicil to a will. Once finalized, certain events – such as birth of a child, adoption of a child, divorce, and subsequent marriage – can trigger changes to the dispositions made in that will. Under Florida law, these triggering events do not by definition revoke the existing will. Instead, they impact the manner in which certain or all of the assets of the Testator’s estate are distributed.

If Jeremy had not amended his existing will, and Emily outlived Jeremy, then Emily would be entitled to inherit Jeremy’s property under the provisions of the Florida intestacy statutes (i.e. as if Jeremy had no will), potentially defeating Jeremy’s intentions at the time of his death. For example, Jeremy had previously devised one of his investment properties to his church. If he had not amended his will after he remarried, the church most likely would be unable to enforce that bequest.

As I explain in my earlier column, (“Should Will Be Done–Issue 1, 2007”) Emily would inherit Jeremy’s entire estate if there are no lineal descendants, or a substantial portion of his estate if there are lineal descendants. Jeremy wisely opted to define his goals by amending his will, rather than relying on the provisions of the Florida intestacy statutes. (Under Florida law, these intestacy provisions might not apply if Jeremy had already provided for Emily in his will, or if his will had clearly disclosed an intention not to make provision for Emily.) These statutes are technical and subject to interpretation. You should always consult with a qualified estate attorney to determine that these issues have been properly addressed. Planning, as always, is critical.

A similar result may occur in the event of a subsequent birth or adoption of a child, by which the after-born or adopted child would be entitled to inherit his/her proportionate share under the intestacy statutes. Although the statutes provide a different formula for a child born or adopted after the creation of the will (pretermitted) than for the subsequent spouse, the failure of the Testator to provide for either may have an unintended impact. However, including certain language in a will may preclude imposing the provisions of the pretermitted child statute. For example, if a Testator’s will states that the omission was intentional, these provisions do not apply. Also, if the Testator had one or more children at the time the will was executed, and devised substantially all of the assets to the other parent of those children, and that other parent not only survived the Testator but is also entitled to take under the will, then these pretermitted child provisions don’t apply. Once again, proper planning and draftsmanship are essential.

Dissolution of marriage is a triggering event that not only can impact the current ownership of real property, but can also impact certain provisions of a will. Whenever property is owned by two individuals as husband and wife–tenants by the entirety, and they subsequently divorce, the form of tenancy automatically shifts from tenancy by the entireties, with its survivorship features, to tenants in common. As tenants in common, they usually will each own a one-half interest outright, with no survivorship rights.

Divorce may void any provisions made in a will for the other (ex-) spouse, unless the will or the divorce decree expressly provides otherwise. Jeremy, for example, was first married to Marilyn. They never had any children, and prior to his divorce Jeremy drafted a will leaving everything to Marilyn. Jeremy’s will never provided for the possibility of divorce, and the divorce decree never addressed ownership of any of Jeremy’s real property or the provisions of Jeremy’s or Marilyn’s wills. Once the divorce decree was entered, Marilyn was effectively eliminated as a beneficiary under Jeremy’s will. Jeremy then had his attorney prepare a new will, devising his assets to his local church and to other beneficiaries.

Two additional events impact and alter provisions of a will. The first relates to the intentional killing of the Testator. Popularly referred to as the Slayer statute, this provides that any person who unlawfully or intentionally kills or participates in procuring the death of an individual cannot be an heir of that individual – whether as a beneficiary under the deceased’s will or under the Florida intestacy statutes. The second event is the simultaneous death of both the Testator and the beneficiary under a will. It is also governed by Florida law, which provides that “unless a contrary intention appears in the governing instrument,” the property shall be distributed under the prescribed statutory formula. These issues can and should be addressed by competent legal counsel to assure that an individual’s wishes concerning his/her real and personal property, at death, are followed, and are not frustrated by these “unexpected” heirs.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

The Importance of Due Diligence

Park Avenue Business Forum, 1st Edition, 2007

When making a large purchase, such as a home or a car, it is important to find out as much as you can about the item you are purchasing. The same is true when purchasing a business, notably when the purchase will be structured as a stock acquisition. Unlike an asset acquisition, where a purchaser may choose which business liabilities, if any, he is willing to assume, a purchaser in a stock acquisition generally inherits all of the liabilities of the purchased business. Therefore, completing a thorough legal “due diligence” review to uncover such liabilities is an essential part of the acquisition process.

