Planning for Second Marriages in Florida

Second marriages in Florida create a number of issues that, if not properly addressed, could make a shambles of your estate plan.

It is very common for a widow or widower to remarry. Most of these persons still plan to leave their estate to their children from the first marriage. Their trusts and wills distribute all of their assets to the children, so they see no need to change their estate planning. 

However, Florida law has provisions designed to protect a surviving spouse (including a second spouse) which override the terms of a person's estate planning documents. If you are in a second marriage and wish to protect your children's inheritance, you must address these laws in your estate planning documents.

THE ELECTIVE SHARE

The first potential minefield is the elective share. Under the Florida Elective Share law, a surviving spouse is entitled to at least 30% of the deceased spouse's estate. This means 30% of all property owned individually by the deceased spouse, 30% of all property in the deceased spouse's revocable trust and 30% of the decedent's share of property owned jointly with another person.

Under the Elective Share law, the surviving spouse can elect to claim his or her right to this share.

Now, you may say, "I know my husband/wife and I agreed that neither of us would take anything from the other's estate." Even if this is true, the possibility exists that your surviving spouse may not be the one making the decision. If your spouse is incapacitated at the time of your death, all of his or her decisions would be made by the person appointed in a power of attorney or by a guardian. In either case, it is likely to be a family member of your spouse.

That family member or guardian may reason that your spouse will need the elective share to pay for his or her care.

Despite what you and your spouse talked about, they have the right to exercise the taking of the elective share.

HOMESTEAD AND SECOND MARRIAGES

The second scenario involves your homestead property. The Florida Constitution and Statutes give a surviving spouse rights to the decedent's homestead that overrule the terms of the decedent's will or trust.

Section 732.4015 of the Florida Statutes states that homestead cannot be devised by a will or trust if the decedent is survived by a spouse or minor child. It allows one exception: the homestead may be devised to the surviving spouse, if there is no minor child.

If you try to devise the property to someone other than your spouse, section 732.401 disallows such devise and mandates that the surviving spouse shall receive a life estate in the homestead and, at his or her death, the homestead shall go to the decedent's lineal descendants.  This occurs even if you wanted to leave your home to your parents, brother or some other third person.

THE SOLUTION - THE PRE-MARITAL AGREEMENT

Because these laws I mentioned can completely overrule a person's wishes and estate planning, the Florida legislature has provided a way around them.

That method is the pre-marital agreement. Yes, I know that many of you picture a pre-marital agreement as something Donald Trump and other rich folks have their attorneys draw up. This pre-marital agreement is different. The purpose of this document is for you and your spouse-to-be to waive your rights to the elective share, homestead and other rights created by marriage.

The pre-marital agreement is governed by Section 732.702 of the Florida Statutes.  The law states that the pre-marital agreement must be in writing and be signed by both husband-to-be and wife-to-be and two witnesses. By entering into this agreement, you can now leave your estate the way you wish without interference from Florida law.

If you wish to also provide for your spouse, you may. Only now you will do it on your own terms and not as the state mandates. In this case, you would simply include a provision in your will or trust providing for your spouse.

If you had a pre-marital agreement prepared in another state before moving to Florida, it is valid if it was valid in the state where you signed it. It would, however, be a good idea to have an attorney review it to make sure it accomplishes what you want.

Finally, you may be reading this article and saying, "Great! If only I knew about this before I got married." Don't despair. The same law provides for a post-marital agreement. This document works the same as the pre-marital, but requires both spouses to make a fair disclosure, in writing, to the other of the nature and value of their estate

March 1 Is The Deadline For Applying For The Homestead Exemption

If you became a resident of Florida before January 1, an important deadline looms within the next 2 weeks.  This is the deadline to apply for one of the biggest advantages of being a Florida resident - the homestead exemption.  This post discusses what it takes to qualify for the homestead exemption, how to apply  for it and reviews its benefits.

Benefits.  Those persons able to take advantage of the homestead exemption are rewarded with a significant reduction in property taxes.  In Florida, every county's Property Appraiser is required to determine the assessed value of every piece of property in the county.  The Appraiser calculates the "Just" or "Fair Market" value of your property which is the price he believes your property would sell for in the open market under normal conditions.  He then subtracts the typical costs incurred in a sale of your property to arrive at the Assessed Value.

For homestead property, the first $25,000 of the Assessed Value is exempt from all taxation.  Also, the $25,000 amount between $50,000 and $75,000 of the Assessed Value is exempt from all property taxes except those levied by school districts.  You can calculate the savings by multiplying the exempt amounts by the county's millage rate.

