Protecting your clients’ assets with a homestead exemption

Protecting your clients’ assets with a homestead exemption

A homestead exemption can help clients protect their primary residence from creditors’ claims, but it is important that clients understand the laws that are specific to their state.

In most states homestead protection is limited, based on when the property was acquired, and caps exist on the amount of home equity that can be protected. Laws in some states, such as Texas and Florida for example, have unlimited protection.

Strategies to enhance homestead protection
In states with favorable homestead laws, one way to maximize the protection of a primary residence from creditor claims is to pay down the property mortgage with assets considered at risk of creditor attachment, such as cash or investment accounts. In this case, you are shifting assets (cash, investments) that may not be protected to an asset (e.g., the home) that may receive protection from creditors due to the homestead exemption. For other states with less favorable laws, it may make more sense from an asset protection standpoint to carry a larger mortgage on the property.

Application process can vary
In some states, homestead protection is automatic while in others it requires filing a document, such as a “declaration of homestead,” with a local government office such as a Registry of Deeds. Consult a legal professional knowledgeable about homestead-exemption statutes in your state because these rules can vary considerably.

How does your state measure up?
To explore state-specific laws around homestead protection, visit, which lists the homestead exemptions and other bankruptcy exemptions for the 50 states.

Asset protection is an important topic for estates of all sizes. Every comprehensive financial plan should include strategies around asset protection. Homestead protection is one of many techniques that can be used to fit a client’s individual situation. Clients should meet with their financial advisor, review current assets, and determine their net worth, before tackling the basic elements of asset protection. Learn about additional planning strategies from these Putnam resources: “Asset protection: Basic principles and strategies for safeguarding your wealth,” and “Asset protection worksheet.”


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