A Chart to Help You in Planning Homestead Dispositions

I’ve been giving some recent seminars on Florida homestead law. One of the topics I discussed are the limitations on devise of homestead, and some of the obvious and/or hidden planning problems that result when the limitations apply (and how to deal with them when they do arise).

I thought a table that can be used as a quick reference of these problems would be useful. I think this is especially so for attorneys during client discussions or drafting to make sure there is not a hidden problem that was not or is not being considered in planning.

I’ll be inserting this as a new practice aid in Rubin on Florida Homestead. As many of you know, the treatise has an extended discussion of the principal planning that can be done to avoid most of these problems.

I developed some other charts and checklists in these seminars, which I will be rolling out here and in the treatise in the coming weeks.

You can download a PDF of the new table from Dropbox here. Since this is newly developed, if anyone sees any errors or omissions or has other comments, please send me an email at crubin@floridatax.com.

New Inbound Investment Reporting Requirements for Certain Industries

[Oops - this article was published to the wrong blog, but I am leaving it here in case anyone wants to read it]

Regulations have been recently issued under the recently passed Foreign Investment Risk Review Modernization Act (FIRRMA) to implement a pilot program that expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) and imposes filing requirements on certain transactions in the U.S. technology sector.

Parties must file a declaration with CFIUS at least 45 days in advance of certain foreign-person investments in unaffiliated U.S. businesses if involved with critical technologies used in specified industry sectors. 27 U.S. industry sectors are involved.

The program will end by March 5, 2020, but permanent reporting requirements may have been put in place by then. It applies to transactions completed on November 10, 2018 or later, although there are other effective date provisions that may apply.

After filing, CFIUS has 30 days to review the declaration and then undertake certain requests for a long-form notice form, initiate a unilateral review, or clear the transaction – or the parties can file the long-form notice initially.

Parties failing to file a required declaration may be subject to a civil penalty up to the amount of the transaction value.

Businesses and professionals involved in assisting with and/or the reporting of inbound investments should add these new reporting requirements to their checklists and lists of reporting requirements.

FIRRMA PILOT PROGRAM REGULATIONS AND OTHER INFORMATION

The New “Newlywed” Exception to Documentary Stamp Taxes

Florida imposes documentary stamp taxes on transfers of Florida real property. The tax is based on the consideration paid for the property. Generally, if real property that is transferred is encumbered by a mortgage and the purchase price is less than the mortgage amount (or there is nothing otherwise paid), the mortgage amount is treated as consideration for purposes of calculating the tax.

This tax arises on transfers of encumbered real property, even if the transferor and transferee are married to each other. Given other exemptions for intra-spousal transfers under law (e.g., as to the federal estate tax, and under the Save Our Homes cap on ad valorem taxes), this is surprising and somewhat disheartening. Oddly enough, Florida law will NOT impose the tax on transfers of a marital home between spouses or former spouses when the transfer is incidental to a divorce. Fla.Stats. §201.02(7)(a). Of course, if there is no mortgage on the property and nothing is paid for the property, an intra-spousal transfer will not be subject to stamp taxes.

Under a new provision of law that came into effect in July, spouses can now transfer encumbered homestead property between themselves without incurring documentary stamp taxes, if no other consideration is paid. However, this new provision applies only to transfers within one year of marriage. Therefore, newlyweds can use it – spouses who have been married over a year cannot. This one year limit is also a trap for unwary newlyweds – if they take more than a year to reorganize their real property holdings, the tax will apply.

As noted, the transferred property must be homestead property. The applicable definition of “homestead” for this purpose is the ad valorem tax definition under Fla.Stats. §192.001 and the ad valorem tax provisions of s. 6(a), Art. VII of the Florida Constitution.

Any tax exemption is a good exemption (from the perspective of taxpayers), but the limitation of this new exception to newlyweds seems unduly restrictive. It appears to allow newlyweds to add a spouse to the title as part of new marriage restructuring, but why not open it up to other transfers? For example, spouses that desire to transfer homestead property owned by one spouse to TBE so as to allow for an automatic transfer at death to the surviving spouse should be able to do so without the tax. As matters stand now, if there is a large mortgage on the property, the stamp taxes can make such transfers and planning cost prohibitive.

Fla.Stats. §201.02(7)(b)

New Homestead Diagram

Many years ago I prepared a diagram in table format that simplified the restrictions on transfers of Florida homestead property. This has been downloaded thousands of times and I hear is used by many legal and real estate professionals. You can download a copy here.

I have re-worked the analysis into a flow chart type approach, for those that prefer that type of analysis. The new chart also reflects when an item is “protected homestead” for Florida law purposes. You can download a copy here.

Either one will help get you to the right result. I actually like the flow chart approach since after you use it a few times, it will burn much of itself into your memory so many times you will no longer need to consult it.

Future editions of my treatise, Rubin on Florida Homestead, will include both diagrams. Prior purchasers, whose versions do not include the new chart, can use these download links to gain access to it.

RESTRICTIONS ON TRANSFERS OF FLORIDA HOMESTEAD PROPERTY - FLOWCHART VERSION

Do Real Property Maintenance Expenses Constitute Investing In, Purchasing, or Improving the Homestead For an Equitable Lien?

Florida homestead property is generally protected against claims of creditors of the owner by the Florida Constitution, subject to some limited exceptions.

In Havoco of America, Ltd. v. Hill, 790 So.2d 1018 (Fla. 2001), the Florida Supreme Court held that the homestead exemption protection will extend to include nonexempt assets that are added to or invested in a homestead, even if added or invested with the intent to delay, hinder, or defraud creditors.  That is, a transfer of assets into the homestead with the intent to delay, hinder or defraud creditors, is not enough, by itself, to give rise to an equitable lien that defeats the homestead protection.  In effect, the debtor's bad motive in acquiring or investing in the homestead is not enough by itself to result in an equitable lien.

However, Havoco recognizes the continued viability of an equitable exception to the exemption from forced sale when funds obtained through, theft, fraud or egregious conduct are used to invest in, purchase, or improve the subject homestead.  The Florida Supreme Court in Havoco noted the equitable lien jurisprudence for fraudulently obtained property that allows for an override of the constitutional protection was something separate and apart from the fraudulent conveyance issue before it, although it did not say that a mere fraudulent conveyance gives rise to an equitable lien.  Thus, if fraudulently obtained assets are used to purchase or improve a homestead, an equitable lien against the homestead applies and trumps the constitutional exemption from forced sale. A useful way of looking at this is a "source of assets" test - if the source of the assets going into a homestead were obtained through theft, fraud, or egregious conduct, then an equitable lien is allowable.

As noted, the equitable lien applies to funds that are used to invest in, purchase, or improve the homestead. Havoco allowed an equitable lien when the fraudulently obtained assets are used to pay down a mortgage on the homestead.  

In a recent case, the U.S. 11th Circuit Court of Appeals ruled similarly for mortgage payments, and also held that "insurance premiums, and other expenses to maintain" the property fit within either "investing in" or "purchasing" the homestead property.  The court thus allowed an equitable lien to apply to fraudulently obtained proceeds that were applied to pay such homestead expenses, enabling a creditor to reach the homestead property in having its obligations paid to the extent of such expenses. The court failed to act on an assertion that maintenance expenses are not improvement expenses for this purpose. Equating maintenance expenses to mean the same thing as investing in or purchasing real property may be a stretch that other courts may not choose to follow, however.

Federal Trade Commission v. American Precious Metals, LLC,  726 F. App'x 729, 734 (11th Cir. 2018).