Transferring a dwelling to a Trust and its effect on eligibility for the Homestead Tax Credit, Homeowner’s Tax Credit, and Semi-Annual Property Tax Payment Programs.
A question arises about the continued eligibility of a person for a homestead tax credit, a homeowners’ tax credit or the semi-annual property tax payment program if the dwelling is transferred to a trust. A trust is a right of property, real or personal, held by one person (the trustee) for the benefit of another (the beneficiary).
The typical transfer scenario involving a dwelling and a trust is as follows. John Doe owns (fee simple interest) and occupies a dwelling as his principal residence, and receives an ”H” designation, which qualifies his dwelling for the homestead, homeowner’s tax credits, and the semi-annual property tax payment program.
John Doe transfers the dwelling to a trust by filing a deed in the land records transferring the property to the John Doe Trust, with a named person or entity as trustee. The trustee is responsible for administering the terms of the trust for the beneficiary of the trust. John Doe himself or another person may be the trustee of the trust. The trust document often provides that the person who created the trust, John Doe, may revoke the trust at any time. This is called a revocable trust, and it permits John Doe to cancel the trust and transfer the property back to John Doe in fee simple, just like it was prior to the dwelling being conveyed to the trust. The trust document (a written multi-page document) typically provides that the trustee holds the property for the benefit of John Doe for his lifetime. This means that John Doe has a life estate. A life estate holder is eligible for the credit and semi-annual tax programs.
An example of the language of a deed conveying a dwelling to a trust is as follows:
“This Deed, made this 15th day of August, 2001, by and between Bertha Kane (referred to herein as “Grantor”), of Washington County, Maryland, and Bertha Kane, Trustee under the Bertha Kane Revocable Trust (referred to as “Grantee”) . . . . the Grantor does hereby grant unto the said Grantee, its heirs and assigns, the following property, . . . . 127 King Street, Hagerstown, Maryland. . . . . To have and to hold the above property unto the Grantee, its heirs and assigns, forever in fee simple.”
The evidence that the dwelling has been transferred to a trust is the deed. The trust document itself, which sets forth the name of the beneficiary and the nature of his\her interest in the trust assets (the dwelling and other items) is not recorded. The only way to know for sure if the beneficiary has a life estate in the dwelling is to review the trust agreement.
We have reviewed many trust agreements, particularly the revocable ones. Generally, where the grantor and trustee in the deed transferring the dwelling to the trust are the same, the trust document provides a life estate in the dwelling for the beneficiary. Thus, the grantor, trustee and beneficiary are all the same person. Thus, if the deed shows that the grantor and trustee are the same, person, you should give the dwelling an “H” designation.
For a transfer to a trust by deed that does not have the same person as grantor and trustee, the transfer section of the local assessment office should send a letter to the grantor as follows:
“Dear Property Owner:
To determine if a dwelling that has been transferred to a trust may continue to qualify for the homestead tax credit, homeowners’ tax credit and semi-annual property tax payment programs, the Department will need a copy of the pages from the trust that: 1) identify the trustee and beneficiary; 2) indicate whether the trust is revocable or irrevocable; and 3) set forth the type of interest the beneficiary has in the dwelling as a trust asset, e.g., for the beneficiary’s lifetime, for a period of years, etc. Please also provide the name of the person occupying the dwelling and a daytime phone number for that person.”
After you obtain the information specified in the above paragraph, you should call the Attorney General’s Office for advice on whether the dwelling is still eligible for the tax credit and semi-annual property tax payment programs.
- The name of the trust does not have to be the same as the grantor.
- In the trust document, John Doe, who creates the trust, may be referred to as the grantor, maker or settlor of the trust
