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Property Tax Exemptions when Senior’s Home is in Trust

Dear Mr. Premack: My husband and I set up a living Trust a few years ago. We both signed a deed to put title to our house into the Trust. My husband died earlier this year, and I’ve been told by the tax appraisal office that my property taxes may now go up drastically. I thought that since I still live in the house and I am well over 65 years old, my taxes would stay the same because of the school tax freeze, the homestead exemption and the over-65 exemption. What am I doing wrong, or is the appraisal office wrong about increasing the property taxes? – L. W.

For many years, the Texas Tax Code has contained a provision that would ordinarily shelter you under these circumstances. The provision, found in section 11.13(j) of the Tax Code, has mandated that a “qualifying Trust” should get the same tax breaks that the individual owners would have received before the “residence homestead” was transferred to the Trust.

Hence, there are two questions that you must answer. First, is the house in which you live a “residence homestead” under Texas law, and second, is the Trust you and your husband established a “Qualifying Trust” under Texas law?

A residence homestead is a structure, on land not exceeding 20 acres, which is owned by one or more persons directly or under a Trust giving the persons a beneficial interest (the right to occupy the home). The structure must be the person’s principal residence. It is very likely that your home meets these standards.

A qualifying Trust must state, in writing, that the creator of the Trust or the beneficiary assigned by the creator of the Trust has the “right to use and occupy as the Trustor’s or beneficiary’s principal residence residential property rent free and without charge except for taxes and other costs and expenses specified in the instrument or court order”. The occupancy must be allowed either 1) for that person’s entire lifetime, 2) for a specified number of years, or 3) until the date the Trust is revoked or terminated.

Further, the Trust must acquire title to the property in a written document of title or under a court order. That document or order must contain a sufficient description on the property, a description of the interest acquired by the Trust, and must be recorded with the county clerk in the county where the land is located.

Believe it or not, the legal rules I’ve just recited were recently broadened. They used to be more restrictive before September 1, 2013. For instance, the property had to be occupied by one of the Trust’s creators and not just by a beneficiary of the Trust. If the Trust itself did not contain the right wording, it would not qualify (as opposed to the newly modified law, which allows the right wording to be in the Trust or in the deed which conveys title to the Trust, or in any other agreement binding on the Trustee).

So, is the Trust set up by you and your husband a “Qualifying Trust”? The appraisal office seems to think that it is not a Qualifying Trust. If the Trust itself did not contain the correct wording, the appraisal office may have been correct. But now that the law has been broadened (as of 9-1-13) the correct wording need not necessarily appear in the original Trust. You can include it in the deed conveying the land to the Trust, or perhaps more helpfully, can including it in an amendment to the Trust (assuming that the original Trust agreement authorized you to amend the Trust).

Your next step should be to consult an Elder Law attorney who is experienced in these matters. The attorney can review the Trust or deed, and if legally allowed can modify whatever is necessary to comply with the broadened tax law. You should then be able to reapply for the tax exemptions, which should be granted.

Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2013) practicing estate planning and probate law in San Antonio.

Original Publication: San Antonio Express News, October 7, 2013


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