Is Your Homestead Still Protected In Probate Court?
Whether you are rich or middle class or below middle class, it is very possible that you have homestead property. That means that when you create an estate plan, you should start to think about what will happen to the property, who will inherit it, and how.
Of course the best option is to include your homestead in a comprehensive estate plan, so it avoids probate. But what happens if your property does go into probate?
Creditor Exempt Status
Homestead property is absolutely protected from creditors, to an unlimited amount, absent certain restrictions. But creditors can make claims on your estate, and take what you owe them from your estate, before your beneficiaries inherit whatever they are supposed to inherit.
The problem is that once you pass, you are technically no longer the owner of the homestead property. Rather, your estate, and ultimately, your beneficiaries, are or will be. So what happens to the creditor protection that once attached to your homestead—is your homestead and its equity or value, now subject to the claims of your creditors, if they make claims in probate?
Homestead Still Has Protection
The answer is yes, your homestead does maintain its creditor-exempt status, so long as certain steps are taken. That protection applies from the minute you pass, and even after your beneficiaries take ownership of the property (whether they do so by order of the probate court or by some other estate planning document or vehicle).
The first and most important step is that the probate court must establish that the property is, or was, in fact, your homestead property. If your property is registered as a homestead, this is a relatively easy process. If it was not, your probate attorney may need to argue that the property was used as a homestead, and intended to be a homestead.
This can be contested by creditors. This is especially true for people who are only living in the property for part of the year; creditors will claim that the property is second property, a vacation home, or investment property.
Even if it is registered as homestead, you still should get a designation from the probate court that the property is homestead property, as title insurance companies will require the court order granting homestead status after you pass. Without title insurance or the opportunity to sell the property your beneficiaries would be very limited in what they can do with, and how they can benefit from, the property that you leave them.
Heirs Must Inherit
There is one exception to this homestead protection: to keep it as a designated homestead after you pass, and maintain its protected status, your heirs must inherit the property. Leaving the property to a corporation, business, trust, or other entity, could jeopardize the homestead status.
If you have a spouse and kids, they will have to inherit the property; this will take precedence over anything else that you may designate in your will, in the probate court. The good news is that this means that the property will maintain its creditor-exempt status, as spouse and kids are heirs.
But if this isn’t what you want to happen for some reason, you should do your estate planning now, to avoid this automatic presumption that a spouse and children automatically inherit homestead property.
Call the West Palm Beach probate lawyers at The Law Offices of Larry E. Bray today for help with any probate questions or issues that you may have.