You also qualify for the benefits of the "Save Our Homes Amendment" which limits the annual increase in the taxable value for homestead property to a maximum of 3% each year.  This can be a huge benefit in times of great appreciation (remember those days?).  No matter how much the market value of your home increases in any year, the amount that your property tax is based on can only increase by 3%.

How to Qualify.  To qualify for the homestead exemption, you must on January 1 of the year for which you are filing be a permanent resident of Florida, own and occupy the property as your permanent residence, and hold title or beneficial interest to the property.

The January 1 date is important.  If you move into the house on January 2, meet every other requirement, and spend every moment for the rest of the year in the home, you will not be entitled to the homestead tax exemption.  You have to be living there on January 1.

Applying for the Homestead Exemption.  If, as of January 1, you meet the qualifications listed above, you may apply for the homestead exemption at the property appraiser's office in your county.  The property appraiser will provide a form for you to complete.  You must sign the application in person at the appraiser's office.  The application must be filed no later than March 1 of the year for wihich the exemption applies.  All persons named on the deed must sign the application, except in the case of husband and wife where only one signature is required.  When applying for the homestead exemption, each of you must provide proof of ownership of the property and proof of Florida residency.

Proof of Ownership.  The following items can be used to provide proof of ownership of the property: Deed (must be recorded in the public records at the time of application), Property Tax Bill, Title Insurance Policy, among other documents.

Proof of Residency.  To show evidence of your Florida residency, you can furnish a valid Florida drivers license or Florida identification card.  Each must have been issued prior to January 1.  You must also furnish one or more of the following items:  Declaration of Domicile (dated prior to January 1), Florida vehicle registration or the previous year's federal tax return showing a Florida residence.  If you are a resident alien, a permanent visa card or temporary visa card with official assurance that permanent resident status is approved must be presented.

Remember, you must apply no later than March 1 or you will lose a valuable aspect of Florida residency. You can read more about this and other Florida residency topics in The Official Snowbird's Guide To Becoming A Florida Resident.

Florida Homestead and Revocable Trusts

There is a lot of confusion surrounding the issue of titling your homestead into your revocable trust. Many clients have said that they have been told that you cannot transfer homestead into a revocable trust. If this were the case, a major asset of most people’s estates would be left vulnerable to probate.

In order to fully address this issue, we have to delve into the complexities of the Florida homestead law. The law regarding Florida homestead is set forth in the state constitution as well as various sections of the Florida Statutes. It cover three distinct areas.

The first area, which most people are familiar with, concerns the exemption from property tax of the first $25,000 in value.

The second aspect involves the exemption of homestead from the claims of creditors.

The third area is what we will be discussing today. It deals with what happens to homestead property when its owner dies. The restrictions contained in this part of the law deal only with married persons or persons with minor children. If you are a single person without minor children, there are no restrictions and you may transfer your property to your trust without any adverse consequences.

However, if you are married, Florida law states that your homestead may not be devised if the you are survived by a spouse, unless it is devised to that spouse.

If a married person tries to leave his interest in the homestead to someone other than his spouse, that transfer under law would be void. Instead, the law says that in this case, the spouse would receive a life estate in the property and at the spouse’s death such interest would pass to the lineal descendants of the person who died first.

As you can guess, this creates huge title problems for the surviving spouse. She would not be able to sell the homestead or put a mortgage on it without the consent of the deceased spouse’s lineal descendants.

What, you may ask, does this have to do with my trust? Some attorneys and title examiners believe that leaving the property in joint trust after the death of one spouse is different from leaving it directly to the spouse, as required by the homestead law. They contend that this causes the ugly life estate scenario and that any future transactions will require consent of the lineal descendants.

Because of this, I structure your trust to distribute the deceased spouse’s share of the homestead directly to the surviving spouse. The surviving spouse would then deed that interest back into the trust. In this way we comply with the homestead law and avoid probate.

One exception to titling your homestead into the trust is when you have minor children. In this situation the law states, ”

Because property owned by husband and wife as tenants by the entireties is exempt from this provision, the property should not be put into the trust if you have minor children.

It is also worth noting that transfer of your property to your revocable trust does not affect the homestead tax exemption or the value of the property under the “Save Our Homes” amendment.

