Missing Homestead Exemptions Is Costly

So you bought a new home or you transferred your home into a living trust. BUT...did you update your homestead exemption? This is crucial to do.

Why? Because it will save you a bunch of money on property taxes. There are no state property taxes, but there are local property taxes for local government for schools, roads, police, emergency services, libraries, parks and other types of local services. Your property gets appraised by your local appraisal district. You can even protest your property valuation (future blog coming soon on this one). Don't confuse a property tax protest with a homestead exemption.

You must have lived in your house on January 1st in order to qualify for the exemption. There's a filing deadline to claim the homestead exemption, but the deadlines appear to be somewhat soft in some situations, so contact your local appraisal district for their guidelines. For example, I recently saw a deadline notice that offered a different deadline date than one that was published from another source, and it even suggested that you have a few years to file in arrears. While speaking with a representative, it appeared that a late filed homestead exemption may even qualify for retroactive overpaid property taxes for some period of time, perhaps 2 years or so.

Property tax exemptions can be small or huge depending on where you live. In my particular county and district, I'm entitled to a 20% reduction from 3 of my 5 taxing units, plus another $25,000 reduction for local school district. We are talking many thousands of dollars in savings.

Each district seems to vary somewhat, and there are some state guidelines and parameters, but for someone age 65 in MY district, local school property taxes get frozen with this exemption. Frozen in the sense that the dollar amount cannot increase, and there's the possibility of even transferring it to your next residence if you move. The Freeze could be affected by improvements that you do to the property, so beware of that and speak with your appraisal district or your CPA.

There are also exemptions available for veterans, disabled persons, and even for solar and wind-powered energy devices. So do your homework in coordination with your local appraisal district to make sure that you have all the homestead exemptions that you're entitle to claim.

Lastly, if you transferred your home to your Trust (such as a Revocable Living Trust), then make sure to do a few things. Here are some suggestions:

  1. Ask your lender to confirm in writing that transferring your property to an inter vivos revocable living trust will NOT affect the due-on-sale clause or cause acceleration of the loan.

  2. Below is the US Code that provides for this. Also, here is a link: http://law.justia.com/codes/us/2012/title-12/chapter-13/section-1701j-3

  3. For Fannie Mae, here is a link in case they still question the transfer: https://www.fanniemae.com/content/guide/selling/b2/2/05.html

  4. Sign the new Warranty Deed that transfers ownership from you to your Revocable Living Trust in front of a notary.

  5. Mail the Warranty Deed to the County Clerk where the property is located with a proper check included.

  6. Wait to receive it back from the county after it's recorded. Typically this takes 2-4 weeks for many counties.

  7. You need to file a new homestead exemption form. Currently that appears to be Form 50-114. https://www.comptroller.texas.gov/forms/50-114.pdf Fill this out and email or mail it to your local appraisal district, ALONG WITH a copy of your “Certificate of Trust” that is often about a 4 page document. Some counties offer online forms such as the Travis County Online Homestead Application https://www.traviscad.org/eservices/

  8. Contact your home insurance provider to add the Trust and/or Trustees as additional insureds under the policy to make sure that coverage will continue seamlessly and fully. Tell your home insurance agent what you did, and ask them if you need to add or change the names of any covered beneficiaries/insureds. Most likely they will update your policy to reflect the ownership change.

  9. Contact your title policy issuer to notify them of such change, as some title insurance companies will want to amend the policy in some fashion, with perhaps an addendum.

  10. Then store the original in a nice safe place. Many people prefer a fire proof safe in your house. We typically recommend NOT storing important documents in a safety deposit box because those are difficult for your successor trustees, executors, agents to get access to without court approval.

The estate planning attorneys at Mike Massey Law would be honored to speak with you regarding your living trust, last will & testament, powers of attorney, probate situation, or other estate related needs. You can book a free phone consult with the Texas estate planning attorneys at Mike Massey Law here: https://www.mytxwills.com/book-a-meeting

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Mike Massey JD, MBA, MPA just might be the 195th most interesting person in Texas. He has 4 college degrees and he's working on a 5th:  BBS Accounting; MPA Master's in Professional Accounting; JD Law Degree; MBA Master's in Business Administration; BBS in Biblical Studies (in progress).

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