TC Palm Q&A Column, August 13, 2017

By August 13, 2017News, Questions & Answers

Editor’s note: Attorneys at Goede, Adamczyk, DeBoest & Cross, PLLC, respond to questions about Florida community association law.  The firm represents community associations throughout Florida and focuses on condominium and homeowner association law, real estate law, litigation, estate planning and business law.

Q: I transferred my home to my revocable trust a few years ago.  The Board is trying to fine me for property violations.  Can the Board fine me individually when my trust owns the property?

-D.R., Treasure Coast

A: It is impossible to answer the question without first reviewing your trust agreement, but the likely answer is yes.  A revocable trust is an estate planning tool in which you retain all ownership and control during your lifetime, and when you die, the trust assets avoid probate.  There are a number of other reasons to use a revocable trust, but if you do have complete ownership and control of the trust during your lifetime, there is generally no additional asset protection.  This is a common misperception, but the law considers you and the revocable trust to be the same person because there is no separation of ownership or control.

After death, a trust can set up asset protections and spendthrift protections that can be very useful to preserve wealth for generations.  During your lifetime, an irrevocable trust could provide you with some of the asset protections you are looking for, but this protection is accompanied by a loss of control and ownership and potential gift tax consequences.

In other words, if you are using the traditional revocable lifetime trust to hold title to the property and you are in violation of the covenants, the Association would be able to pursue either your personal assets or the trust assets to collect on the fine.  There are other considerations such as homestead and other collection considerations, but you generally can’t hide behind the revocable living trust for protection during your lifetime.

Q: Our condominium Board is being advised that we are no longer required to obtain an audit.  Is this true?

T.R., Port St. Lucie

A: No, not exactly.  The required level of financial reporting is based on the number of units and the size of your budget.   Assuming your condominium is required to obtain an audit based on the number of units and size of your budget, the Florida Statutes also provide a mechanism to waive the audit in favor of a less expensive and less detailed financial report if authorized by the unit owners.  The statutes used to only permit this waiver for three consecutive years before the audit requirement could not be waived, meaning you would have an audit at least every four years.  That three year limitation on financial reporting waivers was just stricken from the statutes effective July 1.  Thus, the obligation to obtain the audit has not disappeared, but the Association could theoretically indefinitely waive the audit in favor of a less stringent financial report if authorized by the unit owners.

Q: My condominium association currently has four Directors.  Our Bylaws state that that Board shall consist of five Directors.  The Board is refusing to appoint the fifth Directors.  Is this a violation?

-B.D., Stuart

A: No, it is not.  This language in the Bylaws essentially provides that a full Board will have five Directors and that the Board may not have more unless the size is legally increased.  Because the size of the Board is five, that generally means that a quorum of the Board will be three because a majority of five is three.  Having an even number of Directors serving is not necessarily a good thing because it can result in deadlock, but it is not illegal. 

I am frequently asked whether the Board must appoint the fifth Director, and my answer is generally that it should try, but there is no legal requirement to fill a vacancy.  There are a number of factors involved, such as whether there are any eligible members willing to serve, whether there is an election very soon, and whether there is a controversial topic where the fifth Director will serve as a swing vote.  In any event, the Board has a duty to exercise business judgment and my opinion is that best practices should prompt the Board to try and create an odd number of Directors without the possibility of gridlock, but it is not required by the statutes.

Steven J. Adamczyk Esq., is a shareholder of the law firm Goede, Adamczyk, DeBoest & Cross, PLLC.  Ask questions about your issues for future columns, send your inquiry to: question@gadclaw.com.  The information provided herein is for informational purposes only and should not be construed as legal advice.  The publication of this article does not create an attorney-client relationship between the reader and Goede, Adamczyk, DeBoest & Cross, or any of our attorneys.  Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein.  The hiring of an attorney is a decision that should not be based solely on advertisements or this column.