Legal “due diligence” is the process by which the business’ records (as well as public filings pertaining to the business, such as trademark registrations or lien filings) are systematically examined by the potential purchaser or the purchaser’s legal representatives. Documents examined may include the business’ promissory notes and other loan documents, leases, organizational documents (e.g., articles of incorporation, bylaws, and shareholders agreements if the business is a corporation), or documents pertaining to previous or pending litigation or regulatory enforcement proceedings.

The records examined and the scope of review will vary depending on the type of business that will be acquired. For example, if the business is engaged in manufacturing, emphasis may be placed on examining the business’ warranty obligations and previous or pending product liability claims. If the business provides services, particular attention should be given to the business’ employee and independent contractor agreements. Also, if a business needs a particular license to operate, the due diligence review would uncover whether such license is in good standing or if any adverse action has been taken against the license holder.

Another important function of the due diligence review is to uncover whether the sale and purchase of the business itself will constitute a default under an existing contract. For example, sale of a business may trigger the default provisions of a loan, which could allow the lender to accelerate all payments due under the loan or repossess property that collateralizes the loan. If the repossessed property is a key piece of equipment needed for the operation of the business, the purchaser may find himself in a precarious position.

A thorough legal due diligence review of a prospective business protects the would-be purchaser by affording him or (her) the opportunity to assess the business’ liabilities before closing the sale, instead of having to confront the liabilities after closing. Armed with such information, the purchaser may be able to negotiate a more favorable purchase price or sale terms or could simply “walk away” from the deal.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

SHOULD WILL BE DONE?

Winter Park Home, Volume 5 / Issue 1, 2007

Jennie is a single parent with a 17-year old daughter, and a homeowner with limited additional assets. She also asks the classic question: "do I really need a will?" The answer, under the circumstances, is an unequivocal "it depends."

In many ways, wills are difficult and frustrating. There are many hard decisions to be made in distributing an estate, and people generally prefer to put off those decisions because they inherently address the finite nature of our existence.

Interestingly, a will cannot transfer Jennie's primary asset, her home, as long as her daughter is under the age of 18. The Florida Constitution provides that homestead property cannot be transferred by a will (devised) if the deceased has any minor children. As a result, her homestead property would be transferred under the intestacy statutes. Once her child turns 18 Jennie can devise her homestead to anyone she chooses. I advise Jennie that non-homestead real property and personal property can be devised at any time to anyone she chooses, but without a will all of her property will pass under the Florida intestacy statutes.

Under the intestacy statutes (an intestate estate is one in which the deceased is treated as having died without a will), her daughter will inherit all of Jennie's estate. If Jennie never prepares a will, never remarries, and never has another child, her entire estate will automatically pass to her daughter. Jennie's estate, of course, will have to be probated to legally establish this ownership of the real property.

Should Jennie have a will? If Jennie doesn't care what happens to her estate if her daughter dies first, the answer is no. However, if Jennie considers further scenarios, a will would be necessary.

When preparing a will, an attorney can help the client think of those alternative scenarios. For example, what if Jennie and her daughter died together in a car accident, and a probate court determined that her daughter died first? If Jennie had a will it would be effective to devise her home and remaining assets to anyone she designated.

Alternatively, with no will, all her property would be inherited by those designated under the intestacy statutes. In the absence of a will, the State of Florida intestacy statutes provide that the deceased's property will pass automatically to certain heirs of the deceased, in the specific order presented under the statutes (see note 1 at the end of this column). That may be an acceptable solution under many circumstances, but what if Jennie was estranged from her and wouldn’t want them to inherit her property? Without a will and with her daughter preceding her in death, Jennie’s parents would inherit everything.

