Homestead Filing Change and Its Implications
Posted on Feb 09, 2012
Co-authored by Matthew D. Getty, Esq.
Individuals in Vermont creating life estates for estate and Medicaid planning purposes (See our article on The Standard Vermont Estate Plan, on our website for a definition of life estate), should take note of a recent change in the law requiring withdrawal of homestead declarations upon the sale of property. The Vermont Department of Taxes brochure on this topic takes the position that a transfer of title that creates a life estate is a “sale” for purposes of filing a Homestead Declaration Termination (HS-132) and the filing of a new Homestead Declaration (HS-131).
Although it is our view that the relevant statute upon which this requirement is based (32 V.S.A. §5410) is not sufficiently broadly drafted to capture such transfers because there is no legal cessation and creation of a new homestead, 32 V.S.A. §5411 (“Rules”) allows the Commissioner of Taxes to “adopt formal or informal rules in order to carry out the provisions of this chapter .” (Italics emphasis added.) Therefore, we believe that the Vermont Department of Taxes is entitled to take a legally binding informal position that the creation of a life estate necessitates filing an HS-132 to terminate a homestead and filing a form HS-131 by the same individuals to create a homestead in their life estate.
It is unfortunate that the legislature is creating so much work for conveyancing attorneys and corresponding costs for their clients. Nevertheless, it is creating even more work for the Department of Taxes. As is set forth in our article, a life tenant holds almost the entire “bundle of sticks” that represents the rights in the real property. This is particularly true when an enhanced life estate is created that allows the life tenant to sell or mortgage the property and keep all of the proceeds.
Unfortunately, this informal rule also covers transfers by individuals to their revocable trusts. If you are engaging in either of these transactions, be sure that these forms are filed. Otherwise, you could face a fine from your town, or at least a significant hassle in explaining why you are still eligible to claim a homestead.