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How To Title Real Estate For Asset Protection in Florida

how to title real estate for asset protection

Florida law offers some of the strongest creditor protections in the country—particularly with regard to real estate.  Those protections make Florida real estate not just a valuable asset but also an effective means of shielding wealth against creditor attachment.  Absent careful planning, though, the same protections that make Florida a great place to own land can also lead to estate-planning complications and unwanted long-term consequences. Thus, how to title real estate for asset protection in Florida is a major estate planning consideration.

How to title real estate in order to maximize available asset protection strategies in Florida?

As I’ve mentioned in past articles, Asset Protection is a broad term used to describe the legal strategies utilized to create barriers to legal predators seeking to acquire your assets through liens, judgments, etc.  For more asset protection insights, check out Asset Protection in Florida.

4 General Ways to Title Your Assets in Florida

So, when considering how to title real estate for asset protection, real estate assets may be acquired and title held in the following 4 general structures which are as follows:

  1. Individual Name
  2. Multiple Parties Names – Marriage, Domestic Partnerships, General Partnerships, Joint Ventures
  3. Entities Such As Corporations, LLCs, Limited Partnerships
  4. Trusts – Revocable and Irrevocable and Land Trusts

These 4 structures are broad categories and within the latter 3, a fair degree of complexity can occur.  Rather, than overwhelm my reading audience with a novella of details, I decided to just focus on broad key concepts within 4 categories above so that you’ll be empowered with the right questions as a starting point.

1.  Titling Assets in Individual Name

The big picture concerning how to title real estate for asset protection in Florida, is that unless the real property is your personal residence, referred to as a homestead in Florida, there is almost always unnecessary liability that results from owning real property in your own name.  We live in an extremely litigious society and even owning raw land poses some risk of litigation, as a landowners have in some cases been held liable for certain injuries suffered by trespassers.

Personal residences; however, have a certain amount of protection under State laws in most areas, such as Florida’s homestead protection, and so titling in one’s individual name may be acceptable and even advisable.  The other issue with real property held in an individual name is the requirement of probate in Florida if that individual passes.  Even if property is titled in one’s individual name, probate can be avoided through using an enhanced life estate deed (a/k/a Lady Bird Deed) in Florida, which is available for non-homestead or homestead real property described in more detail below.

Florida Homestead Asset Protection

When it comes to how to title real estate for asset protection, homestead is a favored strategy for mean reasons. Relying on the protections provided by Florida’s Homestead Act, residential real estate in Florida can be one of the simplest and most effective vehicles for long-term wealth preservation.  The law is built into the Floridas state constitution and precludes creditor attachment of any real estate qualifying as a homestead.  Creditors can’t force a sale or even place an involuntary lien on a Florida homestead.

Unlike most states, Florida’s homestead law is uncapped, so there’s no limit on the total value it can protect, and even a highly valuable Florida homestead can survive a bankruptcy case intact.  As a result, a property held so as to qualify as a Florida homestead is all but immune from attachment by most creditors.  Even more, Florida law doesn’t prevent property owners from transferring wealth into a homestead (by, for example, making improvements or paying down a mortgage) to maximize asset protection.

To take advantage of the homestead protections, a property must qualify as a “homestead” under Florida law.  It must be the owner’s primary residence—where the owner intends to live permanently—and must be situated within the State of Florida.  And, significantly, only “natural persons” are protected under the law.  So, you can’t title your residence to an LLC or corporation and still benefit from homestead protections.  However, Florida law does protect homestead properties held in certain revocable trusts—as long as the individual claiming the protection is a beneficiary of the trust and otherwise qualifies for homestead protection.

As strong as Florida’s homestead law is, there are some inevitable limitations on its ability to protect wealth from creditor claims.  Notably, mortgages, tax liens, mechanic’s liens, and most HOA liens are outside the scope of the Florida Homestead Act.  And, perhaps more importantly, it doesn’t protect commercial real estate, rental properties, or any other land that doesn’t serve as the owner’s primary residence.

Along with protections against creditors, Florida’s homestead rules also provide considerable rights to spouses, even spouses who are not on the deed to a property.  As a consequence, the law can sometimes be a double-edged sword in estate planning—providing an exceptional means of wealth preservation but also limiting the extent to which a homestead property can be devised to anyone other than the owner’s spouse (more on that later).

2.  Titling Assets in Multiple Parties Names [Marriage, Domestic Partnerships, General Partnerships, Joint Ventures]

Titling real estate jointly with a spouse brings creditor protections all its own.  And the protections derived from joint spousal ownership in Florida aren’t limited to residential properties, as with the homestead law.

Tenancy by the Entireties Asset Protection in Florida

One of the three forms of joint ownership recognized under Florida law—tenancy in the entireties (a/k/a “tenancy by the entireties”)—provides protection against creditors for spouses who co-own real estate together.  To be eligible for ownership in a tenancy by the entireties, real estate must be jointly owned by a married couple, both of whom exercise joint control of the asset and hold identical ownership interests.  Additionally, the property must have been acquired by the couple during the marriage via the same deed.