In addition to prohibiting the devising of the homestead as long as her child is a minor, the Florida Constitution also includes one other limitation on devises of homestead. If Jennie remarries and her child turns 18, the only person she can leave the homestead property to is her spouse.

The intestacy statutes define the order by which heirs claim an interest in an estate when there is no surviving spouse. These same statutes also include provisions for a surviving spouse. If the homestead has not been validly devised to her spouse, he automatically receives a life estate in the homestead, while Jennie's daughter receives the remainder interest. Additionally, her spouse would be entitled to receive a substantial share of Jennie’s remaining estate, and her daughter would receive the balance (See note 2 at the end of this column).

Back to Jennie's initial question, "do I really need a will?" I told her that it depends on her goals. If she remains single, has no more children, and wants all her property to go to her daughter, then I can advise Jennie that, once probated, the homestead and all her remaining possessions, will ultimately go to her daughter even if there is no will.

I also ask Jennie if this is her only goal, and suggested that a will would enable her to state her preference for legal guardianship (both of the person and of the property) of her daughter, who is still a minor. A will would also allow her to designate alternate beneficiaries in the event that her daughter dies first.

Finally, I advise Jennie that the decision to create a will is hers alone. She should recognize that a will is the only tool she has to control how her assets will be distributed after her death and to nominate a guardian for her daughter.

Subject to the homestead limitations described above, wills provide an excellent opportunity to plan for your loved ones’ welfare, make charitable contributions, create trusts for your grandchildren, and designate preferences for a legal guardian. Failing to provide by a will is a lost opportunity, so it is highly recommended that you consult with your attorney and plan accordingly. Competent legal counsel can also provide advice concerning the impact of a subsequent marriage, children born after the execution of the will, prenuptial and postnuptial agreements, and generally assist in any estate plan.

Note 1: ORDER IF NO SURVIVING SPOUSE: Lineal descendants; deceased's father and mother; deceased's brothers and sisters; deceased's paternal and maternal kindred; kindred of the last spouse of the decedent; if applicable, a formula for related Holocaust victims; and finally, the State of Florida.

Note 2: SURVIVING SPOUSE RECEIVES: the entire estate (if no lineal descendants of the deceased); first $60,000.00 plus one-half the balance of the estate (if lineal descendants of the deceased are also the descendants of the surviving spouse); one-half of the estate (if any one or more of deceased's lineal descendants are not descendants of the surviving spouse).)

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

OBJ - Readers' Choice Awards

READERS' CHOICE AWARDS
Establishments without equal
Locals' favorite places to work, live and play
Orlando Business Journal - December 15, 2006
by Bob Mervine
Staff Writer

More than ever before, our readers' favorites in this year's battle of the brands reflects a broader, more eclectic preference in the 79 different categories that make up the Readers' Choice Awards.

We also got the largest number of nominations ever -- again evidence of Central Florida's varied tastes and interest in spotlighting their personal favorites.
Professional services

Pohl & Short, founded by Frank Pohl, describes itself as a "business boutique law firm in Winter Park" and an "alternative to the large commercial law firms." They get the nod from our readers as the Best Small Law Firm.

New rules:
As the size and complexity of the annual Readers' Choice Awards changes, Orlando Business Journal has revised its rules concerning the number of categories in which individuals or companies can be recognized.

In the past, winners were based solely on the total number of votes. However, this year's winners are limited to just one category per person or company.
For those getting the most votes in more than one category, the editors chose the most appropriate category in which to receive recognition, based on a variety of criteria.

THERE’S OIL IN MY BACKYARD. I'M RICH...MAYBE

Winter Park Home, Volume 4 / Issue 4, 2006

We all have dreams of finding natural wealth in our own back yard, just as Jed Clampett did. Of course the likelihood of your striking oil in Central Florida is as probable as finding three feet of snow on your lawn.

