Homestead Protection & Estate Planning – A Comparison Between Massachusetts & Florida

A Declaration of Homestead is a legal document informing the public that the homeowner is asserting his or her rights to protect their home from creditors. In many states, there is a property tax exemption for property that is titled in homestead. Almost all of the states allow the primary residence to be homesteaded. However, there is a wide range amongst the states as to the eligible size and the value of the exemption.[1] For example, in some states there is a difference in the rural and urban homestead amounts. In some states, the amount of the decedent varies with the client’s age. Elderly and disabled individuals are often given higher homestead amounts. Some states, such as New Jersey and Pennsylvania, do not offer any homestead exemption at all. In other states, such as Florida, the protection of one’s rights in one’s homestead residence is so important that such protection is embodied in the Florida Constitution and Florida also has some of the most liberal and broad homestead laws in the United States. Please see below for a more detailed discussion on Florida homestead law.

MASSACHUSETTS

By statute in Massachusetts, for example, a homeowner is provided with an automatic $125,000 of protection of their equity in his or her primary residence. Moreover, if a person files a Declaration of Homestead form with the applicable Registry of Deeds in the county in Massachusetts in which the person’s primary residence is located, the homestead protection of person’s primary residence can be increased to protect against subsequent attachment, suit, or bankruptcy of up to $500,000 of equity per homestead primary residence, per family. Homestead protection passes on to the surviving spouse and minor children who live in the homestead primary residence. A homeowner is not required to file another Declaration of Homestead after a mortgage refinance on the person’s homestead primary residence.

As part of their estate planning, many homeowners transfer their homestead primary residence to a trust. Under M.G.L.A. c. 188, the Homestead Declaration and the automatic homestead are available to a homeowner who holds his or her home in a trust. The word “owner” in said statute includes a “natural person who is a sole owner, joint tenant, tenant by the entirety, tenant-in-common, life estate holder or holder of a beneficial interest in a trust.” In the case of a trust, it would be the Trustee and not the settlor of the Trust who would execute the Declaration of Homestead. A caution to be considered, however, is that the statute requires the disclosure of the trust beneficiaries because the Declaration provides that “each owner to be benefited by the homestead and the owner’s non-titled spouse, if any, shall be identified.” Other protections for multifamily homes, manufactured homes, and for sale proceeds are also available.[2]

In Massachusetts, certain obligations of a homeowner are not covered by a Declaration of Homestead, and have priority over any homestead rights, such as mortgage on the home, Federal and state tax obligations, judgments and executions for past-due child support, and a lien on the home recorded prior to the creation of the homestead.

FLORIDA

As stated above, a person’s right to have and reside in one’s homestead primary residence is such fundamental right in Florida, that it is clearly written and provided for in Article X, Section 4(a) of the Florida Constitution. Specifically, Section 4(a) of the Florida Constitution states that “there shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:

• a homestead, if located outside a municipality, to the extent of one hundred sixty acres of contiguous land and improvements thereon, which shall not be reduced without the owner’s consent by reason of a subsequent inclusion in a municipality; or if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or the owner’s family; and
• personal property to the value of $1,000.”

Significantly, under the Article X, Section 4(a) (1) of Florida Constitution, there is no value limitation to the value of the homestead that one may have for one’s homestead and protect.

Article X, Section 4(b) of the Florida Constitution provides that “these exemptions shall inure to the surviving spouse or heirs of the owner”. Thus, this helps facilitate the devise and alienation of a property from a deceased owner to his or her spouse or other heirs.

Finally, Article X, Section 4(c) of the Florida Constitution provides that “the homestead shall not be subject to devise if the owner is survived by spouse or minor child, except the homestead may be devised to the owner’s spouse if there is no minor child. The owner of homestead real estate, joined by his or her spouse if married, may alienate the homestead by mortgage, sale or gift, and, if married, may by deed transfer the title to an estate by the entirety with the spouse. If the owner or spouse is incompetent, the method of alienation or encumbrance shall be as provided by law.”

Therefore, the Florida Constitution homestead exemption provides: (i) a person protection through the exemption from forced sale of the homestead before and at a person’s death to pay off creditors; (ii) restrictions on the devise and alienation of the homestead (for example, if a husband wants to convey a homestead to his mistress, he will need to obtain his wife’s prior written consent in order to do so) and (iii) an exemption from taxation for the homestead in certain situations per Article VII of the Florida Constitution.