If land is held in tenancy by the entireties, a creditor of one of the two spouses cannot attach the land to satisfy the debt.  A creditor owed a debt by both spouses can reach the property.  But if, for instance, one spouse has significant premarital debts not owed by the other, retitling a property owned by the debtor spouse to both spouses as tenants in the entireties can prevent the first spouse’s creditors from attaching the parcel.

When considering how to title real estate for asset protection for spouses, a tenancy in the entireties is particularly useful because it is not limited to a primary residence, as with Florida’s homestead law.  A couple could jointly own an investment property or a rental home and still enjoy the same protection.  Thus, a claimant who obtains a tort judgment against one spouse arising from a slip-and-fall case, vehicle accident, or some other form of personal, commercial, or professional negligence could not attach any co-owned real estate to satisfy the judgment—as long as the property is held by the couple as tenants in the entireties.

Because tenancy in the entireties includes a “right of survivorship,” it has the additional advantage of being a useful way to avoid probate.  When one co-owner spouse dies, the surviving spouse automatically inherits the decedent spouse’s interest, so the property never becomes part of the probate estate.  Bypassing probate avoids publicity, saves time, cuts down on estate-administration expenses, and reduces the risk that a creditor of the decedent spouse will try to attach the property via a claim against the estate.

Of course, tenancy by the entireties has drawbacks, too.  The biggest is that the first spouse to die loses the ability to transfer any interest in the property to anyone other than the surviving spouse.  So, if a decedent spouse has an heir who is not also the heir of the surviving spouse, that heir is likely to be disinherited (at least with regard to the particular property) unless other estate-planning arrangements are made.

Holding property jointly is preferable if you’re married in many jurisdictions because this titling may offer some “asset protection” against 3rd party creditor attacks.  Many states call this “Tenancy by the Entireties” or something related.  However, the asset protection with joint titling may stop here depending upon your jurisdiction.

Other kinds of joint titling may offer a “right of survivorship” which can address the possibility of probate administration in Florida or wherever the real property is located; however, this is an area to be very careful and get professional advice because a “Tenancy in Common in Florida” may result if your deed is worded incorrectly and this does not allow a right of survivorship.  Where there is no “right of survivorship”, a probate is be required to transfer 1/2 interest (or whatever percentage) to the owner’s heirs.  It is also worth checking to see if your State allows asset protection for domestic partners who own property together, and this is referred to as non-traditional estate planning in Florida.

General Partnerships and Joint Ventures in Florida should be governed by a well prepared Partnership Agreement or Joint Venture Agreement if this approach is adopted.  In these circumstances and in the absence of a clear agreement, the joint owners are asking for trouble because they are fully liable for the other owner’s actions concerning the real property.

3.  Titling Assets in Legal Entities [Such As Corporations, LLCs, Limited Partnerships]

Generally, when considering how to title real estate for asset protection for business or investment purposes, an entity such as an LLC is highly preferable to the General Partnerships or Joint Venture structure for holding real property because the LLC limits the liability of the member (partners).  An LLC in Florida, for example, should include a well prepared Florida LLC Operating Agreement.

Generally, Corporations in Florida are not preferable for holding title to real property due to the tax laws related to the transfer of real property assets.  Limited Partnerships may also by utilized; however, these days the same things can often be accomplished with an Florida LLC at a lesser costs than establishing the Limited Partnership.

4.  Titling Assets in Trusts [Revocable and Irrevocable and Land Trusts]

I have often written about how to use a Florida revocable living trust effectively. The important thing to understand is that while a revocable living trust is great for these purposes and can provide asset protection for your beneficiaries if properly drafted, it does not provide asset protection for you because it is revocable.  So, I often advise people with revocable living trusts and real estate investments to utilize the Trust in combination with an LLC.  In my opinion, these two real estate titling vehicles work very well together.

Irrevocable trusts in Florida may also be used as an effective asset protection strategy for holding real property as well as other kinds of vulnerable assets such as banking and financial accounts.

So the take away here is to think about your goals and discuss with your experienced asset protection attorney in Florida or wherever your state of residence, and focus on the approach that makes the most sense for your goals and situation.

5.  Special Asset Protection Concerns for Spouses in Florida

In some cases, protection of assets against spousal claims is unnecessary.  A lot of people want their spouses to inherit most or all of their estate.  Sometimes, though, issues arise in estate planning that aren’t easily foreseen.  Spousal protections under Florida law can result in unintended consequences for an estate plan by requiring that assets pass to a spouse when the deceased spouse intended otherwise.  Frequently, those problems involve either a “mixed family”—where one or both spouses has children not by the other spouse— or divorce.  For this reason, I’ve sometime’s referred to an aggrieved spouse as a “super-creditor”.

