Want to start a fight between Florida estate lawyers? Ask a handful whether or not it is prudent to transfer homestead property to a trust.
Estate lawyers use living trusts (also called revocable trusts) for a number of reasons, including the potential for probate avoidance, better incapacity planning, and preserving privacy. Some would argue (and I would agree) that the benefits of living trusts are often oversold. But they are good estate planning tools nonetheless … if they fit a client’s goals and are used correctly.
One of the most important steps in using a living trust is funding—transferring assets into the trust. It is important that a person’s asset profile match his or her estate plan. An unfunded trust—in which assets remain in the client’s name—does not avoid probate or otherwise achieve the purpose of having the trust in the first place.
In many states, transferring homestead property to a living trust is routine. But Florida has a tricky set of homestead rules that require it to be considered separately from other assets. Many Florida estate attorneys think that transferring property to a trust is a bad idea for several reasons, including:
- Possibility of risking homestead property tax benefits
- Possibility of losing insurance coverage when the homestead property is transferred from the trust after the grantor’s death
- Possibility of causing the homestead property to become a countable asset of the grantor for purposes of determining eligibility for Medicaid benefits
- Possibility of losing the asset protection benefits given to homesteads in Florida
Others believe that these risks can be mitigated with proper planning. Special provisions can be included in the trust to address some of these concerns. Some Florida estate lawyers believe that the benefits of probate avoidance justify taking a few extra steps to move the homestead property into the trust.
The debate often comes down to different ways in which Florida estate lawyers approach estate planning. It is tempting to adopt a one-size-fits-all approach and apply it to every client who comes in the door. One attorney decides that he doesn’t “do” living trusts, so every client gets a will-based estate plan. Another attorney decides to make living trusts a “profit center” for her firm and starts marketing them to all clients, whether they need them or not.
These approaches miss the point: it is the client’s goals that should control. If a client’s goals can best be achieved through a will-based estate plan, that’s what the attorney should use.
But if a living trust is a good fit for the client’s goals, the attorney should consider it notwithstanding the fact that trusts are sometimes oversold. And if there are compelling reasons to transfer the homestead property into the trust and risks can be mitigated, transfer it!
It all comes down to what tools will work best to reach the client’s goals without extraordinary risk.