Consumers and homeowners in particular tend to think that financial planning is all about investing. In reality, the key to proper financial planning is making smart moves with your money to protect your hard-earned wealth. Too often consumers fret about the specific investment’s return and ignore the things that they can control such as how to not lose money.
One of the key parts of a good financial plan is proper estate planning. And one element of an estate plan is controlling for risks that can wipe out your wealth such as from a lawsuit or a creditor.
To that end the revisions that became effective with the updated Massachusetts Homestead Law will help all homeowners.
New Law in Massachusetts Will Protect Homeowners and Vital for Seniors
As reported in the Boston Tax Institute newsletter of May 31, 2011, the Massachusetts Legislature has enacted a new law that will increase homestead protection for homeowners in Massachusetts. Homestead protects a person’s residence from most creditors. If a homeowner is sued by a creditor or files for bankruptcy, a portion of their equity in their home – the “homestead estate” – is deemed unavailable to their creditors. The new law was passed on December 16, 2010, and became effective on March 16, 2011.
What a homestead exemption does is protect the property against attachment, levy on execution or a court-ordered forced sale to satisfy payment of a debt.
The new law essentially puts in place a minimum amount of coverage for all homeowners (now $125,000) and each homeowner can file the form to gain protection up to the extended amount ($500,000 or $1 million for an elder couple).
Cheap Protection Against Lawsuits or Creditors
This is cheap protection. And vital for anyone.
Consider this: One lawsuit can not only ruin your day but force you to lose the equity in your home.
If you have teens at home and there is a severe car accident, you can be sued. If you lose the lawsuit and are assessed a civil judgement by the court, the other party could put a lien on your home or even force the sale of the property to pay the claim.
An elder driver could drive through a wall or onto a sidewalk and cause property damage or personal injury that exceeds their insurance liability coverage.
These are only a couple of examples that could put someone’s home at risk. This new law at least provides some basic protection and the extended coverage will provide more peace of mind.
Key Updates to the Law
Under the amended Massachusetts Homestead law (Estate of Homestead):
- Massachusetts homeowners will receive automatic $125,000 protection against debt collectors (if they hold that much equity in their home) without having to do anything.
- Homeowners can elect to file a homestead declaration with the Registry of Deeds, which will give homeowners up to $500,000 in equity protection from non-exempt creditors. Homestead forms, or homestead deeds, are filed at the Registry of Deeds in the county in which the residence is located. The filing fee ranges from $35-$100.
- For married couples, both spouses will now have to sign the form. Before only one spouse signed and protection was only afforded to the spouse who signed. If a single person declares a homestead and subsequently gets married, the Homestead automatically protects the new spouse.
- Homesteads now pass on to the surviving spouse and children who live in the home. The protections also remain for transfers between relatives.
- There is new protection for homeowners who receive insurance proceeds from fire or other damages.
- There has always been confusion whether a homeowner had to re-file a homestead after a refinance. The new law clarifies this issue – homeowners do NOT have to re-file a homestead after a refinance. Under the new law, Homesteads are automatically subordinate to mortgages, and lenders are specifically prohibited from having borrowers waive or release a homestead.
- Homesteads are now available for single families, condominiums, coops, manufactured homes and now for 2-4 unit homes; and also for homes that are held in a trust for estate planning or other reasons.
- Closing attorneys in mortgage transactions must now provide borrowers with a notice of availability of a homestead.
- There is no need to re-do/re-file an existing homestead under the new law.
The form itself is pretty easy to fill in and file with the registry where your primary residence is located and recorded. For a $35 registry fee you could get $300,000 in protection from creditors (now up to $500,000).
Special note: Attorney Ed Adamsky provided a clarification (thanks, Ed):
If you have already filed a homestead, you do not have to update it to get the benefits of the updated Massachusetts law. If you have not filed one, you should do so. In New Hampshire there is nothing to file
For specific guidance on legal issues, speak with a qualified attorney. For help in putting in place a financial plan or road map for your money that looks at all the pieces of your plan, then call a qualified financial planner who can help make sense of all the moving parts regarding your money.
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