Spring is in the air, so what is that foul odor? Could it be the stench coming from your property tax reappraisal? It is true that death and taxes are inevitable, but property taxes are particularly inescapable. Somehow, someway, somebody is going to pay the property taxes on your house or other real estate.
Property taxes can hit the heirs or beneficiaries of an estate particularly hard. If the decedent owned their home, they benefited from at minimum a homestead exemption and maybe an additional age 65 exemption and a freeze on valuation for school taxes. Those exemptions are personal and do not pass to the heirs of the estate.
How the estate is impacted by the loss of these exemptions and value freezes depends on the timing of the decedent’s death. That is because we have a very strange tax cycle concerning ad valorem taxes. Taxes are assessed based on the condition and ownership of the property on January 1 of the tax year, valuations come out in May (as you are well aware), and tax statements come out in the fall being due on January 31 of the following year.
If the decedent dies early in the year, then the property is transferred to a new occupant who can claim homestead exemption, there will be no loss of the homestead exemption (although the over age 65 benefits may go away). In any event, the valuation freeze for the decedent will go away with the next tax year, even if the new owner is over 65. However, if the decedent dies later in the year, and probate takes some time causing the property not to be transferred to a new owner/occupant by January 1 of the following year, then for that next tax year, there is no homestead exemption. The new property tax bill can be shocking.
Although taxes are unavoidable, the two key things to do to minimize the risk of losing the homestead exemption is first to have a well-drafted Will so that probate is streamlined and prompt. Second, especially if a decedent dies in the latter half of the year, the executor of the estate must move promptly to probate the estate and attempt to transfer the property to a new owner/occupant before January 1 of the following year.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, specific tax, legal or accounting advice. We can only give specific advice upon consulting directly with you and reviewing your exact situation.
