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Having Cake and Eating It Too: Keeping Your Homestead Exemption with Your Irrevocable Trust


This is a mid-process update on an unfolding issue.


A significant part of our practice involves helping clients protect assets in case of long-term care, allowing them to qualify for Medicaid without losing their savings and property. Often times, that includes creating a specific type of irrevocable trust and transferring ownership of their residence, among other things, to this trust.


From time to time, but not always, transferring the residence to the trust triggers a county tax assessor to do two things: 1) remove the homestead exemption and 2) reassess (increase) the value of the property, each of which in turn increases our clients' property taxes.


In Oklahoma, the county assessor takes these actions in reliance on an opinion written by Attorney General Larry Derryberry (his real name) in 1971. (It's Opinion No. 71-133, in case you really want to look it up.) The AG's letter makes it explicit that a residence placed in a revocable living trust can qualify for a homestead exemption, but it also implies that a residence owned by an irrevocable trust cannot qualify for the exemption. Seems pretty black and white on the surface.


We are currently in the process of working with a member of the Oklahoma House of Representatives to get clarification on this nearly 50-year-old opinion. Through the Representative, we have submitted a new question to the current Attorney General, and we have been in communication with county tax assessors to reconsider their decisions on behalf of the few clients who have been negatively affected by the assessor's (wrong) interpretation of the law.


Our primary argument, for our clients, is that an assessor should actually read the trust before making this determination. It is possible to draft an irrevocable trust that keeps all of the necessary uses, benefits, and powers with the homeowner-grantor necessary to meet the qualifications for a homestead exemption. In other words, the trust's irrevocability is not the one and only factor that should be considered.


We will keep you updated on this issue as it unfolds. We are confident we will be successful for our clients.


In the meantime, we tell our clients that IF an assessor wrongly removes the homestead exemption, temporarily or permanently, you are still better off in the long run, as the increase in property taxes will still be far less than the total loss of the property in a Medicaid spend-down. So there's that.


Here's the stuff we always put at the end: If you want to know more, we would love to talk with you about it. Best part, the conversation about how it could benefit you doesn't cost anything. Call us at (918) 770-8940 or send an email to firm@tallgrassestateplanning.com to set up a free consultation.

Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. It is always best to speak with an attorney about your questions, assets, concerns, and needs.

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