Whenever a home is part of a community with a HOA (of course, this is extremely common in Florida), determining how the home is owned requires a thorough examination of escrow documents, the title report, a deed to the property and the governing documents from the HOA itself. The style of the house or even of the community has no bearing on the legal ownership, as reported in The Los Angeles Times, “Trusts aren't a surefire way of making your HOA property judgment-proof.” One important point to keep in mind: regardless of how you decide to protect the asset against possible lawsuits from the HOA itself or an aggrieved neighbor, take action long before anything occurs.
There are several legal distinctions between condominiums and Planned Unit Developments (PUDS)—the ownership of common areas is one of the most cited. However, whether a townhouse or a single-family dwelling is part of a PUD or condo development, both are deed-restricted properties subject to homeowner associations regulated by California’s Davis–Stirling Common Interest Development Act in the California Civil Code. A power reserved for the board of all common interest developments is the right to place a lien on the property of an owner who violates the covenants or fails to pay on some association-related debt. The lien lets the board foreclose on and take that property to satisfy the debt.
This is tough for estate planning, because if a lien is applied to the property and the owner passes away, the estate can be attached. This keeps the property from passing to the owner’s heirs until any outstanding debts are paid.
Unfortunately, the most commonly used trusts won’t protect these assets.
When folks talk about a “family trust” or “living trust,” they usually mean a “revocable trust.” This is where the grantors maintain ownership and control over their property during their lives. At death, the control goes to a trustee who then further administers or distributes the assets without having to go through probate. These trusts are “revocable” because the grantors can make changes to the terms, distribute assets early, and even revoke the whole deal. However, the assets in the trust are still subject to taxes and are not protected from creditors, litigation or foreclosure both during the lifetime and after the grantor’s death. When I am representing trustees during a trust administration, I usually advise my clients to open up a probate estate so we can limit the time period that creditors can file a claim against the estate or trustee. In Florida, if you do not open up a probate and serve all reasonably ascertainable creditors then it extends the time period to two years from the date of the death of the grantor to file a claim against the estate or even the trust. #411probate
By contrast, irrevocable trusts provide the creditor protection to the grantors, but only if they’re created for legitimate estate planning purposes. However, in an irrevocable trust, the grantors give up control over the assets placed in that trust—they usually can’t amend nor revoke the trust during their lifetimes. When the trust is created, the grantors must choose who they want to have their property when they die. That decision can’t typically be changed, and real property can be difficult or impossible to sell or refinance while it’s in the trust.
There is no way to completely protect residential deed-restriction property from litigation with an HOA, but any kind of property needs to have “loss assessment” coverage and a very large umbrella or catastrophe insurance policy as part of your personal homeowners insurance package. If you haven’t done so already, make sure to put all of this protection in place as soon as possible and don’t wait until an incident occurs.
Do you live in Miami-Dade, Broward, or Palm Beach counties in Florida? Laws are constantly changing-- has your estate plan been reviewed in the last 2-3 years? Call me (954-888-1747) right away for peace of mind. I can help!
- My practice is exclusively estate planning and probate,
- I have prepared numerous estate plans in 16 years of practice,
- I have administered estates and trusts through Probate all over Florida,
- I am a Certified Financial Planner Professional™, and
- I am here for YOU today and there for your FAMILY tomorrow.
Reference: Los Angeles Times (February 4, 2017) “Trusts aren't a surefire way of making your HOA property judgment-proof”