Homestead Limitations on Devise, and How QPRTs and Waivers May Alter Them

In a complex and lengthy decision, the Fourth District Court of Appeals of Florida (“4th DCA”) in Stone v. Stone, 2014 WL 5834826 (Fla. 4th DCA 2014) found a trial court erred in part, but nevertheless affirmed the result that held a transfer of property following a person’s death was not an impermissible devise of homestead property.  Homestead property is an important aspect in estate planning, trust, and probate law.  It has different meanings depending on the context in which it is used, which can range from an exemption to ad valorem taxes, protection from forced sale by creditors, and limitations on alienation and devise.  Florida Statute § 732.4017 (2011), also clarifies inter-vivostransfers of homestead property, which occur while the person is still alive.  These transfers, including through a trust, are not considered devises for homestead purposes, provided the transferor does not retain the power to revoke the transfer or revest title to the property himself.

The property in dispute was initially titled in the name of Jerome Stone, and his wife, Alma in 1991.  But in 2000, for tax and estate planning reasons, Jerome and Alma conveyed the property to themselves as tenants in common, each with an undivided one-half interest in the property.  On that same day, Jerome executed a qualified personal residence trust agreement (“QPRT”) and executed a deed conveying his one half interest to himself and Alma as co-trustees of the QPRT.  One of their adult children, Nancy, was the sole beneficiary of the QPRT.  The term of the trust agreement was the earlier of five years from its creation or Jerome’s death.  If Jerome died before the five-year term, the balance of the trust would revert and be distributed as part of the Jerome’s estate.

As fate would have it, Jerome died in 2005, before the five-year term, survived by Alma and their two adult children, Nancy and Ross.  Because he failed to live the five years of the QPRT term, his one-half interest reverted back to his estate, and pursuant to his will, the assets in his estate poured over to a revocable living trust.  Upon Jerome’s death, the pour-over trust became irrevocable, and the trust assets were then held for the benefit of Alma for her life.  When she died, the trust was to terminate and be distributed outright to Nancy.  Jerome’s will and trust agreement expressly made no provision for his other child, Ross.  When Alma died in 2009, Jerome’s one-half interest in the homestead property passed to Nancy pursuant to the terms of his will.  Subsequently, both Nancy and Ross filed petitions for determination of homestead status, and the trial court found in favor of Nancy, reasoning that the QPRT was an irrevocable trust, meeting the requirements of Fla. Stat. § 732.4017 (2010).  In other words, the trial court ruled that the transfer of property to Nancy was not a devise for the purpose of the homestead devise restrictions, and furthermore that Alma waived her homestead rights by executing the earlier deed which split the property into two one-half tenancy in common interests.  Therefore, because the devise was legally allowable, Nancy would be the sole owner of the property instead of it being equally shared as siblings with Ross, a consequent which would occur if the devise had failed.

On appeal, the 4th DCA tackled whether the trial court erred in finding that Nancy was entitled to judgment as a matter of law because the transfer of Jerome’s interest in the property to her after his death was not an impermissible devise of homestead property.  The use of a QPRT, an estate planning device, allows a homeowner to transfer property to his children while gaining significant estate, gift, and income tax advantages.  However, if the person dies before the term of the trust expires, he will fail to receive the transfer tax savings and the full market value of the residence will be included in his estate at the time of his death.  Therefore, Jerome gains the tax advantages of the QPRT only by surviving the term of the trust.

Moreover, Nancy argued that the QPRT was the owner of the property at the time of Jerome’s death, and the transfer of the property to her was not a devise for the purpose of the homestead devise restrictions.  Her sibling, Ross, argued the trial court erred in applying Fla. Stat. § 732.4017 (2010), and because the property passed to Nancy by devise under Jerome’s will, the homestead limitations do apply, and therefore the devise should fail and the homestead property should descend as if Jerome had died intestate.  In other words, Nancy and Ross would equally have a vested remainder interest in the property, and it would not be fully owned by Nancy once Alma had passed.

The 4th DCA distinguished between two transfers.  First, the transfer of Jerome’s interest in the property to the QPRT was not a devise, but found that the transfer of Jerome’s interest in the property to Nancy after Jerome’s death should be treated as a devise, subject to the homestead devise restrictions.

However, if Jerome had survived the term of the QPRT and the property had passed to Nancy through the trust, it would not be considered a devise.  But, this did not occur.  Because Jerome failed to outlive the term of the QPRT, the transfer of the property was not completed pursuant to the terms of the trust, and it is as if the QPRT never existed, at least for this purpose.  When the property thereafter reverted back to Jerome’s estate, and then passed to Nancy through the terms of his will, it is considered a devise, a testamentary disposition.  Consequently, the 4th DCA reasoned that the transfer of Jerome’s interest in the property to Nancy after his death was a devise, subject to the constitutional homestead devise restrictions.  But, because Alma waived her homestead rights by splitting the property into two one-half tenancy in common interests, and because there were no surviving minor children when Jerome had died, there is no constitutional restriction on the devise of the homestead.

In summation, Ross, as an adult child, is not entitled to seek the protection of the homestead devise restrictions and Jerome was free to devise his interest in the homestead property without any constitutional restriction.  Thus, he was free to transfer his interest entirely to Nancy under Florida law.  When a homeowner transfers property to a QPRT, and the property later reverts back to the homeowner’s estate, a subsequent disposition of the property pursuant to a will is in fact a devise, subject to numerous statutory and constitutional restrictions.  However, in this case, because Alma waived her spousal homestead rights, the devise of the residence was not a violation of the homestead devise restrictions, and the property could properly and lawfully be devised solely to one person instead of being split equally among the children.

If you or anyone you know is in need of representation in actions involving Guardianship, Probate and/or Trust Disputes, or questions pertaining to such proceedings, please contact The Law Offices of Glenn M. Mednick, P.L., at (954) 315-1154 or gmednick@mednicklawgroup.com.