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Caution: Use of Revocable Trust May Void Homestead Protection
- April 10th, 2008
A "homestead exemption" protects part of a home's value (or in a couple of states, all of its value) from being sold to meet the demands of creditors. However, placing the home in a revocable trust may void this homestead protection.
The use of revocable trusts, which often are employed as a way to avoid probate, has been on the rise. But two bankruptcy courts have reached different conclusions on the question of whether a home in such a trust is entitled to the homestead exemption.
In the case In re Estarellas, the U.S. Bankruptcy Court for the District of Connecticut held that the debtor, whose home was held in a revocable trust, could not claim protection under Connecticut's homestead exemption. The court ruled that because the debtor had transferred title in the property to the trust, she no longer had any interest in the property and could not claim homestead protection. In re Estarellas (Bankr. D. Conn., No. 03-22287, Feb. 23, 2006).
However, in another case, In re Kester, the U.S. Court of Appeals for the 10th Circuit determined that although a couple had placed their home in a trust, they still had enough of an interest in it to claim the exemption and protect the home from creditors. In re Kester (10th Cir., No. 06-3114, July 10, 2007).
Before placing your home in a revocable trust you should consider this implication and discuss it with a qualified elder law attorney familiar with the laws and practices of your state.
For the full text of Estarellas, click here and scroll down to "03-22287".
For the full text of Kester, click here.
Local Elder Law Attorneys in Ashburn, VA
Margaret A. O'Reilly, PC
Margaret A. O’Reilly is an estate planning and elder law attorney with over thirty-five years of legal experience. Attorney O’Reilly graduated from Duke University with a degree in psychology, and received her law degree from Northeastern University School of Law in Boston, Massachusetts. For over 15 y...
The Estate Planning & Elder Law Firm PC
Bill founded The Estate Planning & Elder Law Firm, P.C. in 1994. Bill limits his practice to the areas of estate planning and administration, incapacity planning, Medicaid, asset protection planning, and elder law. He is one of (15) fifteen attorneys practicing in Virginia, Maryland and the District of Columbia, ce...
Needham Mitnick & Pollack, PLC
Judith Mtinick is well known for acting as a guardian, conservator, trustee or agent on behalf of clients or by court appointment. This experience gives her a wide perspective and extensive practical knowledge that she uses when advising clients in drafting their planning documents. Her experience, as a court appointed...