The term homestead may seem like a throwback to pioneer days, but homestead exemption laws are directly relevant to today’s estate planning and can play a valuable role in a modern plan.
Almost every state has some form of homestead exemption law primarily focused on reducing property taxes and protecting home equity from creditors. While the best-known homestead law is rooted in the nineteenth century’s westward expansion, the underlying principle—a secure home for families—has evolved into a variety of state-level property protections.
You do not need a covered wagon, a plow, or a team of oxen to benefit from a homestead exemption. However, you do need an estate plan that reflects your state’s specific laws and locks in its primary residence protections.
Homestead exemptions serve two main purposes: reducing property taxes and protecting home equity from certain creditors.
A state’s exemption
- applies only to a homeowner’s primary residence;
- can reduce the taxable value of a home, lowering property tax obligations;[1] and
- protects a portion of home equity from unsecured creditors, such as credit card or medical debts, although it does not prevent foreclosure by a mortgage holder.
Some states calculate exemptions as a fixed dollar amount, while others use a percentage of the home’s value. The latter approach typically benefits higher-valued homes more significantly.
What Are the Requirements for a Homestead Exemption?
Homestead exemption requirements differ by state, but generally include the following:
- Ownership: You must legally own the property
- Primary residence: The property must be your main home
- Residency duration: Some states require minimum residency periods
- Application: Some states grant the exemption automatically; others require filing with the local assessor
- Special circumstances: Seniors, veterans, disabled persons, or first responders may qualify for additional exemptions
While there are commonalities among states, there is also great state-by-state diversity in homestead protection:
- Some states allow you to protect the full value of your home from creditors while others offer only limited, or virtually no, protection.
- The method for claiming the homestead exemption also varies: some states apply the exemption automatically, while others require homeowners to file a formal declaration of homestead.
- US territories have their own unique homestead rules. For example, American Samoa protects only people of Samoan descent, and Puerto Rico requires a formally declared and notary-certified filing.
- Some states, including Arizona, Massachusetts, Washington, and Ohio, have recently changed their homestead laws to offer greater protection against creditors.
This area of law bears close monitoring, as many states continue to expand homestead protections and adjust exemption amounts to reflect today’s housing and economic realities.
[1] Benefits of Homestead Exemption: A Guide for REALTORS, Nat’l Ass’n of Realtors, https://www.nar.realtor/property-taxes/homestead-exemption.
