Can a Residence Held By a Revocable Be Validly Claimed As Homestead Exempt?

Palm Beach County Bar Association Bulletin, October 2006

Whether a Debtor can validly claim a residence as exempt when the residence is titled in the name of a revocable trust is often litigated in bankruptcy court. Although the issue has not been decided by the either the Eleventh Circuit Court of Appeals nor the Florida Supreme Court, the most recent opinion on the issue sets forth a well reasoned analysis which holds that a Debtor can claim a residence as exempt under Florida’s homestead exemption, even though title to the property is held by a revocable trust.

In In re Alexander, — B.R. –, 2006 WL 2055881 (Bankr. M.D. Fla.), the issue before the Bankruptcy Court for the Middle District of Florida was whether homestead property titled in the name of a revocable trust can qualify for Florida’s homestead exemption when the Debtor’s interest in the property is as trustee and primary beneficiary. Florida’s homestead exemption is found in article X, section 4, of the Florida Constitution, which provides in pertinent part as follows: “There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon . . . the following property owned by a natural person: (1) a homestead. . . .” Fla. Const. art. X, § 4.

In Alexander, the Chapter 7 trustee and a creditor objected to the Debtor’s claimed homestead exemption because the real property in question was not in the name of a “natural person.” Despite the Chapter 7 trustee and creditor’s arguments, the Court overruled the objection to exemptions. In support of the Court’s holding that a Debtor can claim a residence as exempt under Florida’s homestead exemption, even though title to the property was held by a revocable trust, the Court relied upon cases such as Southern Walls, Inc. v. Stilwell Corp., 810 So.2d 566 (Fla. 5th DCA 2002) which recognized that the Florida Constitution did not define “owned” and does not designate how title to homestead property is to be held. Id. at 569-570. The Court also relied upon a Third District Court of Appeals case which held that legal title does not need to be in an individual’s name in order to qualify for Florida’s homestead exemption. Callava v. Feinberg, 864 So.2d 429, 431 (Fla. 3d DCA 2004). In further support of the Court’s ruling, the Court cited a Fourth District Court of Appeals case which found that a residence held in a revocable trust was owned by a “natural person” for purposes of Florida’s homestead exemption. Engelke v. Estate of Engelke, 921 So.2d 693, 696 (Fla. 4th DCA 2006). The court noted that even though a revocable trust held title to the property, the individual’s “interest in his residence as beneficiary of his own revocable trust would entitle him to constitutional homestead protections.” Id.

The Court recognized and declined to follow conflicting Florida case law cited by the trustee and the creditor which supports the argument that legal title to homestead property must be in the name of a “natural person.” See, In re Bosonetto, 271 B.R. 403 (Bankr.M.D.Fla.2001) (A debtor cannot claim Florida homestead exemption in residential property that the debtor owned, not in her individual capacity, but as trustee of a trust.)

Whether a residence owned by a revocable trust can validly be claimed as an exempt homestead is still an open issue and until there is a definitive ruling on the appellate level, the result is largely dependent upon which Court you are before. However, the more recent cases strongly support the position that a residence held by a revocable trust can validly be claimed as an exempt homestead.