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:
- Why isn't the homestead protection automatic?
- How much equity is protected by the homestead declaration if
there is more than one owner?
- For estate planning purposes, does a homeowner have to choose
between taking advantage of trust planning or homestead
protection?
- Is a homestead terminated by transfers within the family or
upon the death of the declarant?
- Are the proceeds from a sale of the principal residence or
insurance for a casualty loss to a principal residence protected by
a homestead?
- Does the waiver of homestead in refinancing documents waive the
homestead protection against all creditors?
- 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