The Disabled Veterans Exemption from Property Taxes
"The quality of mercy is not strain'd. It droppeth as a gentle rain from heaven upon the place beneath." William Shakespeare
But that the members of the State Tax Commission had garnered the benefits of a liberal education perhaps they would have interpreted the statute regarding the Disabled Veterans Exemption from property taxes a little bit more generously, or at least consistently more generously. In Bulletin 22 of 2013, the State Tax Commission opined in a Q&A format on the Disabled Veterans Exemption (MCL §211.7b). This section allows an honorably discharged totally and permanently disabled United States veteran that is a resident of Michigan to apply for and obtain on an annual basis an exemption from property taxes (but not special assessments) on the homestead that the veteran uses and owns. It also allows the unremarried surviving spouse of such veteran to obtain the exemption so long as he or she is using and owning such homestead property, again subject to the annual updating.
The statutory exemption seems like a generous public spirited acknowledgement of the value of the service of the disabled veteran and consolation to his or her surviving spouse. The issue that seems to have passed right over the heads of the State Tax Commission members is how do married couples generally hold title to their homestead? Not much head scratching needs to be engaged in to come up with the answer: as tenants by the entireties. Well surely you say a reasonable interpretation of the Legislature's intent in enacting the statute would lead you to believe that tenancy by the entireties ownership would be ok during the veteran's lifetime. Not so, according to the flinty eyed State Tax Commission. In their Q&As they posed the following: "My home is in a joint tenancy, am I eligible for the exemption?
No. A joint tenancy is a form of concurrent ownership wherein each co-tenancy owns an undivided share of property and the surviving co-tenant has the right to the whole estate. The Act does not provide for a partial exemption in the situation where you are a partial owner of a property."
Now, joint tenancy is very much like tenancy by the entireties. In fact, tenancy by the entireties is the joint tenancy for married couples. So this answer, unfortunate as it may be, appears to apply to tenants by the entireties. There is no Q&A specifically aimed at tenancy by the entireties. However, once the veteran dies and his or her spouse becomes the owner and continues to use the property as his or her homestead, the surviving spouse can apply for and should be granted the exemption. It is just the case that the veteran and his or her spouse, during the veteran's lifetime, is not entitled to the exemption. UNLESS the veteran has a diligent attorney who has read Bulletin 22 of 2013 and sees the following Q&A:
"My home is in a trust, am I eligible for the exemption?
That depends on the form of the trust. Any trust that shares ownership of the home with a party or parties other than the disabled veteran and their spouse would not be eligible for the exemption. The Act does not provide for a partial exemption in the situation where you are a partial owner of a property."
The answer is a bit obscure but what they seem to be saying by the first sentence of the answer: "That depends upon the form of the trust" is that some trusts are ok for obtaining eligibility for the exemption and some aren't. The second sentence says: "Any trust that shares ownership of the home with a party or parties other than the disabled veteran and their spouse would not be eligible for the exemption." I think this means that any trust that shares ownership of the home with the disabled veteran and [sic] their spouse would be eligible for the exemption. Why else mention this exception to what may be thought of as the general rule? Is this consistent with not allowing tenancy by the entireties ownership? No. But, it does suggest a way in which one can avoid probate and have ownership of the property in a trust, the beneficiaries of which are only the veteran and his or her spouse; and provide that upon the death of either one of them, the property will continue to be managed in the trust for the lifetime of the survivor. We draft trusts that look like this all the time. In the event that the spouse of the veteran remarries, he or she does not lose the ownership, he or she only loses the exemption. However, woe be it to the couple if the attorney that drafts the trust for them names the children of the parties as beneficiaries of the real estate portion of the trust as well as the veteran and his or her spouse. What little rain that gently falls from heaven will leave this homestead dry as a bone.