This column first appeared in the San Antonio Express News on December 9, 2016.
Dear Mr. Premack: My mom owned a house prior to marring her second husband. She was disabled and deferred property taxes on her homestead. She recently passed away. I understand her husband has a life-estate in my mom's non-community property home, since both lived in it. My question is about the deferred taxes. Since her husband is over age 55, I hope he can maintain the deferral, even though he is not disabled. His life-estate goes away once he passes away and I get my mom's property. Do I get stuck with all the deferred taxes when my step-father passes away? Or is he (or his estate) responsible for any of the taxes since he lived on the property? – P.O.
A deferral of local property taxes legally means that the taxes, plus interest, are note paid annually, but are due at a later date. Deferral is granted by the local Appraisal District after a formal request is made by the homeowner. If the homeowner was unmarried, the taxes and interest are deferred until the 181st day after the date of the homeowner’s death. If the homeowner was married, the deferral may be continued by the surviving spouse so long as 1) the surviving spouse is 55 or older, and 2) the property was the residential homestead of the both spouses on the date of death.
Consequently, your mother’s husband – who is 55+ and resides in the house - is allowed to continue the tax deferral.
However, as surviving spouse he does not have a life estate in the property. Instead, he has an occupancy right. He can live in the property for as long as he so wishes, but if he voluntarily moves out of the property then his rights cease. If he truly had life estate, then he would retain his rights in the property even if he elected to vacate the property.
As such, the deferred taxes will be payable on 181st day after the date he voluntarily ceases his occupancy or the date he dies, whichever is sooner. Your next question is: who has to pay those deferred taxes?
Under Texas law, your mother was liable for the property taxes while she owned and occupied the house. Her spouse did not own the house, so he was not liable for the taxes while she was alive. Consequently, all of the deferred taxes and interest up to the date of her death are owed by her estate. When her Will is probated and an Executor is appointed, the Executor should put aside assets which will be adequate to pay those taxes when they become due in the future. The house itself may be used in that manner, being sold by her Executor after her husband either moves out or dies, with part of the proceeds going to pay the tax bill.
Further, under Texas law, her husband is liable for the property taxes while he occupies it as her surviving spouse under his homestead rights. If he elects to defer those taxes, then when the deferral ends (when he moves out or dies) he or his estate must pay that part of the tax bill which is due after the date of her death. His part of the tax bill is NOT paid from the sale of the house or any other asset that belonged to your mother; rather, he or his estate is liable, so his Executor needs to be sure that some of his assets are set aside to pay the tax bill when it is due (if he in fact decides to defer paying the taxes).
Unfortunately, the government can enforce the tax bill (even the part he owes) by foreclosing on a lien against the house. If that is done and he or his estate does not take responsibility for the part it owes, your mother’s Executor may need to sue his estate to recover the part he owed. This situation is one example of why tax deferral can be a poor choice.
Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.TexasEstateandProbate.com or www.Premack.com.