Homesteading Your Home: Pro’s and Con’s

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FWhen you purchased your home, your lawyer probably had you sign a homestead form along with the hundreds of other pieces of paper that were stacked in front of you. If your lawyer did explain it to you, he probably just told you that it would protect your home should you have a debt. Although declaring your homestead may offer some minimal level of protection, homestead laws vary dramatically from state-to-state in the protection they provide from unsecured creditors. Protection can vary from “none” to “unlimited” protection.
The theory of homesteading is to protect “your homestead amount (equity amount)” on your primary residence from a forced sale for the benefit of unsecured creditors. Homestead applies only to your primary residence and only to the person claiming the homestead who must file a state prescribed form in the same registry of deeds where your primary residence deed is recorded.

There are restrictions to the homesteading protection:

  1. It’s limited to the Federal Bankruptcy amount of $20,000 (11 U.S.C. § 522(d)(1)) and further complicated by the amended Federal Bankruptcy Act of 2005.
  2. Homestead does not apply to Medicaid protection or state enabling confiscation acts under Medicaid.
  3. Homestead does not avoid probate or estate taxes.
  4. Homestead does not deter your bank from foreclosing if one does not pay the mortgage.
  5. Some states “opt out” of Federal Bankruptcy protection.
  6. Homesteading only applies to your primary residence, not to your rental unit, or vacation home. So, if you live in Florida part-time (up to 6 months) you forfeit your homestead protection, and in some states the part-time number of days is cumulative from year to year.
  7. The homestead designation applies only to the declarant and in some states your spouse and/or children in their minority years. The homestead designation does not apply to a surviving spouse if remarried.
  8. The homestead designation terminates on sale or transfer, or if your property ceases to be your principal residence.
  9. There is no homestead protection in states like: Maryland, New Jersey, and Pennsylvania.
  10. States like Arkansas, Florida, Iowa, Kansas, Minnesota, Oklahoma, South Dakota, and Texas have no significant value limit on the protection.
  11. Other states like Alabama, Kentucky, Ohio, and Virginia have only $5,000 in protection.

Is it worth the filing fee?

In Arkansas, Florida, Iowa, Kansas, Minnesota, Oklahoma, South Dakota, and Texas, the answer is yes, but… Just remember that homesteads can and will be challenged if you are abusing the objective of your state’s homestead act. If you are being actively sued, or you are expecting a potential lawsuit (you know it’s coming) and you sell your real estate then move to Florida for the purpose of availing yourself of the unlimited homestead, you will not succeed because your transfer is fraudulent. The state of Florida is not going to aid and abet a criminal event. In Havoco of America, LTD., v. HILL No. SC99-98. Supreme Court of Florida. (2001), Mr. Hill bought a new home. The problem being that several years before, Havoco of America had brought a suit against him. Mr. Hill attempted to declare his house a homestead, but even ten years later when the suit was settled, the court reasoned that Mr. Hill was attempting to avoid paying his debts. The court ruled that Mr. Hill’s home was not protected by the homestead declaration.
Not only can transfers be found to be fraudulent, sometimes homesteads can be confiscated. In the case of Butterworth v. Caggiano, 605 So.2d 56 (Fla.1992), Caggiano was convicted of racketeering charges. The state sought civil forfeiture of his home. The court found for the state stating that Caggiano racketeered in the house and that the homestead law did not apply to criminal acts committed using the property.
Bankruptcy laws are not going to be of any help when you knowingly intentionally try to become insolvent to hinder a creditor. Under the Uniform Fraudulent Transfer Act you would be committing a crime, see Section 19.40.041
…(a) a transfer made or obligation incurred by a debtor is fraudulent as to a creditor whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) with actual intent to hinder, delay, or defraud any creditor of the debtor.”…
Homestead also can only protect one property at a time. If you have more than one property you cannot protect all of them. In the England v. Federal Deposit Insurance Corporation, No. 91-7381 U.S. Court of Appeals, 5th Cir. (1992) England and his wife sold their home, filed for bankruptcy and then purchased a new home. England attempted to be creative and claim the money from the sale of the first home as a homestead exemption linked to the first home and then claim the second home as a homestead. The court found that this would be two homesteads which is prohibited by the Texas state laws. Because of this, the court ruled that the proceeds from the first residence were not protected by homestead exemption, but the second home was.

