Understanding Florida’s laws regarding the descent and devise of “homestead” property can be difficult for even the most experienced estate planning practitioners, and this quagmire has become even more complicated by recent case law. The latest case in this area is Stone v. Stone,1 in which Florida’s Fourth District Court of Appeal held, in part, that a surviving spouse effectively waived her homestead rights by executing a warranty deed containing boilerplate general release language.
In Stone, Jerome, the decedent, and his wife, Alma, executed a warranty deed conveying property from themselves, as tenants by the entireties, to themselves, as tenants in common. The warranty deed provided that each of Jerome and Alma “grants, bargains, sells, aliens, remises, releases, conveys and confirms” the property “together with all the tenements, hereditaments and appurtenances thereto.” (emphasis added.) That same day, Jerome transferred his 50 percent undivided interest in the property to a qualified personal residence trust (QPRT). The QPRT was to continue for a term ending on the earlier of five years from the date of the creation of the QPRT or the date of Jerome’s death. The QPRT provided that if Jerome died during the QPRT term, the interest was to be transferred to his estate to be disposed of as part thereof.
Less than two months prior to the expiration of the QPRT term, Jerome died. He was survived by Alma and their two adult children, Ross and Nancy. Because Jerome died prior to the expiration of the QPRT term, the interest reverted to his estate. Pursuant to his testamentary documents, Jerome’s property, including the interest, passed to a trust established for the benefit of Alma during her life. On Alma’s death, absent the exercise of a power of appointment, the trust would terminate and the principal of the trust would be distributed outright to Nancy. In his testamentary documents, Jerome expressly disinherited Ross.
Under Florida law, if a decedent is only survived by a spouse and adult children, unless the spouse waives her homestead rights, the decedent may only devise a full fee interest in his homestead to his spouse. All other devises are invalid. In the event a decedent makes an invalid devise at death, the devise is disregarded and the decedent’s spouse receives a life estate in the homestead while the decedent’s descendants receive a per stirpital share of the vested remainder.
If, however, the spouse validly waived her homestead rights, the spouse would be deemed to have predeceased the decedent, and the homestead is freely devisable. Although these harsh restrictions on descent and devise exist, a Florida resident can transfer his homestead property during his lifetime because an inter vivos transfer of homestead property, unlike a testamentary transfer, isn’t subject to the restrictions on descent and devise.
Devise Valid, Says Court
In Stone, Ross argued that the devise was invalid because Alma didn’t validly waive her homestead rights. If invalid, even though Ross was expressly disinherited under Jerome’s testamentary documents, Alma would receive a life estate in the interest, while Ross and Nancy would each receive a vested remainder in one-half of the interest.
After considering the facts, the court determined that the interest was homestead property for descent and devise purposes. The court explained that the devise of the interest at Jerome’s death was a testamentary transfer (subject to the restrictions on descent and devise) because it reverted back to Jerome’s estate and passed pursuant to the provisions of his testamentary documents (which he could have changed at any time prior to his death). Therefore, the court held that Jerome effectively controlled the disposition of the interest at his death, which the court deemed to be the equivalent of Jerome owning the interest at the time of his death. What the court failed to address, however, was how the decedent’s estate could own the interest at Jerome’s death when the QPRT actually owned the interest and “transferred” it back to Jerome’s estate the moment after Jerome’s death.
Even though the interest was subject to the restrictions on descent and devise, the court held that the devise was valid because Alma waived her homestead rights by signing the warranty deed containing general release language. Thus, for homestead purposes, Jerome was only survived by his adult children, Ross and Nancy (because Alma was deemed to have predeceased Jerome), and the interest was freely devisable.
The important take away from Stone is that, for now, the general release and conveyance language in a deed may be sufficient to waive a spouse’s homestead rights under Fla. Stat. Section 732.702. That section provides, in pertinent part, that a spouse can waive his homestead rights, (1) by executing a “written contract, agreement, or waiver” in the presence of two witnesses,2(2) after both spouses have made a “fair disclosure” to the other of their respective estates.3
In its discussion and application of Section 732.702, the court failed to address the fair disclosure requirement. This omission (whether intentional or inadvertent) has caused a divide among Florida estate planners.
To many, such an omission casts doubt as to whether a valid waiver actually occurred, especially because some practitioners believe that to have a fair disclosure the spouse must “knowingly” waive her rights. Some go so far as to argue that a fair disclosure can only occur if the waiver specifically uses the word “waiver.”
In opposition, other practitioners argue that such a specific use of the word “waiver” isn’t required, especially when both spouses execute a warranty deed containing broad general release language. Furthermore, some practitioners believe that when a married couple collectively hires an estate planning attorney to create their estate plans, as in Stone, an analysis of the fair disclosure prong is irrelevant because one can infer that the surviving spouse and the decedent both had knowledge of the other’s assets. Proponents of this position argue that the only requirement is a fair disclosure, not a full disclosure.
Whichever side of the debate a practitioner agrees with, the takeaway from Stone is that, when planning with homestead property, a practitioner must be careful to consider all aspects of the transfer and the ramifications of various results.
1. Stone v. Stone, 157 So. 3d 295 (Fla. 4th DCA 2015), rehearing denied on March 16, 2015.
2. Fla. Stat. 732.702(1).
3. Fla. Stat. 732.702(2).