Homestead Protection
Home ownership is a goal that many people strive for. Regardless of your level of personal wealth, having a home satisfies one of life’s basic needs. It is often the largest purchase you will ever make, and represent a large percentage of your personal wealth. Without proper protection, you could lose it.
The Massachusetts Homestead Protection Act allows homeowners to protect up to $500,000 of equity they have in their personal residence. This means that if you are sued and there is a judgment against you, your home is protected from being used to satisfy that judgment for up to $500,000. You simply need to make a declaration and have it recorded to take advantage of this protection.
To find out how Homestead Protection can benefit you and for assistance in preparing your declaration, contact me.
Joint Tenancy with Right of Survivorship/Tenancy by the Entirety
In many states, Massachusetts included, real estate and several other types of property can be owned by two people as Joint Tenants with Right of Survivorship (or “JTROS”). JTROS allows two people to own the property together, and for the title to pass to the survivor upon the first death. This has the advantage of allowing the property to pass outside of the probate process, saving time and cost.
Tenancy by the Entirety (or “T-by-E”) is similar to JTROS in that the co-owner has right of survivorship, meaning they become the sole owner of the interest in property that was co-owned by the decedent, by operation of law and outside of the probate process. The major difference is that it is exclusive for couples who were married at the time the interest was created. In other words, you would have to be married when you got the property.
A drawback to the right of survivorship is not receiving a step up in cost basis. When a piece of property is purchased, and later sold, if the property is valued higher at the time of sale, you pay Capital Gains tax on the profit. The cost basis is what you bought the property for, plus the cost of any capital improvements (remodel, additions, etc.). A joint owner will still have the original cost basis upon the death of the other joint owner. If the property was given away during lifetime, the basis would carry over to the new owner, and they would receive no capital gains tax advantage. However if the property was inherited, the new owner would receive a step up in basis, which is the fair market value at the time of the decedent’s death. This could result in substantial reduction of capital gains tax on highly appreciated property.