What’s the better way?

Creating a “third party owner” such as an UltraTrust® Irrevocable Trust for your primary residence and all your other valuable assets is better than any homestead even in states with unlimited homestead. A third party owner is anyone not related to you by blood or marriage. This independent person or legal entity has no underlying linking or subservient relationship to you, your spouse, or your blood relatives but has a “fiduciary” relationship.
What is a fiduciary relationship? The word fiduciary comes from the Latin word fiduciarius, fides (faith), in fiducia (in trust), meaning holding in good faith and trust. A written legal relationship created between two or more parties entrusting “in good faith” acts and deeds created by a contract is a Trust Agreement.
A well written Irrevocable Trust Agreement between the Grantor (guy with the assets) and an Independent Fiduciary Trustee (guy who watches over your assets for safe keeping) for the benefit of your Beneficiaries (you, wife, children, grandchildren, girlfriend, and/or anyone you wish) is significantly better than any homestead even in states with unlimited homestead. Period.
A fiduciary duty imposed on your Independent Trustee is the highest standard of care within the law. A fiduciary is legally expected to give extreme loyalty to the person to whom he pledged his loyalty to the point of defending, even with his own funds if necessary. The fiduciary is contractually obliged to defend your assets to the farthest extent of the law. If they fail to do so, they may be responsible for any assets lost. The Ultra Trust® is a contract that contains just such language.

1,000% better than homesteading is the Ultra Trust® Irrevocable Trust

The Ultra Trust® Irrevocable Trust is part of one of the strongest asset protection strategies for business owners ( that is specifically designed to give you a high level of protection. In order to grow with your changing needs, your new financial goals and cover every possible life event (getting married, having a new born or adopted child, divorce, death, etc) the Ultra Trust® is designed as a sophisticated, yet fluid document. In fact, the document’s length usually falls between 35 to 45 pages, so you know that it is sophisticated enough to protect your assets while flexible enough to grow with your changing needs. Speaking of protecting your assets, the Ultra Trust® has successfully withstood attacks from your largest creditors: the IRS, Attorney Generals, the Justice Department, banks, and common creditors like yours, so you know that your planning will work regardless of who dares to challenge your asset protection planning.
When you follow our instructions in a timely manner, your estate plan will virtually eliminate your risks and problems. We have a 100% success rate with clients using our strategies over the last 30 years. Our clients range from high profile individuals to local businessmen and from clients of moderate to extreme wealth.
Our Ultra Trust® is dynamic to the ever changing laws and tax legislation. We recently modified or Ultra Trust® language to cover the last far reaching legislation: the Federal Medicaid Act 42 USC ss 1396 et seq. and successor legislation as well as other federal and state enabling acts and their successor acts which require the spend-down of your wealth down to your last $2,000 to qualify for Medicaid. (State enabling acts means the recovery of Medicaid expenses by leaning or suing your heirs.)

Our Ultra Trust® will:

  1. Eliminate the need of Homesteading and avoid its shortcomings.
  2. Reduce the risk of, if not completely eliminate, frivolous lawsuits.
  3. Avoid fraudulent conveyance and civil conspiracy claims by your past, present, and not yet born creditors.
  4. Eliminate probate, which is triggered by the possession of assets on date of your death.
  5. Eliminate estate taxes. Estate taxes are the only voluntary tax in the entire IRS code. These potentially high taxes are based on what you own (titled in your name) on the date of your death.
  6. Eliminate Medicaid and State Medicaid Enabling Acts.
Furthermore, we create checks and balances that you are not going to find elsewhere such as a Trust Protector to oversee the Trustee for your protection.
If you “own nothing” (but still enjoy life the same as you are now) you will eliminate many complexities of ownership. Ironically, the only guaranteed success and protection is to own nothing. The only legal means of owning nothing is through an Irrevocable Trust with an Independent Trustee. Our Ultra Trust® goes beyond your expectations, with the added security of a Trust Protector.
Workflow of the UltraTrust irrevocable trust plan
Category: Financial Planning, Irrevocable Trust

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