Amendment 1 to Florida's Homestead Law

In January, 2008, the citizens of Florida approved Amendment 1 to its state constitution and changed the property tax system in Florida.The amendment has four major provisions: 

 

1. Increased homestead exemption.

2. Portability of the Save Our Homes benefit.

3. $25,000 tax exemption for tangible personal property.

4. 10% annual cap for non-homestead property.

Increased Homestead ExemptionAn additional exemption of $25,000 was created to lower the taxable value of homestead property for all taxes except those levied by school districts.

The exemption will apply on the assessed value of the homestead property that exceeds $50,000. This means that, if the just valuation of your homestead property is $100,000, the first $25,000 of value and the assessed value between $50,000 and $75,000 would be exempt from taxes. However, the value between $50,000 and $75,000 would still be used to determine the amount of school tax.

Portability of the Save Our Homes BenefitUnder Save Our Homes, the assessed value of homestead property cannot increase more than 3% each year. Previously, if you sold your homestead and bought a new home, the taxable value of the new home would be equal to the just valuation. All of the benefits you accrued in your old home under the Save Our Homes amendment would be lost. As a result, some new homeowners suffered a large increase in property taxes even though the market value of the new home was not greater than that of the old one.

 Now, under Amendment 1, you can transfer some of the Save Our Homes benefit to your new home.

If the market value of your new home is the same or greater than your old home’s market value, the entire difference between market value and taxable value will be applied to your new home.

This is explained by the following illustration:

	Market Value	Taxable Value	Difference
Old Home	300,000	200,000	100,000
New Home	400,000	300,000	100,000

The market value of your old home at the time you sell it is $300,000. You have lived in it for 12 years and the taxable value at the time of sale is $200,000, creating a difference of $100,000. The market value of your new home at the time you purchased it is $400,000. Amendment 1 allows you to transfer the $100,000 difference from your old home and therefore the taxable value of your new home starts at $300,000. Prior to Amendment 1, the taxable value of the new home would have been equal to the market value: $400,000.

If the market value of your new home is less than that of your old home, you will not receive the entire difference. Instead, the new home’s difference will be the same percentage of its market value as the old home’s difference is of the old home’s market value.

	Market Value	Taxable Value	Difference	% Difference
Old Home	300,000	200,000	100,000	33.3%
New Home	200,000	133,334	66.666	33.3%

In this example, the old home’s Save Our Homes difference is 33.3% or 1/3 of its market value. The new home’s difference would be 33.3% of its market value, or $66,666. Therefore, the taxable value of the new home would be $133,334.

Under Amendment 1, if you establish a new homestead and, (1) qualify for the homestead exemption by January 1 of a particular year and, (2) you had a homestead exemption on your old home in either of the two immediately preceding years and, (3) you apply for the homestead exemption and Amendment 1 transfer (of the difference) by March 1 of the particular year, then you will be able to transfer all or part of the difference (see examples above) to your new home.

When you apply for the exemption on your new home, you will have to include a copy of your notice of proposed property taxes on your old home and sign a sworn statement that you are entitled to the assessment reduction.

$25,000 Tax Exemption for Personal Property 

The third part of Amendment 1 is a $25,000 exemption on all tangible personal property such as machinery, furnishings, fixtures and equipment. This will provide a small relief for businesses who get nothing from the homestead exemption increase and Save Our Homes portability.

According to the National Federation of Independent Business, about 1.3 million businesses file tangible personal property tax returns in Florida, paying an average of $450 per year. This provision will also benefit landlords as the exemption will apply to furniture and appliances in rental properties.

One type of taxpayer who will benefit from this exemption is the mobile home owner. More than 1.1 million Floridians currently live in mobile homes or manufactured housing parks and communities. The tangible personal property tax for those living on a leased lot in a community is levied against their porches, sunrooms, storage rooms and carports. With the $25,000 exemption, most of them will no longer pay any tax at all.

10 Percent Cap for Non-Homestead PropertyPart 4 of Amendment 1 provides a ten percent cap on annual increases in the assessment of non-homestead property, both residential and non-residential.

Owners of second homes and rental property endured the largest property tax increases over the past several years. Some of the most urgent lobbying for property tax relief came from owners of second homes.

Despite these factors, they will only receive modest relief under the new law. According to Florida Tax Watch, an independent watchdog group, single year increases in taxable value generally fall below 5 percent, making the 10 percent cap “so high as to be of little value to most properties.”

Many people involved in these issues believe that Amendment 1 is only a start. Because of Governor Crist’s commitment to tax relief, it seems likely that many of the deficiencies in the law will be addressed by the legislature and the Governor in the near future.