What you may find, though, is a letter in your mailbox from an individual who owned your property 40 years ago, informing you that he not only owns the mineral rights below the surface of your land, but also, that he has the rights to dig on your land for those minerals (called rights of entry). This letter may go further on to state that for a mere $800 he will release those rights of entry in your favor. Impossible? The Orlando Sentinel reported a similar incident recently in its Central Florida Edition, but for property in Palm Beach County. Could it happen here? Let’s look at some facts:

Ownership of land consists of surface rights (to build on or to use the surface of the land) and mineral rights (the rights in the minerals that lie beneath the surface of the land, which includes the right to dig for those minerals, unless otherwise released). Both the surface rights and the mineral rights are automatically transferred when property is conveyed, unless a contrary intention is stated in a deed reserving those mineral rights.

Historically, the State of Florida reserved these mineral rights, including the right of entry, in many of its land transfers to private citizens. Often referred to as “Murphy Deeds,” these conveyances recited the State’s reservation of rights to “a one-half interest in any minerals taken from the subsurface area, together with the right of entry.” Ultimately Section 270.11 of the Florida Statutes was passed in 1986, effectively releasing the State’s right of entry for mineral reservations for any “contiguous tract of less than 20 acres in the aggregate under the same ownership.” Most Florida residence owners, and many commercial property owners, therefore do not have to be concerned with this right of entry for a State of Florida reserved mineral interest.

Interestingly, however, even though the State has granted the automatic release of the right of entry by this statute, it will rarely release the rights to any royalties in the underlying minerals.

Private rights of entry-where a private individual or business entity retains a percentage interest in the mineral rights, together with a right of entry, are more problematical. In Lake and Volusia Counties, for example, many properties are subject to these reservations, and the Lake County public records are laden with releases for specific tracts of land.

Should you be concerned? It depends on where you live in Florida. In Orange and Seminole counties, these private mineral reservations are unusual; in Lake and Volusia counties, they are more prevalent. In Northwest and Southwest Florida, these mineral reservations are commonplace.

If you receive a letter requesting money to release the right of entry, the first thing you should do is look at your title insurance policy and determine if there is an exception for mineral reservations on Schedule B. If there is none, you should contact your underwriter at the number provided on the jacket of the policy for guidance. If you fail to contact your underwriter you might effectively waive any rights to make a claim under your policy. Even if there is an exception for these mineral reservations, your concerns probably should be minimal. In developed residential areas the owners of these mineral reservations are generally not interested in actually mining the land, but rather in generating income from these releases. Additionally, permits would need to be obtained from various governmental authorities not only to dig for the minerals, but also, realistically, to uproot property owners from their homes.

Clearly, you should NOT pay anyone for a release without first determining whether or not the claim is legitimate and the release benefits both you as the current property owner, and all future owners of the property. If the matter isn’t resolved by your title insurance policy and your underwriter, you should consult with an attorney to determine your rights.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

WATER, WATER EVERYWHERE – IS ANY OF IT MINE?

Winter Park Home, Volume 4 / Issue 5, 2006

The Florida peninsula is bordered on the East by the Atlantic and on the West and South by the Gulf. Together with its rivers, and approximately 30,000 lakes, Florida truly is a land where there is “water, water everywhere.” People frequently ask me who owns these different bodies of water, whether the general public has an unlimited right to use them for recreational purposes, how to access them, and the rights of the landowners abutting them.

While dry land can be bought and sold, bodies of water and the land beneath them are treated differently. When Florida became a state in 1845, it acquired ownership of all land lying beneath non-tidally influenced (i.e. fresh) navigable water bodies. Fresh water lakes were presumed to have been navigable if the original government survey for the state depicted (“meandered”) the shorelines of these lakes. Unfortunately, although many of the lakes in Florida are navigable, only 190 of the approximately 30,000 lakes were meandered. In addition, no list has been compiled to define additional navigable vs. non-navigable bodies of water. This has created considerable difficulty in determining the ownership of land lying beneath the water’s surface in Florida’s fresh water bodies.

