Waiver of Florida Spousal Homestead Rights by Deed Upheld

Summary: A recent Florida appellate decision finds that the joinder of a spouse on a deed of homestead property to a trust constitutes a valid waiver of homestead rights, even though the deed contains no waiver language.

FACTS: Jerome and Alma were married. In 2000, they executed a warranty deed conveying their homestead property to themselves as tenants in common. That same day, Jerome conveyed his one-half of the property to a 5 year qualified personal residence trust (QPRT). Alma joined on the deed. Jerome did not survive the 5 year term of the QPRT, so pursuant to the QPRT terms his half of the property reverted to his estate. Under his estate documents, the property was placed in trust for Alma when he died. The trust provided that at Alma’s subsequent death, the trust assets would pass to their daughter, Nancy. Ross, their other child, was excluded from receiving such trust assets. Ross sought to challenge the devise to Alma’s trust.

The appellate court determined that the transfer to the trust for Alma was a testamentary devise. Article X, section 4 of the Florida Constitution provides that a homestead cannot be devised if the owner is survived by a spouse, unless the devise is to the owner’s spouse if there are no minor children. Thus, the devise to the trust for Alma (with a remainder to Nancy) would not be valid in this case, unless Alma is treated as having waived her homestead rights when she signed the deed to the QPRT.

Fla.Stats. Section 732.702(1) provides a spouse’s homestead rights “may be waived, wholly or partly, before or after marriage, by a written contract, agreement, or waiver, signed by the waiving party in the presence of two subscribing witnesses.” The statute further provides that a waiver of “‘all rights,’ or equivalent language” may constitute a waiver of a spouse’s intestate rights in their spouse’s homestead.

The appellate court found that Alma’s signature on the deed constituted a waiver of her homestead rights based on the deed language that she “grants, bargains, sells, aliens, remises, releases, conveys, and confirms” the property “together with all the tenements, hereditaments, and appurtenances thereto belonging or in anywise appertaining.” Thus, the devise of the homestead to a trust for Alma (and later remainder to Nancy) was valid.

The appellate court was not concerned that Alma continued to assert homestead exemption from ad valorem taxation after the purported waiver. This is because “homestead” for ad valorem tax purposes is not subject to the same definition as for restrictions on testamentary devises.

COMMENTS: This is not the first time this issue has come up before a District Court of Appeal. A prior opinion in the Habeeb case reached a similar waiver conclusion, although that opinion was later withdrawn. Reasonable minds may differ whether signing a warranty deed that contains no explicit waiver language as to homestead rights should be properly interpreted as a waiver that meets the requirements of Fla.Stats. Section 732.702(1). Those who do not think so are on notice that one District Court of Appeal (and possibly two) disagrees with their position, and joint deeds should be entered into with a careful eye to homestead consequences.

This was a post-marriage waiver. Interestingly, the opinion made no mention of Fla.Stats. Section 732.702(2), which reads: “[e]ach spouse shall make a fair disclosure to the other of that spouse’s estate if the agreement, contract, or waiver is executed after marriage. No disclosure shall be required for an agreement, contract, or waiver executed before marriage.” Prudent practitioners generally accomplish post-nuptial waivers of homestead via a formal post-nuptial agreement that includes full financial disclosures. Perhaps there was some type of contemporaneous financial disclosure that made this a nonissue in this case. Perhaps the appellate court deemed the parties to have full financial knowledge of each other, but there is no indication of that in the opinion. Perhaps this was an oversight by the court or the parties in not addressing this requirement, or was a tactical decision not to raise the issue by the litigants that did not work out well for the losing party. In any case, the requirement for financial disclosure may be a saving grace for others that may be faced with a joint deed and an unintended waiver of homestead situation.

From a policy standpoint, there has already been some discussion among Florida attorneys about whether a statutory amendment is advisable to require that any waiver by deed of homestead rights have some requisite reference to homestead or at least require the use of the term “waive” or “waiver.” Having personally seen on more than one occasion such joint deeds sought to be applied against the homestead rights of a surviving spouse when the spouse did not realize that signing on the deed constituted a waiver, I would be in favor of it, particularly if the deed is to a revocable trust of the other spouse. In this case, it was not a big deal for the surviving spouse since she obtained a life interest in the residence through the trust that was established for her. But under the logic of the case, if the deed was to a revocable trust of the first spouse to die, and that trust did not (or was later changed to not) make a provision for the surviving spouse, the surviving spouse himself or herself could lose all economic rights and benefits in the homestead after the death of the first spouse.

