22 Dec WILL I LOSE MY HOMESTEAD TAX EXEMPTION IF IT IS IN MY REVOCABLE LIVING TRUST?
It is common in Texas to use a living trust to avoid probate. Probate is typically the process of going to court to prove the decedent’s will was valid so that assets can be transferred by the executor in accordance with the terms of the will. Probate avoidance is accomplished by re-titling assets into the name of the trust. For example, the homestead is often deeded into the name of the trust. As a result, a question frequently asked is “will I lose my homestead tax exemption(s) if my home is owned by my living trust?”
Proper Language Needed to Keep Tax Exemption(s)
In Texas, if you have the proper language to make it a qualifying trust, then your property tax exemption(s) (i.e., homestead, over 65 or disabled, etc.) will be maintained. Even if you deed your homestead in certain irrevocable trusts, the homestead property tax exemptions will be maintained with proper language in the trust.
In order for the trust to be qualified for the exemption, the trust should indicate that the one who establishes the trust has the “unrestricted right to use and occupy the principal residence rent free and without charge and at no cost except for taxes and other costs and expenses.” This language should also be stated in the deed conveying the homestead to the trust so there is no doubt by appraisal districts that the proper tax exemptions remain. Of course, the owner should continue to occupy the home or have the intent to return to the home. Some appraisal districts require re-applying for the exemption if deeded into the trust.
A revocable trust should also include language that the homestead is still protected from creditors under Texas and federal laws.
Will Appraisal Districts Review Trusts More Frequently as a Result of Recent Property Tax Reductions?
Since appraisals districts may be receiving less property taxes as a result of recent state legislation approved by voters, it is anticipated that appraisal taxing districts will either increase property tax rates, increase the property value or review trusts to see if there is qualifying trust language or all three options. Since laws are different in each state, anyone who had a trust prepared in another state is unlikely to have qualifying trust language in the trust. Creditor protection language would also be unlikely if the trust was prepared in another state. Standard trusts often lack specific language required to keep the exemptions.
It is anticipated that there could be further property tax relief in the next legislative session in Texas. If so, review of trusts for qualifying trust language could be more prevalent.
Long Term Care Medicaid Issue:
Even if you have preserved the homestead property tax exemptions, if one applies for certain Medicaid programs (i.e. long-term care Medicaid which helps pay for care in a nursing home or at home) could be jeopardized. Generally, if one owns a homestead, then it is a non-countable resource. However, if deeded to a revocable trust, it would count as a resource, and Medicaid has resource limits for eligibility. As a result, enhanced life estate deeds (Ladybird deeds) are often used so the homestead (1) would not count as a resource; (2) would not be a penalized event for the transfer since the grantor retains control; (3) avoids Medicaid estate recovery for benefits advanced (the state goes after the home if it passes by will or intestacy); (4) avoids probate; and (5) has all the tax advantages as if it were not deeded.
Conclusion:
Any revocable living trust prepared by an out-of-state attorney or with an internet form should be reviewed to reduce risk of loss of the homestead property tax exemption. Furthermore, creditor protection language should be reviewed due to changes in the law.
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