The Simplest Legal Question No Lawyer Knows The Answer To

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

– Mark Twain

I love that quote. It really makes you think and sounds so quintessentially Twain. That’s probably why it gets passed around. But here’s the irony: there’s no evidence that Twain ever wrote or said those words! Which just goes to show that there really are so many things that we think we know, but in reality we do not.

Lawyers are no exception.

No Place Like Home

In Florida, there’s something called homestead protection from creditors. If your home is a protected homestead under Florida law (which is very often the case), then most creditors will find that it is impossible to get a lien on the property. For example, if you went a year past due on your credit card bill, the credit card company is not allowed to take out a lien on your homestead, even if it’s your only asset and you admit you owe the money! That’s some serious protection.

As you can imagine, most homeowners want that protection. Even if you do not have any debts, a single lawsuit against you could change that. Imagine someone trips and falls on a loose concrete paver in your front yard and you get sued. Do you really want your house to be at risk? Of course not, and thankfully, the law agrees. Except, as it turns out, when it does not.

Judiciary, quite contrary, where did my homestead go?

Dirty Deeds

If you have ever visited an estate planning attorney, you have probably been told that you can move your assets into a living trust. For some people, this is a great idea and comes with a number of benefits, like avoiding probate. Because of the benefits, people often move all kinds of things into trust, including their homes. People deed their houses into trust all the time. But here’s the big question: If you deed your homestead into trust, does it keep the homestead protection? For homeowners doing estate planning, the answer to this question matters a lot.

So what’s the answer? The truth is that no one knows. Some court cases have said the home in trust retains homestead protection, but one case from 2001 says otherwise. And unfortunately, the Florida Supreme Court has not ruled on the issue. Simply put, the law is unsettled on this point, and that puts homeowners is a difficult position.

An even bigger problem is what will happen to the people who move their home into trust without considering the consequences. Some of these people likely have no idea that they are potentially endangering their homestead protection. Others have been incorrectly informed that the law in this area is more settled than it actually is, sometimes by lawyers that simply are not aware of how nuanced the law is. In either case, those people would have been better off relying on a good lawyer.

Creative Lawyering

So what is a homeowner supposed to do? At first glance, it appears that you have to either give up the benefits of putting a home in trust or you have to deal with the remaining uncertainty in the law. However, there is a third option: the lady bird deed.

Lady bird deeds do not move any interest into the trust until you pass away, but when you pass away the deed avoids the probate process. This means you can keep your home out of trust while you are alive and then have it automatically move into trust after you pass away. That way you preserve the homestead benefits for sure during your lifetime but still get all the trust benefits at death. And with the lady bird deed, you avoid having to pay documentary stamp taxes, even if you still have a mortgage.

That being said, lady bird deeds are not for everyone. They come with disadvantages too. But for most people, there is a good legal solution to work around the uncertainty in the law. A good lawyer finds those solutions for you, avoiding problems you did not know even existed.