In Texas, homeowners over the age of 65 can benefit from significant property tax exemptions, which can offer substantial financial relief. Understandably, some families consider transferring property ownership to an elderly parent to take advantage of these exemptions. However, this approach comes with potential risks and complications that must be carefully navigated. Here’s what you need to know about using an elderly parent to lower property taxes and the strategies to ensure that your property remains secure.
The Over-65 Property Tax Exemption
Texas law provides an additional homestead exemption for homeowners who are 65 years or older. This exemption reduces the taxable value of their home, thereby lowering their property tax burden. For many families, this presents an opportunity to reduce overall property taxes by transferring ownership of the family home to an elderly parent.
Potential Risks of Transferring Property to an Elderly Parent
While the idea of transferring property ownership to an elderly parent might seem beneficial, there are several risks associated with this strategy:
- Loss of Ownership Control: Once the property is transferred, the original owner no longer has legal ownership. This means they lose control over the property, including decisions about selling or refinancing it.
- Inheritance Complications: If the elderly parent dies without a will, the property will be distributed according to Texas intestacy laws. This can result in the property being divided among all of the parent’s heirs, which might include siblings of the original owner. This could complicate ownership and potentially lead to disputes among family members.
- Medicaid Estate Recovery: If the elderly parent has received Medicaid benefits, the state may seek to recover costs from the estate after their death, which could include the value of the home.
Alternative Strategy: Using a Warranty Deed with a Transfer on Death Deed
To mitigate the risks of simply transferring ownership to an elderly parent, a more secure strategy involves the use of a warranty deed combined with a Transfer on Death Deed (TODD) or a Lady Bird Deed.
- Warranty Deed: The child transfers the property to the elderly parent through a warranty deed, granting them full ownership. This enables the parent to qualify for the over-65 property tax exemption.
- Transfer on Death Deed (TODD): The parent can then sign a TODD, designating the original owner (child) as the beneficiary. Upon the parent's death, the property automatically transfers back to the child, avoiding probate and ensuring that the property remains within the desired family member's control.
- Lady Bird Deed: Similar to a TODD, a Lady Bird Deed (also known as an Enhanced Life Estate Deed) allows the parent to retain control of the property during their lifetime while designating a beneficiary to receive the property upon their death. This deed also avoids probate and provides additional protection from Medicaid estate recovery.
Trusting the Process
For this strategy to work effectively, there must be a high level of trust between the child and the elderly parent. Since the parent will have full ownership, they technically have the legal right to revoke the TODD or Lady Bird Deed at any time. Therefore, this approach is best suited for families with strong, trusting relationships. While using an elderly parent's over-65 exemption can be an effective way to lower property taxes, it is not without its risks. As with any significant legal or financial decision, it's advisable to consult with an experienced real estate attorney who can guide you through the process and help you make the best choices for your unique situation.
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