On December 16, 2010, Governor Patrick signed into law An Act Relevant to the Estate of Homestead. The new law increases the homestead protection available to everyone.
Homestead is simply a formal legal statement, recorded at the registry of deeds, that this property is your home. By claiming Homestead, you can protect your home from the claims of creditors.
If you do not choose to formally file a Declaration of Homestead under the new law, your home will still be protected to the extent of $125,000. Formal filing increases the limit to $500,000. What does the protection mean? If you are sued for an unsecured debt, the equity in your home is protected. This means that a creditor cannot attach your house while you are alive.
This does not help people who have been using their house as a cash resource. Mortgages, including Home Equity Lines of Credit, are specifically excluded from the protection.
It does help those who fear losing their homes to unexpected unsecured liabilities. One example of an unexpected unsecured liability is a claim by a nursing home for payment for services. No one wants to need the services of a nursing home. Like any medical care, nursing home services are determined by what you need, not what you want. Long term care insurance is only available to those who are unlikely to need it soon. Some people simply cannot ensure against this risk because they cannot quality. Others do not have the income available to pay for the insurance. Filing homestead will protect your home against nursing home costs while you are alive.
The purpose of this law is not to protect your home for your heirs, but to make sure that debt does not leave you homeless while you live. Once both spouses are dead, unless they leave young children, the homestead protection no longer applies.
Under the old Homestead Act, it was not clear whether a residence in trust qualified for Homestead protection. For this among other reasons, I have recommended that my clients place only the remainder interests in their homes into their trusts, retaining a life estate and claiming Homestead on the life estate.
But for those who transfer their entire interest in a home into a trust, the ability to have the trustee file the Homestead Declaration could be valuable.