The Primary Family Homestead Certificate (PFH)<$> is designed to mitigate Stamp Duty on the Bermudian primary family residence at death for Bermudians. This is a wonderful gift, but it does not solve all estate planning issues, particularly with respect to the designation of beneficiaries of the current property owner. In fact, what the process does is initiate conversations that all of us prefer not to have. Questions such as: “What will you leave me when you are gone? I really need a place to stay”, from one bright young person to an elderly relative, leaves everyone looking uncomfortable. Estate planning, as part of comprehensive financial solutions, requires an assessment of your total financial profile, then a discussion of alternative strategies, both financial and legal, then implementation of a cumulative decision process.

The Primary Family Homestead Certificate (PFH)<$> is available to Bermudians. Permanent Resident Certificate holders and non-Bermudian spouses (or other dependents) are not eligible — except see below on death of a Bermudian spouse.

Applicants must demonstrate this status by proof with a Bermuda status paper or with registered stamp on their passport. According to the Tax Commissioner’s office, this validation appears to be one of the more overlooked items.

All residential property is eligible, <$>including residential apartments. You do not have to currently reside in the property in order to designate it for the Certificate (the rules are different if you die and your executor has to file the application). Obviously, if you are lucky (or smart) enough to own more than one piece of real estate, you are allowed to choose the property with the highest market value whether you reside there or not. If the property is held by a corporation, it is not eligible for the PFHC.

Also consider having the property appraised. It will help in apportioning parity with beneficiaries later on.

Condominiums and other real estate can be owned as freehold or leasehold<$>. Both of these legal structures are handled the same for the PFH designation. If you have a 99-year lease, the length of time or remainder of the time (term limit) has a value upon which ‘death tax’ stamp duty is ordinarily payable.

What happens in a divorce?<$> Stamp Duty on a transfer or conveyance on divorce is not at the same rates as any other Voluntary disposition or a Conveyance on Sale. There is a fixed duty of $200 (Section 38A of the Stamp Duties Act 1976) payable on the Deed if the transfer is between the parties to the divorce only.

Whoever then receives the allocation of the property in the divorce and continues to own that property, i.e., the ex-husband or ex-wife is the individual entitled to designate that property as their PFH.

What is not clear and may be a discussion point with your divorce attorney, is whether the value of the death tax stamp duty would be included in the settlement process.

For instance, how would a scenario such as being the party to the divorce that gives up the real estate in the settlement, and then is unable to file for a PFH designation on a new property be negotiated?

Death of a Bermudian with a non-Bermudian spouse. <$>What happens if the property owner is Bermudian (status), files and receives the Certificate, then dies, but spouse is not a Bermudian — but has the right to live here and apply for status at some point? This is a more ambiguous question to consider and here Assistant Tax Commissioner Deborah Blakeney was very helpful:

[bul] The deceased Bermudian spouse’s executors will not have to pay death tax on the value of the property.

[bul] The inheritance rights of the Non-Bermudian spouse would be a question for Immigration based upon applying for a license to acquire land where the individual then may be able to inherit the property.

[bul] The non-Bermudian spouse would not however get the benefit of a PFH certificate because they are not Bermudian. On the death of the Non-Bermudian spouse holding the property under license, death tax would be payable on the value of the property as part of his or her estate.

[bul] If the Non-Bermudian Spouse holding under a license decided to get Bermuda status after the death of the Bermudian spouse and before their own death then they can apply for a PFH certificate once they have that status.

What happens if I die in the middle of the process? <$>Your estate representative may at any time before the Affidavit of Value is submitted designate a property that you own as a PFH. There are two caveats to the estate process, however:

[bul] If you had more than one property, your representative can only designate the one you lived in prior to your death.

[bul] If you were not residing in any property at the time of your death, say you had actually moved to an assisted living situation, the property of the least value is the only candidate for the PFH.

Obviously, you should settle your affairs long before reaching the great reward.

Prior to the Amendment to the Stamp Act, placing other family members on a deed with elderly relatives, for instance, was a method (and still can be) to keep property in the family. In some cases, however, there has been a loss of control over the original owner’s last years that has not been well received.

And regrettably, on occasion other titleholders have used the property in a financial way to the detriment of the elderly person. This need no longer happen.

The Primary Family Homestead exemption process will undoubtedly promote vigorous discussions among family members. In a further article on planning your legacy, we will discuss financial implications.

My grateful acknowledgement to Deborah Blakeney, attorney and Assistant Tax Commissioner, whose cheerful insight and written comments to my queries have been most helpful. Next week: making sense of cents and percent.This article should not be considered specific legal, tax or investment advice. Consult with your attorney when considering legal matters such as changes in wills, titling of property and settling trusts. The Tax Commissioner’s office (and their capable staff) can help with questions that may relate specifically to the Primary Homestead Resident Certificate. Call 297-7684.

Martha Harris Myron CPA/PFS CFP|0xae| specialises in planning and investment advisory services for clients considering lifestyle transitions and rewarding retirements. Send e-mails to marthamyron[AT]northrock.bm