As our society becomes increasingly litigious, a simple human error can result in an expensive lawsuit. Fortunately, Massachusetts homeowners can protect their primary residence from judgment creditors by filing a Declaration of Homestead.
Currently, under Massachusetts law, homeowners equity in their primary residence is automatically shielded from liability to creditors up to $125,000. But by recording a quick form, and paying a paltry $35 fee at the local Registry of Deeds, homeowners can increase this protection to $500,000. Of course, the mechanics are quite a bit more complicated, and depend largely upon the age, disability status, and titling of the property involved.
For those people under age 62 and not disabled, filing a Declaration of Homestead essentially protects the first $500,000 of equity in their home, regardless of how many people own the home. If two or more owners own the home as tenants-in-common, or as beneficiaries of a trust, the $500,000 protection is divided according to their percentage of ownership in the house. For those who own their home jointly with one or more persons (most married couples), each person receives the full $500,000 protection from their individual creditors, but their combined protection cannot exceed $500,000.
For those over age 62, or determined to be disabled according to Social Security, the protection is not limited, regardless of the number of owners. Instead, each owner that files a homestead will receive a full $500,000 of protection from his or her creditors.
To simplify, individuals, and married couples under age 62, can receive $500,000 of protection. Married couples over age 62 can receive $1 million dollars of protection. The cost of this protection is $35, or $70 for the older married couple. You won’t find a cheaper or easier way to insure your home against a rogue lawsuit.
Until recently, estate planners often recommend against placing a residence in trust, because could not claim homestead protection. Unfortunately, this created a trade off, where the homesteaded property was subject to expensive and time-consuming probate proceedings upon the death of the owner. Now, recent changes to the homestead statute allow homestead protection for residences placed in trust, and for residences subject to a life estate. Furthermore, Massachusetts homesteads can often protect the spouse and minor children of the record owner of the residence. This protection continues even after a death or divorce.
In revamping the homestead statute, the Massachusetts legislature attempted to achieve two goals. The first was to simplify the law regarding homestead protection, and the second was to modify the law to reflect the complex ways the modern people own property. While the new law is not simple, it has largely caught up with the evolution of property ownership, specifically in regard to trusts.
Given the enormous protection and nominal fee, every Massachusetts homeowner should file a Declaration of Homestead. For many of you, the process is straightforward, and can be completed without assistance in a few minutes. However, because the declaration is specific to the age, disability status, and record title of the residence, it may make sense to consult an attorney if you are uncertain of how to proceed.
In an age where a freak accident can cost you your life savings, you cannot afford not to have homestead protection.