In Florida, the term “homestead” includes one’s home, the land upon which one’s home is situated and other any outbuildings on the land. Moreover, if the “homestead” constitutes the property where one and one’s family resides and which one makes his or her permanent residence or the permanent residence of his or her dependent that the person then claims as a dependent on the person’s taxes, then the property owner may be eligible to receive and benefit from a homestead exemption of up to $50,000 on the property as the person’s homestead.

In addition to the Florida Constitution, Florida statutes provide protection from taxation for one’s homestead as well. Specifically, the first $25,000 of the homestead exemption applies to all property taxes, including school district taxes. Under Section 196.031 Florida Statutes, an additional homestead exemption of up to $25,000 applies to the assessed value of the homestead between $50,000 and $75,000 and only to non-school taxes. For value above $75,000, one pays full property taxes.

In order to receive the homestead exemption on one’s Florida taxes, one needs to fill out an application for homestead exemption (Form DR-501) and other exemption forms that are on the Florida Department of Revenue’s forms page and on most Florida property appraisers’ websites. Please note that in Florida, in order to be qualified to file a Form DR-501 and apply for a property to receive a homestead exemption, one must live in the applicable homestead property in the applicable calendar year for which one is filing an application for homestead exemption for. For example, if one wished to claim one’s homestead exemption in connection with a property in 2021, one would have had to have lived at the applicable property on January 1, 2021.

In Florida, one of the only limitations on having a permanent residence qualified as one’s homestead is that one is not eligible to claim one’s homestead exemption on a permanent residence if one has rented the applicable permanent residence to others for more than thirty (30) days in a particular calendar year. Also, with respect to renting a homestead permanent residence that successfully received a Florida homestead exemption, if one rents such homestead permanent residence for more than thirty (30) days for two (2) consecutive years is considered an abandonment of the Florida homestead exemption.

If you are filing for the homestead exemption for the first time, be prepared to answer these questions:

1. Whose name or names were on title on January 1?
2. What is one’s social security number and one’s spouse’s social security number?
3. Were you or your dependent living in the dwelling on January 1?
4. Does one claim residency in another county?

Per the Florida Department of Revenue website, a person’s property appraiser may ask for any of the following items to prove a person’s Florida residency:

1. Proof of previous residency outside Florida and date ended.
2. Florida driver license or identification card.
3. Evidence of giving up driver license from another state.
4. Florida vehicle license plate number.
5. Florida voter registration number (if US citizen).
6. Immigration documents if not US citizen.
7. Declaration of domicile and residency date.
8. Name of current employer.
9. Address listed on tax return filed with the IRS.
10. Dependent children’s school location(s).
11. Bank statement and checking account mailing address.
12. Proof of payment of utilities at homestead address.

Recently under Florida’s Save Our Homes program, beginning the year after one receives one’s homestead exemption, the assessment on one’s home cannot increase by more than the lesser of the change in the Consumer Price Index or three percent (3%) each year, no matter how much the just value increases. In addition, if you have moved from one Florida homestead to another within the last three (3) years, you may be eligible to take some of your Save Our Home savings with you to your new homestead in Florida. It is important to contact your specific county property appraiser for any specific local county information where your specific property is located.

Please note that in Florida if a person takes out a loan with a mortgage lender, one will be asked to waive one’s homestead rights in order to provide the lender with its mortgage on the borrower’s property.

For those readers who may own homes in Florida and in Massachusetts, it is important to consider the choice of domicile and the benefits of the homestead election in each jurisdiction before you declare your homestead.

_______________________________

This alert should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This alert is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of the issues discussed in this alert, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.

Unless expressly provided, this alert does not constitute written tax advice as described in 31 C.F.R. §10, et seq. and is not intended or written by us to be used and/or relied on as written tax advice for any purpose including, without limitation, the marketing of any transaction addressed herein. Any U.S. federal tax advice rendered by DarrowEverett LLP shall be conspicuously labeled as such, shall include a discussion of all relevant facts and circumstances, as well as of any representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) upon which we rely, applicable to transactions discussed therein in compliance with 31 C.F.R. §10.37, shall relate the applicable law and authorities to the facts, and shall set forth any applicable limits on the use of such advice.

[1] The applicable homestead exemption amounts are also an important factor in bankruptcy filings, but that is beyond the scope of this client alert.

[2] A Declaration of Homestead is available on a two-, three-, or four-family home. Also, the law allows homeowners to sell their primary residence and maintain the same homestead protection on the proceeds of the sale of the home until the sooner of one year from the time of the sale or when a new primary residence is purchased.