When most people think of a homestead in Florida their first and only thought is of Florida’s property tax exemption for homesteads. While that is a good and valuable aspect of Florida’s homestead laws, it is only one part. Florida really has three different types of homesteads, and each functions differently in operation and effect. The three types are: homestead for property tax purposes; homestead for creditor exemption purposes; and homestead for inheritance purposes. Florida’s homestead for property tax exemption purposes can provide significant savings for Florida homeowners. The base exemption is $50,000 deducted off the assessed value of the homestead, but the better benefit is the cap that is imposed on how much the assessed value can increase each year. That cap means that even as the value of the homestead increases each year the property appraiser can only increase the taxable value a little, and over time that beneficial disparity can mean large property tax savings. Further, the capped assessed value can be transferred to a new homestead if the old one is sold. To get the homestead property tax benefits the owner must be a permanent Florida resident and apply with the county Property Appraiser. The Appraiser then determines whether the applicant is a permanent Florida resident by considering some factors including: where the applicant is registered to vote; where the applicant works; whether the applicant has a valid Florida driver’s license or state-issued identification; whether the applicant has a vehicle registered in Florida; and the address the applicant uses to open bank accounts.
Once granted, the exemption is in place and there is no need to do anything to renew each year so long as it remains the Florida owner’s primary residence.
Less commonly known, or understood, is the Florida homestead that is exempt from creditors. To qualify for this the owner needs to be a permanent Florida resident (meaning Florida is the owner’s home and whenever he or she leaves they intend to return here). If that’s the case, then the owner has a Florida
homestead that is exempt from almost all creditors. There’s nothing else that needs to be done; it just is as a matter of law under the Florida Constitution.
There are limitations, however. If the homestead is outside a municipality, then the exemption applies only up to 160 acres of contiguous property. If the homestead is in a municipality, then the exemption applies only up to one-half of an acre. The protection from creditors is almost absolute with a few notable exceptions. Homesteads are not protected against creditors who have a direct interest in the property, like a bank that holds the mortgage or a worker who files a lien for unpaid work performed on the property. Homesteads are also not protected from the IRS for unpaid federal taxes. Finally, homesteads may not be protected if they are held in a revocable trust and the grantor enters into bankruptcy. The exemption from creditors also means that the Florida homestead does not count against the owner for determining Medicaid eligibility so long as the owner intends to return to it and it isn’t rented to a third party while the owner is in a care facility. The homestead also is not a probate asset subject to the owner’s creditors provided the person inheriting the property is
a qualified heir under Florida law, such as a surviving spouse, children, grandchildren, or more distant relatives. If the inheritor is not a qualified heir, or if the deceased owner expressly directs the sale of the homestead in his or her will, then the property will be a probate asset subject to the owner’s creditors.
The third type of Florida homestead puts restrictions on how the property passes at the death of the owner. If there is only one owner, and if the owner is married, then only the homestead can only be left to the surviving spouse. If the owner has minor children, then the property cannot even be left to the surviving spouse. The spouse automatically gets a lifetime right to reside on the property and the children get the right to own the property after the spouse dies. Most married couples co-own their homestead, so the issue does not come up very often, but it bears mentioning especially for couples in blended families with children from different marriages. Florida homestead laws are fairly unique compared to other states. On the one hand, Florida grants generous property tax exemptions and creditor protections. On the other hand, it can direct how the homestead passes at the owner’s death despite what the owner may wish. To properly prepare a Florida estate plan, it’s important to be aware of the different homestead types and to consult with a professional who understands them.
