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Volume 9 - Opinions of Counsel SBEA No. 83

Opinions of Counsel index

Assessment roll (designation of owner) (trust); veterans and alternative veterans exemptions (ownership) (trust); senior citizens exemption (ownership) (trust) - Real Property Tax Law, §§ 458,458-a, 467, 502:

Property which has been transferred to a trust is legally owned by the trustees, unless the grantor reserved a life estate in the property. Where no life estate is involved, trust property must be assessed in the name of the trustees, and its eligibility for tax exempt status must be based upon the eligibility of the trustees.

With increasing frequency, assessors are facing decisions involving “inter vivos” trusts (widely known as “living trusts” {1}). In a common scenario, an individual, who is in or near retirement, creates a trust, naming him or herself and one or more children as trustees, and conveys his or her home to the trust. The growing popularity of these types of arrangements is apparently due to their usefulness in the contexts of tax and estate planning, protecting assets for Medicaid purposes, and avoiding probate. It seems less widely recognized, however, that these trusts may also have significant implications for purposes of real property tax administration.

We are often asked how property which has been conveyed to such a trust should be assessed and, in particular, whether the property remains eligible for the veterans or senior citizens exemptions (RPTL, §§ 458, 458-a, 467). The answer depends upon several factors, primarily (1) whether the grantor retained a life estate in the property, (2) the identity of the trustee (or trustees), and (3) which exemption is involved.

When property is conveyed to a trust, the trustee must be considered the owner of the property (Estates, Powers and Trusts Law (EPTL), § 7-2. 1(a)). Thus, when such a conveyance has occurred, the eligibility of the property for exemption is to be determined on the basis of the trustee’s eligibility (3 Op.Counsel SBEA No. 91, 4 id. No. 96, 9 id. No. 52). This is true even if the trust is revocable (see, EPTL, § 7-1.9(a)), because a power of revocation in a trust does not affect the passing of legal title to the trustee (Van Cott v. Prentice, 104 N.Y. 45,10 N.E. 257 (1887); Schreyer v. Schreyer, 101 App. Div. 456, 91 N.Y.S. 1065 (1st Dept., 1905), aff’d, 182 N.Y. 555, 75 N.E. 1134 (1905)).

A transfer of title to a trustee is not effective immediately, however, if the grantor reserves a life estate in the property. By doing so, the grantor remains the legal owner of the property for the duration of his or her life, and so the transfer would not affect the exempt status of the property (9 Op.Counsel SBEA Nos. 41, 52). This is not to say that all grantors should reserve life estates in trust property, for doing so may not be in every grantor’s interests. {2}  A grantor’s attorney is in the best position to offer advice in this regard. Nonetheless, when a grantor conveys property to a trust in fee simple (i.e., without reserving a life estate), the legal ownership of that property is passed to the trustee, and the property must be assessed on that basis.

As a result, if property has been transferred to a trust in fee simple, and the property had been exempt from taxation prior to the transfer, the exempt status of the property must be reconsidered on the basis of the new ownership. In many cases, such as when no trustee is eligible for the exemption, the exemption will have to be discontinued. In some cases, however, the exemption may be continued despite the transfer. For example, if each trustee is an eligible owner in his or her own right (e.g., if the trustees of the trust are the original owners or the original owner and his or her spouse), the conveyance to the trust will not affect the exempt status of the property (RPTL, §§ 458(2), 458-a(1)(c), 467(1)(a)).

The situation is more complex in the case of a trust with multiple trustees, one or more of whom satisfy the eligibility requirements, and one or more of whom do not. In the case of either veterans exemption, a transfer to such a trust would not affect the taxable status of the property. This is so because, when there is more than one trustee, the trustees hold title as joint tenants (EPTL, § 6-2.2(d)). A joint tenant is considered to be the owner of the entire parcel, subject only to the right of survivorship of the other joint tenants (In re McKelway’s Estate, 221 N.Y. 15, 116 N.E. 348 (1917); In re Cotter’s Will, 159 Misc. 324, 287 N.Y.S. 670 (Surr. Ct., Kings Co. 1936); In re Larch’s Estate, 33 N.Y.S.2d 157 (Surr. Ct., Queens Co. 1941)). Thus, even when an eligible veteran is but one of several trustees, the veteran must be deemed to own the entire property for exemption purposes (4 Op.Counsel SBEA No. 66; 5 id. No. 72). The fact that one or more of the other trustees are not veterans or other eligible owners would not adversely affect the exemption. {3}

In the case of the senior citizens exemption, a different analysis applies, for all of the owners must be over 65 years of age, except for a spouse or sibling of an eligible owner (RPTL, § 467(1)(a)). Thus, for example, if the trustees are the original owners and one or more of their children, as is common, the exemption would be lost, unless each of the children-trustees is over 65 years of age. Of course, each child-trustee would also have to satisfy the other applicable requirements (i.e., residency and income) as well.

Thus, if property receiving the veterans exemption is transferred in fee simple to a trust which has no trustees eligible for the exemption, or if property receiving the senior citizens exemption is transferred in fee simple to a trust which has even one trustee who is ineligible for the exemption, the exemption must be discontinued. If a settlor wishes to convey property to such a trust without losing the exemption, the settlor should consult with his or her attorney about the possibility of reserving a life estate in the property and conveying only the remainder interest to the trust.

February 26, 1993

NOTE:  Construes law prior to L.1995, chs. 377, 378. See also Opinion 10-25.

{1}  We have seen such trusts referred to as “living wills” on occasion, but that terminology should be avoided in this context for the same words are also used to refer to “health care proxies.” A health care proxy is a document by which a person may leave general instructions concerning his or her medical care in the event that he or she becomes incapacitated (see, Public Health Law, Article 29-C).

{2}  For example, in the case of a “Medicaid trust” (i.e., a trust established to protect the assets of someone who expects to seek Medicaid coverage of nursing home expenses), we understand that transfers to such trusts must occur at least 30 months prior to institutionalization in order for the transferred resources to be excluded from consideration (42 U.S.C. § 1396p(c); Social Services Law, § 366(5)). We presume that a conveyance of real properly to a trust subject to a life estate would not be considered a transfer for this purpose, in which case the trust would not accomplish its intended purpose.

{3}  Note that if property is owned by two or more persons as tenants in common, and at least one but not all of the owners are eligible for the veterans exemption, the exemption must be apportioned according to their respective interests (1 Op.Counsel SBEA No. 54). The reason this is not true for trustees is that, as noted above in the text, trustees necessarily own as joint tenants.