While this case is a Florida case, it is likely of interest to many non-Florida practitioners who represent families with Florida family members or have clients contemplating or making a move to Florida.

Stone v. Stone, Florida 4^th DCA, Case No. 4D11-4541, November 12, 2014

Laches as a Limit on the Duty of a Trustee to Account

Doris Corya was a trustee (or co-trustee) of four trusts that failed to provide fiduciary accountings to a beneficiary otherwise entitled to receive accountings under Florida law. The failure to account went back many years – the oldest of the four trusts was established in 1953 (although Florida’s statutory obligation to account may not go back that far). Roy Sanders, a beneficiary, brought an action against Doris to compel the preparation and delivery of the unprepared fiduciary accountings. The trial court found that Doris was obligated to prepare and deliver such accountings, back through the date of the establishment of the trusts (since Doris was a trustee for each since the inception of each).

The appellate court reversed the trial court, requiring accountings only for a four year retroactive period. This was based on the statutory laches provision under Section 95.11(6), Florida Statutes, which reads:

Laches shall bar any action unless it is commenced within the time provided for legal actions concerning the same subject matter regardless of lack of knowledge by the person sought to be held liable that the person alleging liability would assert his or her rights and whether the person sought to be held liable is injured or prejudiced by the delay. This subsection shall not affect application of laches at an earlier time in accordance with law. (emphasis added)

Under Florida law, the failure to provide an accounting is both a breach of trust and a breach of fiduciary duty. Since the statute of limitations to bring an action against a trustee for breach of trust or breach of fiduciary duty is four years, four years is the “time provided for legal actions concerning the same subject matter.” Based on this, the appellate court limited the beneficiary to being able to compel only four prior years of accountings.

While this is a Florida case, states with similar statutory laches provisions may be influenced by the court’s determination. Further, the logic of limiting the duty to account to only those years where a suit for breach of trust or duty can be brought makes logical sense – if the beneficiary can only seek damages for the preceding four years, compelling accountings for years before that is probably not worth the cost and difficulties of preparing accountings for years before that.

The appellate court also implied that the common law concept of laches could apply, if the statutory provision did not. This is relevant both in Florida, and in states that may not have a statutory laches provision. This was determined to be the case, even though the beneficiary did not know that he or she was entitled to receive an accounting.

Most of the multi-year failure to account situations that I have seen arise from a lack of knowledge of the requirement to account by the trustee – and not a nefarious or intentional failure. To the extent this case is followed, it is helpful to those trustees by relieving them and the trust of the cost and burden of preparing many years of accountings once their duty becomes known, especially when historical information may be limited.

While the case will also benefit trustees with more nefarious intent, it is unlikely that such a laches rule would encourage trustees not to account. Most do so because they are required to do so, or to benefit from the shorter statute of limitations that arises in most jurisdictions as to items reported on the accounting. Being relieved of the obligation to have to account for more than 4 preceding years if called out for not accounting would not appear sufficient incentive in and of itself to shift a trustee that would otherwise account to deciding not to account – presumably they would have other motivation to not account before intentionally going down that road.

For a further discussion of this case, please also see the write-up here on Rubin on Rubin on Probate Litigation.

Corya and Sanders v. Sanders, 39 Fla.L.Weekly D2298a (4^th DCA Fla., Nov. 5, 2014)

Caution with Automatic Removal of Ex-Spouse as a Beneficiary Upon Divorce

Fla.Stats. Section 732.703 provides for the automatic removal of a spouse as a beneficiary of a life insurance policy upon divorce. Many other states have similar provisions. It is easy to become complacent in expecting this statutory provision to automatically remove a former spouse.

This can be a mistake. For example, while the Florida law provides that this removal of a former spouse will apply to an insurance policy owned by an employee benefit plan, the statute provides that this change will not occur if there is a conflict between this provision and federal law. Such a conflict may exist as to ERISA plans. Even in those states whose statute does not expressly provide that the statute will not apply if there is a conflict with federal law, the principal of federal supremacy will nonetheless result in an override of the state law provision. See also here for another example of federal override of state statutes in this context.

Besides conflict with federal law, the Florida statute provides 9 other circumstances when the statute will not apply. Thus it is imprudent to blindly rely on the statute without at least reviewing all the statutory exceptions. The more conservative course when dealing with a divorce situation is to obtain a list of beneficiary designations and then make sure each designation is specifically dealt with – either by operation of the statute without an applicable exception, or formal changes of beneficiaries.