By Seth Williams | 34 U. ARK. LITTLE ROCK L. REV. 173 (2011).
The homestead exemption provides protection to two groups of beneficiaries. First, the exemption prevents creditors from taking the family‘s home if the family becomes insolvent. Second, it protects immediate family members after the death of the head of the family by ensuring that they can continue to live in their home.
Fitton v. Bank of Little Rock, 2010 Ark. 280, ___ S.W.3d ___, held that an individual who is the settlor, trustee, and a beneficiary of a revocable trust can claim a homestead exemption in the residence that is part of a trust. Fitton‘s significance stems from the increased use of trusts as an estate planning tool. If the court decided Fitton against the homeowners, many Arkansans who placed the ownership of their homes in revocable trusts would suddenly find their homes less secure. Moreover, the court‘s decision in Fitton is consistent with the line of reasoning that a homestead interest attaches to an interest that a creditor might seek to execute on in order to satisfy a debt.
The Fitton decision emphasizes the purpose of homestead ―to protect the family from dependence and want. Moreover, the court furthered the idea of liberally construing the homestead exemption for the protection of the family‘s interest. Finally, this decision shows that modern courts still recognize the need to protect the family‘s home.
The Court’s decision in Fitton led to confusion among lawyers, banks, and title companies; as a result, many routine procedures, from executing the correct deeds to obtaining the appropriate waivers, were called into question.
This note discusses the protection from creditors provided by the homestead exemption. The discussion begins with the background of the homestead exemption, placing particular emphasis on Arkansas‘s homestead exemption. This note then addresses the interests to which a homestead exemption will attach. Next, it looks at the Arkansas Supreme Court‘s decision in Fitton and explains how that decision further defines the interests to which homestead rights attach. The note then examines the law in other jurisdictions that have decided cases similar to Fitton. Finally, the note explains how Fitton affects banks, title companies, and lawyers.
Although the decision in Fitton provides some certainty to estate planners, it also creates confusion for banks, title companies, and lawyers. Banks must now decide how to best ensure that their mortgages attach to homes. Title companies must research beyond trust ownership to ensure homeowners waived their homestead interest when necessary. On the other hand, lawyers must consider how clients will retain their homestead exemption while also carrying out the clients‘plans for their homes. In sum, Fitton provided relief to homeowners while leaving more experienced groups with questions concerning how to protect themselves.
