Can I keep my homestead exemptions if I transfer my home to my trust?

Can I Keep My Homestead Exemptions If I Transfer My Home to a Revocable Living Trust?

In Texas, you can generally transfer your home into a revocable living trust and keep both your property tax homestead exemption and your homestead protection from creditors. The trust has to be drafted correctly so that it qualifies under Texas law.

The property tax exemption– lowers the taxable value of your residence (and unlocks additional benefits like the over-65 exemption).
Protection from creditors– this may keep most creditors from forcing a sale of your home.

These are related but governed by separate statutes, and each has its own requirements for trust-owned property. A properly drafted revocable living trust can satisfy both at once.

Keeping the Property Tax Exemption

Under Texas Tax Code § 11.13(j), your residence can still receive the homestead exemption even when it’s owned through a trust, as long as the trust is a “qualifying trust.”

To be a qualifying trust for property tax purposes, the trust agreement (or the will or court order that created it) must give you as the trustor or a beneficiary, the right to use and occupy the home as your principal residence, rent-free and without charge except for taxes and other costs, either:

for your lifetime,
for a stated term of years, or
until the trust is revoked or terminated.

In addition, the deed transferring your home into the trust must describe the property accurately and be recorded in the county’s real property records.

A well-drafted revocable living trust should meet these conditions because you typically serve as your own trustee and beneficiary while you’re living, and you continue to occupy and control your home exactly as you did before.

What About the Over-65, Disability, and Disabled Veteran Exemptions?

These exemptions are all layered on top of your residence homestead, and Texas defines a residence homestead to include a home owned “through a beneficial interest in a qualifying trust.” So when your trust qualifies and you continue to occupy the home as your principal residence, these benefits can carry over too.

That includes:

The disability exemption under Tax Code § 11.13 for homeowners who meet the statutory definition of disabled, along with the school-tax ceiling that comes with it.
The over-65 exemption and its accompanying tax ceiling, for the same reasons.
The 100% disabled veteran exemption under Tax Code § 11.131, which exempts the entire appraised value of the residence homestead of a veteran with a 100% service-connected disability rating (or a determination of individual unemployability). Because § 11.131 borrows its definition of “residence homestead” from § 11.13, a home held in a qualifying trust still counts.
Surviving spouse military exemptions, An unremarried surviving spouse of a 100% disabled veteran may be able to keep the total residence homestead exemption under Tax Code § 11.131 if the home was the veteran’s residence homestead at the time of death and remains the spouse’s homestead. Depending on the situation, the surviving spouse may be able to carry an equivalent exemption to a later home if the spouse moves and does not remarry. Likewise, under Tax Code § 11.22, the unremarried surviving spouse of a veteran who held a partial disabled veteran exemption may continue that exemption in the same amount the veteran had at the time of death.

A few points to keep in mind:

These exemptions are personal to the qualifying individual. The disabled, senior, or veteran homeowner generally needs to be the trustor or a beneficiary who occupies the home as a principal residence.
The partial disabled veteran exemption under Tax Code § 11.22 (for ratings below the 100% level) works a little differently and can be applied to one property the veteran owns, rather than being strictly tied to the homestead. If you rely on this exemption, the trust transfer should be reviewed to make sure it’s preserved.
As with the basic homestead exemption, you’ll want to re-file with the County Appraisal District after recording the deed into the trust and be ready to show both the qualifying trust provisions and proof of your qualifying status (such as your VA disability award letter).

Keeping Your Protection from Creditors

Keeping creditors from forcing a sale of your homestead, is preserved by Texas Property Code § 41.0021, often called the “Homestead in Qualifying Trust” statute. Under § 41.0021, a home that you occupy and in which you hold a beneficial interest through a qualifying trust is treated as your homestead.

The definition of a “qualifying trust” in the Property Code is worded a little differently from the definition in the Tax Code. That’s why the goal is a trust drafted to satisfy both statutes.

Re-filing Applications for Homestead Exemptions

Transferring your home into the trust is only half the job. After the deed is recorded, you generally need to re-file your homestead exemption application with your county appraisal district so their records reflect the trust as the owner. The appraisal district will usually want to see a copy of the trust (a Trust Certificate with the qualifying trust language may be acceptable depending on the appraisal district) and confirm that you still occupy the home as your principal residence. Keeping your driver’s license or state ID address matched to the property address helps this go smoothly.

A Few Related Questions

Will my mortgage lender call the loan due? Usually not. A federal law, the Garn-St. Germain Act, generally prevents your lender from accelerating your mortgage when you transfer your home into a revocable living trust in which you remain a beneficiary and continue to live there. However, some mortgage lenders want notification of the intent to transfer the home to a trust before you record the deed.

Does this change my property taxes or who can reach my home? Each situation may vary, however, when the trust qualifies, you generally keep the same exemptions and the same protections you have now.

Conclusion

In many cases, putting your Texas home in a revocable living trust does not mean giving up your homestead exemptions. The benefits can be preserved as long as the trust is a qualifying trust under Texas Tax Code § 11.13(j) and Texas Property Code § 41.0021, the deed is properly drafted and recorded, and you re-file your exemption with the appraisal district afterward.