Florida’s Homestead Act protects spousal rights in a homestead—even spouses who are not on a property’s deed.  During life, a married homeowner is forbidden under Florida law from transferring or mortgaging a homestead without his or her spouse’s consent.  This kind of homestead protection in Florida is known as the spousal Safeharbor law.  And, in death, a deceased homeowner cannot bequeath a homestead to anyone but the surviving spouse.  At the very least, a surviving spouse is entitled to either a 50% interest (as tenants in common alongside the decedent’s surviving children) or a life estate.  If a will says otherwise, the homestead law supersedes it.

Florida’s spousal elective share can also overpower a will.  Under that statute, a surviving spouse is guaranteed at least 30% of a decedent’s spouse’s estate—including assets that transfer outside probate due to a POD or TOD designation or through a living trust.

Sometimes, the elective share and spousal homestead protections are no big deal.  If you own a home that you want your spouse to inherit, and if you plan on leaving more than 30% of your estate to your spouse anyway, neither makes much difference.  But if your estate plan conflicts with either law, you’ll need to make arrangements to avoid future problems.

Second marriages require special Florida asset protection planning, because this is where the spousal protections most often cause problems for an estate plan.  Say, for instance, Randy and Sharon married later in life, and both brought considerable wealth into the marriage.  From a prior marriage, Randy has two children to whom he has devised most of his assets by will.  When Randy dies, though, Sharon is legally entitled to at least 30% of his estate and a half interest in the homestead where the couple lived, which had been solely owned by Randy.   Then, when Sharon dies, Sharon’s heirs (who are not the same as Randy’s) inherit all of her wealth, the half interest in the homestead, and any other assets included in the 30% elective share.  In the end, a substantial portion of Randy’s wealth ends up with Sharon’s heirs—even though Randy’s will left most of his wealth to his own children.

The easiest way to proactively avoid this scenario is through a spousal waiver in Florida.  Under Florida law, both the spousal homestead protections and the elective share can be waived in writing by either spouse.  Spousal waivers allow an estate plan to provide ample support to a surviving spouse for life without jeopardizing the long-term wealth-transfer goals of the first spouse to pass away.  Alternatively, assets can be held within a trust that names a surviving spouse as beneficiary for life and provides for distribution to other heirs thereafter.  Homestead protections can still apply to residences owned in certain trusts, so it’s important to ensure the arrangement is structured properly.

Predictably, divorce can also cause major problems for an estate plan—and not just because an ex-spouse might try to maximize the assets he or she receives in a property settlement.  If two spouses own real estate as tenants in the entireties, and they divorce, the tenancy is severed.  At that point, they are assumed to each own a fifty percent interest as tenants in common.  That can be a problem because each of their creditors can now try to attach the property.

Moreover, creditor protections for homesteads only apply to the extent of an owner / resident’s interest.  Thus, if one former spouse is no longer residing in the homestead, nothing prevents his or her creditors from attaching the one-half interest—even if the property is still the other spouse’s primary residence.  Or, if a homestead property isn’t retitled as part of a divorce agreement, either spouse can institute a partition action asking a court to sell the property and split the proceeds.

The most foolproof way to preemptively prevent loss of real estate in a divorce is through an airtight prenuptial agreement in Florida.  If properly executed, prenups (and even post-nuptial agreements) are enforceable in Florida.  And trusts are also a good way to prevent loss of property to divorce.  Say, for instance, Randy has an interest in a family farm that’s been in his family for decades.  If the interest is held in his own name, it could be potentially exposed in the event of divorce.  On the other hand, if title rests with an irrevocable trust naming Randy as a beneficiary, he can still receive distributions of income earned by the farm without the risk of losing his interest in the event of divorce.  The trust distributions could theoretically be attached, but the deed to the farm itself would be safe.

Steve Gibbs, Esq.

2 comments… add one
  • Rita Cooper September 23, 2020, 12:03 pm

    A few questions:
    1. Is a spouse entitled to half an homestead property even if it was purchased by the other spouse before the marriage?
    2. If a homestead property is inherited, is it exposed at that point to the heir’s creditors?
    3. How much do you charge for a Florida revocable living trust that includes all protective clauses, such as spend thrift trust, et.?
    Thank you

    • gibbslawfl September 23, 2020, 2:19 pm

      Hello Rita, and thanks for reading. The short answer to #1 is yes if they lived in the home together and claimed homestead status. #2 it would be exposed to the heirs creditor when the real property is transferred into his/her name; however, they may be able to avoid forced sale if they move in and homestead the real property. This may depend upon the circumstances. #3 Charges would depend on a number of factors to be determined in a consultation setting. Typically we charge $395 for an initial consultation with no obligation and if you move forward on a flat fee package we apply that consult fee to the cost. Generally, folks find the consultation to be well worth the cost because it involves a thorough education process with yours truly and I offer feedback in a number of areas including estate planning, asset protection, asset titling and pre-Medicaid planning. Let me know if you would like to schedule by e-mailing a request and best phone contact number to Gene at info@gibbslawfl.com.

      Best, Steve Gibbs, Esq.

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