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.
With effective estate planning, probate in Florida can almost always be avoided. This can be accomplished by establishing a Living Trust (also referred to as a "Revocable Trust") and transferring assets into the Trust before death. Avoiding probate may also be accomplished by use of beneficiary or "pay-on-death" designations with certain financial accounts, annuities, retirement accounts and life insurance policies.
When a person dies and a probate is opened in Florida, expenses and claims of creditors get paid in a certain order. This becomes especially important to understand when there are not enough assets (i.e. money) to go around.
Most well-drafted Trusts contain a spendthrift provision-also sometimes called a restraint on alienation provision. Such a provision sets forth special language preventing creditors from attaching or "taking away" the interest of a beneficiary named in a Trust. Florida law enforces spendthrift provisions so long as they apply to both voluntary and involuntary transfers.
When a Florida resident dies and owes creditors (such a credit card balances or medical bills), Florida probate procedures establish a mechanism to resolve those creditor claims. The process starts by having the Personal Representative of the estate sign a document called a "Notice to Creditors." The Notice informs creditors of the pendency of the probate estate and of the deadline for filing a creditor claim in the probate.
As is commonly known, Medicaid is a federal program which provides healthcare benefits to certain persons with low income. The program is administered at the state level. Section 1917 of the Federal Social Security Act (42 USC § 1396(p)), and 42 CFR 433.36, require that States recover medical assistance payments made to, or on behalf of, a Medicaid recipient from the assets in the estate of that deceased recipient.
Florida estate planning attorneys are often asked whether assets held in a Living Trust, also known as a Revocable Trust, are protected from the creditors of the Settlor of the Trust (i.e. the person who set it up). As with so many questions under the law, the answer is "It depends."
While Florida's non-claim statute is viewed as being harsh due to its consequences if not followed in a timely fashion, there are some exceptions in which certain claims are not barred.
In Florida, the publication of a Notice to Creditors triggers a deadline for creditors of a probate estate to file their claims.