Back to Blog Home

Disabled Veteran’s Property Tax Exemption Complicates Revocable Trust Planning

What does it mean to “own” something?  Owning something means different things to different people.  Owning something suggests a sense of full control over something.  It also implies being able to enjoy the benefits of it and be responsible for […]


Disabled Veterans Tax ExemptionWhat does it mean to “own” something?  Owning something means different things to different people.  Owning something suggests a sense of full control over something.  It also implies being able to enjoy the benefits of it and be responsible for something, together with the consequences or damages to it or by it.  Recently, however, the Court of Appeals in The Joanne L. Evangelista Revocable Trust v City of Farmington Hills, Court of Appeals (Dkt. No. 334263 issued November 14, 2017), examined what it means for a veteran to “own” their home for purposes of a property tax exemption.

Michigan allows a generous 100% property tax exemption for disabled veterans who meet a handful of requirements, including that they “own” their home. Michael Evangelista served in the United States Army during Vietnam and was honorably discharged in 1971.  The Veterans Administration rated Michael 100% disabled. Both Michael and his wife lived at their home in Farmington Hills, Michigan. The legal title to their property was held by his wife’s revocable trust.

The Court in Evangelista reasoned that the disabled veteran’s exemption requires that the property in question be “owned and used as a homestead” by the disabled veteran. A homestead (re: principal residence) must be owned and occupied by an owner. An “owner” is the holder of legal title, or if a land contract is in place, by the most recent land contract vendee/buyer (embracing the concept that an “owner” in this situation is the one who enjoys all of the benefits and is responsible for the burdens of ownership without naked legal title). There was no dispute in this case that the trust, not Michael, held legal title to the property. The Court ruled that because Michael was not an “owner” of the property, he was not entitled to the exemption.

The appeals court also rejected the veteran’s claim that he was an equitable co-owner of the property by virtue of his marriage to his wife (who he contended “owns” the property through her trust). Having conveyed his complete interest in the property to the trust in 1998, and the trustee having the sole ability to convey or dispose of trust property, the appeals court said it was difficult to see what interest the veteran possessed in the property, equitable or otherwise. The appeals court also said that to the extent the State Tax Commission’s Transfer of Ownership Guidelines imply that the ownership requirement can be satisfied by the situation where a disabled veteran holds no legal title and is at most a contingent future beneficiary of the trust that holds title, such an implication is contrary to the plain language of the statute.

Transferring property to a revocable trust has a number of advantages for elderly and disabled couples. For example, as couples age, become ill and unable to properly manage their finances and property, a spouse can remain as trustee or another trustee can be selected to manage and protect their home and other assets. Revocable trusts give couples these benefits as well as the benefit of avoiding probate of the home.

Given the value of the property tax exemption for disabled veterans, they and their advisors should carefully consider how the title to the veteran’s principal residence should be held for estate planning purposes and eligibility to claim Michigan’s generous property tax exemption.

 


Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or pmccord@fraserlawfirm.com.

 

 

Teahan, Marlaine

Chair of Fraser Trebilcock’s Trusts and Estates Department, attorney Marlaine C. Teahan is a Fellow of the American College of Trust and Estate Counsel, and is the Chair of the Probate and Estate Planning Section of the State Bar of Michigan. For help with revocable trust planning or to answer any questions regarding this recent case, contact Marlaine  at 517-377-0869 or mteahan@fraserlawfirm.com.