Article X, Section 4 of the Constitution of Florida provides protection against the claims of creditors for a person’s homestead, i.e. their principal residence. In essence, if a homeowner owes money to a creditor, that creditor cannot attach or force sale of the residence in order to receive payment. The same concept applies if the owner dies owning a homestead. In other words, if a homeowner owes a creditor (such as a credit card, medical bills, etc.), when the person dies, the creditor usually cannot collect against the homestead. The homestead is exempt form the claims of creditors.
Even though this is the usual outcome, there is a circumstance where this will not occur. If the homeowner dies leaving a Last Will and Testament and if that Will specifies that the homestead be sold and the monies distributed to the beneficiaries, then the property loses its homestead protection. In that instance, a creditor could seek payment from the proceeds of the sale of the homestead. In that instance, the procceds of the sale are not exempt.
An example may demonstrate how this works. John owns a principal residence titled in his sole name and valued at $300,000. At the time of his death, he owes a credit card bill of $15,000 and a hospital bill of $35,000. He has a Will which leaves the house to his three children. When a probate is opened, the credit card company and the hospital file claims for payment from the Estate. Under this circumstance, the house, as John’s protected homestead, passes to the children free of these creditor claims. They receive a house valued at $300,000 with no off-set for the $50,000 in creditor claims.
Let’s consider the same facts but with one small variation. John prepared his Will to provide that upon his death, his homestead will be sold and the money divided among his three children. In this case, the proceeds of the sale become part of the probate Estate and are subject to claims of the two creditors. By directing the sale of the homestead, the protection from creditor claims has been compromised. Instead of receiving the homestead valued at $300,000, the children receive $250,000 after the creditor claims are paid.
Most experienced estate planning attorneys understand this concept of maintaining the homestead protection and they advise their clients accordingly. However, in today’s era of people trying to do their own estate documents, directing sale of the homestead is a common planning mistake.