In a case decided by the Massachusetts Supreme Judicial Court on February 16, 2012, it was held that a beneficiary of a trust cannot acquire a homestead under the 2004 Massachusetts Homestead Law; you need to be the trustee. We wrote about the new Massachusetts Homestead Law in our March 14 2011 blog. The SJC, in response to a certified question by the US Bankruptcy Court, decided the case.
This was a case in which a debtor, Ms. Boyle, filed for bankruptcy protection in the Massachusetts bankruptcy court after having filed a Declaration of Homestead. Under the new Homestead law, the Declaration of Homestead protects home equity up to $500,000. In fact, under a new law in Massachusetts, the Homestead even protects homes held in trust. However, this case was decided under the prior law.
In this case, Boyle v. Weiss, Boyle and his wife conveyed their home to real estate trust in 1990. The trustee was their daughter, Maria. The beneficiaries of the trust were Boyle and another daughter, Roberta. They were each 50% beneficiaries. The trust had no “spendthrift” provision, protecting the beneficiaries from creditors in bankruptcy. The trust gave the trustee the power to manage, buy and deal with real estate. In 2010, Roberta Boyle filed a Homestead with the Registry of Deeds and then, four days later, filed for bankruptcy. The sequence of events is, generally, entirely proper.
Unfortunately, because she was neither a direct owner of the land, nor a trustee, the Court found that she was not an “owner” under a strict reading of the 2004 Homestead statute. Although she lived on the property, and it was her home, she was, technically, a tenant at will, subject to the trustee giving her a 30-day notice to quit. Ms. Boyle argued that the language of the 2004 law said “by lease or otherwise” and the Court, even stating in a footnote, that the Homestead law should be construed liberally, could not stretch it to include someone who, although she held a beneficial interest in the home, was not under any life estate or lease. Wherefore, she was not protected by the 2004 Homestead law.
On March 16, 2011, a change to the Homestead Act went into effect in which two new classes of people can file for Homestead protection: owners of a life estate and a “holder of a beneficial interest in a trust.” Ms. Boyle was clearly in the later class. The Court stated that when the “legal and equitable interests in a trust merge in one person” such as when someone is both trustee and beneficiary, “that person especially may be eligible to file a declaration of homestead” when they live in the home. Unfortunately, Ms. Boyle filed for bankruptcy protection prior to the new Homestead law going into effect and the law did not contain a looking back provision.
It seems that Ms. Boyle was caught in a difficult trap.
Could proper bankruptcy planning have prevented this? Perhaps. We don’t know the facts without looking at her Massachusetts Bankruptcy Petition and the situation regarding the trust, the trustee and the beneficiaries. There was likely no other way to protect Ms. Boyle back in 2010. This case demonstrates, however, the reason for using an experienced Massachusetts bankruptcy attorney before filing for bankruptcy protection in Massachusetts.