Life Estates and Remainder Interests

A common technique to avoid probate on homestead and other real property is to prepare a deed reserving a life estate for the homeowner with a remainder interest in the children or other relatives. But what if the child who has a remainder interest files bankruptcy? Can the bankruptcy trustee force a sale of a remainder interest in real estate?

The remainder interest does not create a current possessory right. There has been authority that this remainder interest is not protected by the homestead exemption. Judge Killian had held that this was the case based on a Florida Supreme Court Case. See In re Lewis, 226 BR 703 (Bankr. N. D. FL 1998).
But what if the child, the remainderman, has lived in the property for years? In this context, two recent cases found that the homestead protection applies to remainder interests depending on the facts of the case. Judge Williamson in the case In re Williams, 427 BR 541 (Bankr. M.D. FL 2010). More recently, Judge Killian receded from his prior decision and also found in favor of the debtor under similar circumstances as the Williams case. See In re Hildebrandt, 432 BR 852 2010, WL 2718044 (Bankr. N.D. FL 2010).

Fort Lauderdale bankruptcy attorneys must keep in mind that the above decisions are not binding precedent on other bankruptcy judges.

Note that many deeds creating a life estate set up an enhanced life estate, a so-called lady bird deed. The grantor can transfer title without the consent of the remainderman. The grantor can effectively eliminate the remainder’s interest. Under these circumstances, it would seem highly unlikely that the bankruptcy trustee would have any interest to sell.

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