Unless the State of Florida has conveyed the underlying land to the private property owner, title companies generally will not insure any portion of the submerged land. This is true even when the lake has dried up or the property has been platted by a developer. This analysis also applies to rivers, which are treated as navigable and subject to the same considerations as lakes.

Consider the rights of a private landowner who I’ll refer to as Joe Johnson. Joe and his wife recently purchased a house on Lake Maitland, which is a non-meandered lake. Every weekend, a couple of fishermen anchor their boat about twenty yards from Joe’s shoreline and spend much of the day fishing. Joe finds them annoying and doesn’t want people anchored and fishing near his property. A survey of Joe’s property was done in conjunction with his purchase of the property and he was given a copy. The survey depicts his lot as extending more than 20 yards into the lake from the shoreline. So, he gave me a call seeking advice on whether he could legally force fishermen to move their floating weekend retreat to somewhere beyond his property lines.

I remind Joe of our prior discussions regarding the language exceptions in the title policy. Title insurance policies generally will NOT insure the land below the ordinary high water line of lakes and rivers - even if the property has been deeded by the State of Florida - because of the overriding rights of the public to use the water above the land. These rights - to swim, boat, and fish in the waters of the lake - are called “riparian and littoral rights.” I also reminded Joe that there were two specific exceptions in his title policy that address both of these issues, and which exceptions are automatically contained in all title insurance policies for land situated on navigable water bodies. The first - “This policy does not insure beyond the ordinary high water line of Lake Maitland” - means that the title insurance company will not protect or enforce any of Joe’s ownership rights to use any portion of the land extending into the waterway. The second is that “riparian or littoral rights are not insured.” This means that the title policy does not guarantee Joe’s individual rights to fish, swim, or boat in the lake’s waters – even though he and his family, as well as other members of the general public, enjoy these recreational activities. It also is an acknowledgment that other members of the public may have the right to use these same waters adjacent to Joe’s property. In other words, as long as the fishermen are not harassing Joe, or intentionally blocking his way, there isn’t much he can do.

Although the results may not seem fair to Joe, it is the “public welfare” character of these waterways that controls. Furthermore, the rights to use these waters extend beyond other lot owners adjacent to the waterway to include the general public. As long as members of the general public use a public access route to reach the body of water, are entitled to enjoy these same waters at their leisure.

Public access routes may vary, but are typically provided through public parks maintained by a city or county government. The public is required to abide by the rules and regulations imposed by the governmental authority (e.g. speed limits, opening and closing times), and generally must respect the private character of the properties along the waterways. Access rights may also be through private grants of easement (usually given to present and all future owners of the benefited parcel). Subdivisions abutting waterways typically contain language on the plat granting all lot owners access to the waterway. Specific access locations are also normally depicted on the plat.

Many lakefront properties have boat docks that extend beyond the ordinary high water line and into the lake’s waters. For the reasons recited above, title insurance policies typically will not insure these dock areas. Permits must be granted by local governmental authorities to build or repair the boat docks (or to remove weeds, high grass, etc.). Failure to obtain these permits may result in fines and court orders to remove the improvements at considerable cost to the property owner.

Most of the land lying beneath the lakes and rivers throughout Florida is vested in the State of Florida, for the benefit of the general public. Even if the state has conveyed the land lying beneath the water to private individuals, the general public legally accessing those navigable waters will usually have the same rights to the use of the waters.

I advise Joe that, although he has every right to the exclusive use of the land lying above the ordinary high water line of his property, his usage of the waterway is not exclusive. It is shared by other members of the public who have obtained legal access to those same waters.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

YE OLDE FLORIDA HOMESTEAD - PART II

Winter Park Home, July / August 2006

Everybody loves to save money. Surprisingly, the Florida constitution and statutes provide an excellent opportunity to own your home and save property taxes at the same time.

