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
Since 2013 Michigan has provided an exemption from property taxes to homestead property owned by a disabled veteran. (Michigan Compiled Laws, §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 annual updating.
The State Tax Commission, a division of the Department of Treasury, has issued several publications in Q&A form explaining how this exemption is to be allowed. Originally the State Tax Commission published its Bulletin 22 of 2013, in which it concluded that a homestead owned by a disabled veteran as a joint tenant with others would not qualify. While not specifically addressing tenancy by the entireties, ownership by a veteran with his or her spouse, the comment certainly inferentially would be disqualifying the same since tenancy by the entireties is a form of joint tenancy and is the format in which married couples in Michigan own real property.
Bulletin 22 also addressed the question of ownership of a homestead by the veteran in a trust:
"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 [sic] 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 [sic] 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 his or her spouse would be eligible for the exemption. Why else mention this exception to what may be thought of as the general rule regarding trusts and their disqualification?
In February of this year, 2018, the State Tax Commission published "MCL 211.7b Disabled Veterans Exemption - - Frequently Asked Questions." No mention is made of Bulletin 22 of 2013 and for that matter, Bulletin 22 stills shows up on the State Tax Commission's website in its original form. One would think that it would have been withdrawn in light of the publication of this later FAQ document which entirely supplants it in terms of the various issues raised and disposed of. The FAQ takes a more liberal view regarding joint tenancies and now the position of the State Tax Commission is as follows:
"If my home is in a joint tenancy or there are other co-owners, am I eligible for the exemptions.
No. A joint tenancy is a form of concurrent ownership wherein each co-tenant owns an undivided share of property and the surviving co-tenant has the right to the whole estate. A co-ownership is a fractional ownership interest, with part ownership held by others. The Act does not provide for a partial exemption in the situation where you are a partial owner of a property. Ownership of the homestead by the disabled veteran with his or her spouse, as tenants by the entireties, is not disqualifying, however." (our emphasis)
Regarding trusts, the unfortunate language of the earlier Bulletin 22 was cleaned up in the FAQ and the response now reads as follows:
"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 (provides that there are additional current beneficiaries) other than the disabled veteran (and/or his or her spouse or unremarried surviving spouse) would not be eligible for the exemption. The Act does not provide for a partial exemption in the situation where the veteran or unremarried surviving spouse are only a partial owner of a property."
Aside from the apparent confusion over what it means to be an "owner," be it full or only partial, and what it means to be the beneficiary of a trust, we think that what the State Tax Commission is getting at is a declaration that if the disabled veteran and his or her spouse are the only beneficiaries of the trust, it is ok. If the trust has other beneficiaries as to this property, then it is not ok and it will be disqualified. Those other current beneficiaries could be the children of the veteran or his or her in-laws or siblings.
Bulletin 22 of 2013 contains a Q&A regarding life estates as follows:
"My mother's home is in a life estate and I will receive the home upon her death. I live in the home with her now and pay the property taxes. Am I eligible for the exemption?
No. Your mother is the owner of the home; therefore you are not eligible for the exemption."
Hence it is not surprising that the 2018 FAQ expands on this notion as follows:
"If I have a life estate, life lease "lady bird" life interest in my residence and the remainder interest is held by others, can my property qualify as my homestead?
Yes. If the other requirements for receiving the exemption are satisfied, then property occupied under a life estate, life lease or "lady bird" life interest can qualify as the disabled veteran's or unremarried surviving spouse's homestead."
What is interesting about these rules is that while the State Tax Commission will not approve exemptions for partial ownership as in what it assumes is fractional ownership by joint tenants the State Tax Commission seems to have no problem at all in viewing the life tenant as being the owner of the home, apparently whether the life tenant pays the taxes or not. Now arguably a life tenant under a lady bird deed with the full right to convey the property would be logically considered the owner since the life tenant really "owns" all the rights to use and dispose of the property. But a mere life tenant or a life lease holder is certainly, under usual concepts of real property law, not an owner of it, or at best is the owner of only a partial interest: To-wit: the right to occupy during his or her lifetime. I guess we can be thankful for small blessings but still "parts is parts."