As an estate lawyer, it is not uncommon to have clients ask that their Will or Trust be prepared directing that their primary residence (i.e. their homestead) be sold upon their death. Often their motivation will be to avoid disputes among their children over the home. Sometimes, it is because they believe none of their children want the home, so why not just sell it? From an estate planners point of view, the question becomes whether this is a good idea.
To address this question, first some background will help. When a person resides in Florida, their primary residence constitutes their homestead. This status as homestead brings with it certain benefits–both while the owner is alive and upon his or her death. From the standpoint of the owner’s death, if the owner’s Will or Trust devises the home to a spouse or to heirs (as defined in the applicable statute), the home is exempt from creditor claims. In other words, as long as the home qualifies for exempt homestead status and is devised directly to the spouse or heirs, creditors seeking payment of obligations such as medical bills, credit cards, unsecured bank loans, etc. cannot force sale of the home in order to be paid.
One of the reasons this exempt status avoids creditor claims is that the home–when properly devise dnad not ordered for sale–is considered to pass outside of probate. In other words, the home does not become part of the probate estate.
Florida law treats this differently if the owner directs in their Will or Trust that the home be sold. Such direction will result in the exempt status of the homestead being lost. In that case, the proceeds from the sale of the home come into the estate and become subject the claims of creditors. So in the case where a person dies with creditors, the impact of directing the sale of the home can be significant.
Perhaps an example will help. Dan owns a home in Florida valued at $200,000 (and it’s paid off). The home is his primary residence–it is his homestead. He is divorced and has two adult children who are his intended beneficiaries. Dan also has credit card in the amount of $20,000 and bank debt of $80,000 as a result of his failed business pursuit. If Dan dies and his Will directs that his home is devised directly to his two children, they will receive ownership of the home–valued at $200,000–and the creditors will not be able to touch the home. If Dan’s Will directs that the home be sold, the net sales proceeds would come into the estate and would be subject to the $80,000 in creditors claims. Dan’s kids would get the remaining $120,000. By directing that the house be sold, Dan cost his beneficiaries $80,000.
Understanding how this kind of mistake can happen underscores the importance of getting sound legal advice when setting up one’s estate planning documents. Often general practitioners–as opposed to estate planning practitioners–do not know the implictions of making this mistake. The same is even more true when it comes to the “do it yourself” websites and software programs.