As discussed in the Real Estate Law column that appeared in the May/June issue, Florida homestead laws evolved to protect the family unit. In that column, we focused on the joinder / alienation provisions of the law. This column will cover the other two key aspects of the homestead statutes--protection from creditors and real property tax reductions.

In order for property to be characterized as homestead, the property owner must intend to use the property as his/her principal residence and physically reside on the property. Furthermore, homestead property is limited in size (but not in dollar amount) to one-half of an acre within the city’s limits, and up to 160 acres outside city limits, all of which must be contiguous.

The Homestead Exemption
To qualify for the homestead exemption, you must first own and reside on the property as of January 1st of the year in which you apply, and submit a formal application to the County Property Appraiser by February 28th of that calendar year. This application requires that you state under oath, that you are in fact residing on and will continue to reside on that property as your principal residence. Typically, if the deed is dated and notarized prior to January 1st, but not recorded until shortly after the 1st, the appraiser will treat the property as being owned by January 1st. Once the property owner has completed the filing process, the homeowner enjoys certain tax advantages and protections from creditors.

Tax Advantages
The homeowner receives an automatic $25,000 reduction in the assessor’s valuation of the property, thereby creating a reduction in the amount of the annual property taxes for the homestead property. In addition, once the property is characterized as homestead, the County cannot reappraise and increase the valuation of the property, for assessment purposes, more than 3 percent in any given year. Only homestead property enjoys this limitation.

Many people don’t realize that it is also possible for a husband and wife to have two separate homesteads. For example, Michael Jones separately owns and resides in a home located in Seminole County. Mary, his wife, also separately owns and resides in a home in Orange County. Each is entitled to file a separate homestead exemption. There are also many scenarios in which one or more unrelated people own property, but only one of them qualifies for the homestead exemption. If Michael Jones and Sam Smith jointly own property and only Michael resides on the property, Michael can claim the homestead exemption, but the 3 percent appraisal exemption will only apply to Michael’s share. The other half owned by Sam, isn’t exempt and is subject to taxation at the full valuation rate. This is true even if the County or the municipality allows the full $25,000 reduction in tax valuation of the property.


Protection from Creditors
The third important aspect of homestead law is the protection from creditors. This is the subject of constantly evolving law. According to the homestead laws, if you purchase property and immediately make it your homestead, the Florida Constitution provides that judgment creditors cannot take your property. Furthermore, any judgment lien against you cannot attach to your homestead property, nor to the proceeds of the sale of your homestead property (as long as those proceeds are used to purchase other homestead property). For instance, Michael has a $2 million judgment against him stemming from a car accident in which he was at fault. The judgment creditor cannot take or attach his homestead property. Although, proving that the property is his homestead may (but does not always) require a court order, with notice to all of his creditors.

If a court order is obtained, it must also be timely. An order dated January 5, 2005, for the sale of property in February of 2005 will not be sufficient if the original sale fell through and the property is back on the market for sale in January of 2006.

Not surprisingly, title companies are reluctant to insure a sale of property in which a $2 million judgment lien has been filed against the seller. The cost to defend a subsequent action by the judgment creditor, even if the defense is successful, far exceeds the amount of premium that the Title Company would receive for the transaction.

Public records are laden with homestead affidavits that attempt to avoid the impact of judgment liens on property. Generally, these affidavits have not been accepted by title insurance companies, even though there is some statutory authority to do so. Recently, title companies have become more flexible, permitting reliance on affidavits that comply with their guidelines for smaller judgments.

Certain forms of liens are superior to the Florida Constitutional protections and cannot be avoided by either an affidavit or a court order. Federal tax liens “trump” state law, and must always be satisfied. Homestead property can be taken to satisfy these obligations. Real property ad valorem taxes are also given the same priority.

Finally, consult with your legal advisor before taking any “creative” steps with your homestead real property. Asset protection is a specialized field of law, and proper advice will not only anticipate the insulation of your homestead property from creditors, but also will also factor in the evolving status of federal bankruptcy law.

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Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.