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New Massachusetts Homestead Act effective March 16, 2011

On Dec. 16, 2010, Gov. Deval Patrick signed Senate Bill 2406, An Act Relative to the Estate of Homestead (hereinafter referred to as the "act"),1 which is a complete revision of the Massachusetts Homestead Law. Although the statute will still be known as M.G.L. chapter 188, the substantive provisions are much improved and, for the most part, clearer to understand.

This summary is intended to provide highlights to probate and trust and estate practitioners so that they may become familiar with changes that will become effective on March 16, 2011 (per Massachusetts legislative rules, laws generally become effective 90 days after the governor signs the law).

There has been considerable discussion regarding homestead protection during the past few years by many practitioners, and several articles have appeared in Massachusetts legal publications highlighting problems with the current law -- which have mostly been addressed by the act.

Impact of trust ownership of principal residence on homestead declaration

In a typical estate plan involving the use of trusts, the transfer of title of a principal residence is often done without proper consideration being given to the issue of the homestead protection. For several years, some practitioners have believed that a properly recorded homestead declaration on a principal residence could be preserved by reserving the homestead when a transfer of the principal residence was made to a trust.

The authority generally cited for this position was chapter 188 section 7, where reference is made to termination of a homestead "by a deed conveying the property in which an estate of homestead exists, signed by the owner and the owner's spouse, if any, which does not specifically reserve said estate of homestead {emphasis added}." Accordingly, some practitioners believed that by specifically reserving a homestead when conveying the principal residence to a trust, the principal residence held in the trust would be protected by a homestead declaration.

However, it is understood that the Land Court has strictly relied on the ruling in Bristol County v. Spinelli2 that a homestead cannot apply to registered land held in trust. Therefore, there has been a question as to whether the Land Court would recognize the reservation of a homestead declaration for a conveyance of registered land to a trust. Since Spinelli did not address recorded land, some practitioners have also believed that a homestead declaration might be effective for recorded land conveyed to a trust.

Who is protected by a homestead declaration?

A further issue of concern has been the determination of who benefits from the protection afforded by a homestead declaration. It is interesting to note that the current statute clearly states that a chapter 188 section 1 declaration applies to a "family" as defined in the statue, which includes the declarant's children and spouse. For chapter 188 section 1 purposes, the statue applies even if a child is an adult.

However, chapter 188 section 4 provides for the continuation of the homestead upon the death of the declarant. But in that instance, chapter 188 section 4 refers to the "minor" children of the declarant, so that raises a valid question as to whether a new homestead must be declared by the surviving non-declarant spouse in order to provide protection to the "adult" child who is a member of the family.

If a couple owns a property as tenants-in-common, joint-tenants, tenants-by-the-entirety or life tenants, the current statute is clear that they are a family and a family can only record one chapter 188 section 1 homestead. Therefore, there is often a question as to which spouse should record the declaration of homestead. If the declarant spouse dies, the surviving spouse is protected. However, a chapter 188 section 1A elder and disabled homestead only applies to the owner who declared it, and therefore, the homestead protection terminates at the same moment the chapter 188 section 1A declarant dies.

Furthermore, at times there has been confusion in some of the registries of deeds as to whether each non-spouse co-owner of a principal residence may file a homestead declaration. In response to the uncertainty, the chief title examiner for the Land Court issued a memo to the registries of deeds, dated Aug. 25, 2006, in which it was confirmed that multiple homestead declarations may be filed by unrelated co-owners.

Many questions

As highlighted by the above overview of key homestead issues, there have been many questions with the current homestead statute that have needed to be addressed for a very long time, such as:

  1. Why isn't the homestead protection automatic?
  2. How much equity is protected by the homestead declaration if there is more than one owner?
  3. For estate planning purposes, does a homeowner have to choose between taking advantage of trust planning or homestead protection?
  4. Is a homestead terminated by transfers within the family or upon the death of the declarant?
  5. Are the proceeds from a sale of the principal residence or insurance for a casualty loss to a principal residence protected by a homestead?
  6. Does the waiver of homestead in refinancing documents waive the homestead protection against all creditors?
  7. Who should file the homestead? Should it be the spouse with greater exposure?

 

Key highlights of the act automatic homestead protection

In response to concern that many homeowners are not aware of the requirement that a formal filing must be made in order to benefit from the homestead statute, the act provides for an automatic allocation of homestead protection to a property that is the principal residence of the owner.

However, the amount of automatic protection is limited to $125,000 of equity; therefore, a homeowner must still file a homestead declaration to benefit from the full amount of the $500,000 of equity homestead protection. The automatic homestead will apply to all existing principal residences as of March 16, 2011. It should be noted that the act makes a major change in the homestead law so that it applies against pre-existing debts (but not pre-existing liens).

Clarification of extent of protection for multiple owners

The act clarifies that although multiple owners of a principal residence may benefit from homestead protection, the aggregate protection is limited to the $500,000 homestead amount. However, in the case of a married couple who can both benefit from what is known as an elder and disabled homestead, the aggregate protection for the principal residence may be increased to $1,000,000 of equity.

In the case of non-married co-owners of a principal residence (e.g. sibling co-owners) who all file for the elderly or disabled homestead, the aggregate protection is the product of $500,000 of equity multiplied by the number of owners who qualify for the elderly or disabled homestead.

Finally -- homestead applies to a principal residence titled in trust

In recognition of the extensive use of trusts to hold title to principal residences, the act finally extends the benefit of homestead protection to principal residences for which title is held in trust. In order to obtain such protection, the trustee must file a declaration of homestead stating, among other things, the names of the beneficiaries who seek to obtain such homestead protection, and the fact that the property is their principal residence.

All in the family

The act provides that the transfer of a principal residence between family members does not terminate an existing homestead -- even if the new deed fails to reserve the homestead upon the transfer. In addition, a homestead existing at the death or divorce of a person holding a homestead shall continue for the benefit of his or her surviving spouse or former spouse and minor children who occupy or intend to occupy said home as a principal residence.

However, any adult child who has an ownership interest in the principal residence is required to file their own homestead declaration if they wish to have the increased protection of the $500,000 amount.

Sales and insurance proceeds relating to homestead property are protected

Finally resolving an age-old question, the proceeds from the sale of a principal residence, or the insurance proceeds from a principal residence that suffers a casualty loss, are protected by the homestead in order to purchase a new principal residence or repair a damaged one. The proceeds from a sale are protected for the period of one year from sale of the current principal residence, but the insurance proceeds are protected for a two-year period from receipt of the proceeds.

Mortgage waiver of homestead is just that

Another age-old question relates to whether the apparent blanket waiver of a homestead in mortgage documents terminates the protection of a homestead against all creditors. The act provides the sensible answer that a mortgage does not terminate a previously filed homestead but only subordinates the homestead to the specific mortgage at issue.

Simple solution to which spouse files the homestead

To resolve the question of which spouse should file the homestead, the act chooses a simple solution - it requires that both spouses who have an ownership interest in the principal residence sign the declaration of homestead. In addition, the declaration must identify each person receiving homestead protection, including the name of a spouse who may not be an owner. The declaration must also state that each person occupies, or intends to occupy, the property as his or her principal residence.

The information contained in this article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The information is intended for general informational purposes.

1For those looking to read the act on the state legislative website, please note the actual text of the final version of Senate Bill 2406 (186th session 2009-10) is set forth at House Bill 4878 (186th session 2009-2010), pursuant to a House amendment.

238 Mass. App. Ct. 655 (199

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