The other day, someone asked, “Should I homestead my home? Does that gain me anything?” Good question. To tell the truth, I wasn’t up on this subject myself, but wondered if homesteading has some benefit for retired Baby Boomers.
To begin, what is “homesteading?” According to Wikipedia:
“The homestead exemption is a legal regime to protect the value of the homes of residents from property taxes, creditors, and circumstances that arise from the death of the homeowner spouse.
Such laws are found in the statutes or the constitution of many of the states in the United States. The homestead exemption in some states of the South has its legal origins in the exemption laws of the Spanish Empire. In other states, they were enacted in response to the effects of 19th-century economy.
Homestead exemption laws typically have four primary features:
- Preventing the forced sale of a home to meet the demands of creditors, usually except mortgages, mechanics liens, or sales to pay property taxes
- Providing the surviving spouse with shelter
- Providing an exemption from property taxes on a home
- Allowing a tax-exempt homeowner to vote on property tax increases to homeowners over the threshold, by bond or millage requests
For the purposes of statutes, a homestead is the one primary residence of a person, and no other exemption can be claimed on any other property anywhere, even outside the boundaries of the jurisdiction in which the exemption is claimed.
In some states, homestead protection is automatic. In many states, however, homeowners receive the protections of the law only if they file a claim for homestead exemption with the state. Furthermore, the protection can be lost if the homeowner abandons the protected property by taking up primary residence elsewhere.”
That’s a mouthful! Basically, having a homestead filed on the property where you live protects you if creditors try to force a sale to pay during a financial hardship…except for mortgages, mechanic liens and property taxes. And if you die, it prevents creditors from selling your home out from under a surviving spouse.
So How do Boomers Homestead their Residence?
It turns out that in many states, Boomers have automatic “Homestead” rights – you don’t have to do anything. Asset Protection Planners notes:” Some states, such as Florida, Iowa, Kansas, Oklahoma, South Dakota and Texas have provisions, if followed properly, allowing 100% of the equity to be protected. Other states, such as New Jersey and Pennsylvania do not offer any homestead protection.” So the first thing to do is to determine whether you need to do anything in the first place.
What does your state allow? Here’s a chart that will help you quickly determine your homestead rights and amounts.
The states and territories that do have homestead laws typically have online forms that can be completed and recorded. Usually, these must be notarized as well. Google your state to determine the procedures to be followed.
Be advised, however, that lenders will typically require you to eliminate a homestead declaration before refinancing a residence. They don’t like having it clouding the property title.
The Bottom Line for Baby Boomers
Homesteading a residence seems to make the most sense if you are having financial difficulties or are in ill-health. It’s an added layer of protection. Even though your state may have automatic homesteading in place, there are circumstances where having a formal, recorded document adds protection and may even increase the amount covered. Baby Boomers should each determine what is best for their unique situation.