I received an email asking whether the homestead provisions of the Florida Constitution would protect a residence owned by an irrevocable trust where the debtor had deeded a house into the trust and remained the trustee and one of the beneficiaries. The Constitution protects residences owned by natural persons. Previous blog posts discussed whether a homestead can be owned by a revocable living trust, or whether conveyance to a living trust forfeits homestead protection. Although there is a case which denies homestead protection to a property owned by a living trust, most courts have protected a residence in a living trust.
A living trust is closer to a “natural person” than is an irrevocable trust. One key factor which makes a living trust created for estate planning equal to ownership by a natural person is the settlor’s retained rights to revoke or amend the trust. Transfer to a living trust is not deemed to be a completed gift to the trust beneficiaries whether they be the settlor himself or other family members.
A irrevocable trust, by its name and nature, is a completed gift to beneficiaries; the trust can not be undone and the settlor, for the most part, cannot amend the trust agreement. Even where the settlor resides in the trust property and is the sole beneficiary of the irrevocable trust, property ownership by an irrevocable trust is more easily distinguishable from ownership by a natural person than is property ownership in a revocable living trust.
In my opinion, owning a residence by a living trust should not undermine homestead protection. I suspect that a court would not afford homestead protection to an irrevocable trust, even if the settlor lives in the property and is the sole trust beneficiary.
Last updated on May 22, 2020