Housing
Ownership
Terms
State Property Tax Assessment Assitance
Homestead Tax Credit
Property Tax Exemption
Property Tax Deferrals
Summer Property Tax Deferral
Special Assessment
For many people, owning a home is the biggest single source of wealth (and security) they have. As women become older, especially those whose spouse has recently died, they receive a lot of unsolicited advice on what they should do to "protect" this asset. This includes advice to avoid probate by adding children to the home's title, and other similar schemes. To protect yourself and make a smart decision on what is best for your unique situation, you first need to clearly understand the legal terms related to owning real estate and the different impact these legal words have on your wealth and independence.
Terms
Most married couples own real estate as "tenants by the entireties."Legally this means you both have an undividable ownership interest in the same piece of property. To sell, you both must agree to the sale and sign over the deed. One can't act without the other. This gives you slightly better protection against debt collectors than other owners have. Under tenancy by the entireties ownership, a husband or wife's creditor has much less chance to be repaid on a debt if the creditor goes to court and gets a lien placed on the home. Michigan law holds that such a lien may not be foreclosed upon until the death of the other entirety tenant.
With tenancy by the entireties, there is always a right of survivorship between the spouses. This means that if a home is owned as "John and Mary Doe, husband and wife as tenants by the entireties" and John dies then Mary automatically owns the home by herself, by the right of survivorship. She does not have to go to probate, nor does she have to get the deed changed at the Register of Deeds office. At some time a certified copy of John's death certificate will need to be filed with the Register of Deeds, so there is public notice that she is the survivor. She can then sell, lease, or get a loan on the property on her own. Many widows have heard (wrongly) that they must "do something” with the deed after their husband's death. If the couple owned the property as tenants by the entireties, filing the death certificate is the most that is required because of the right of survivorship; if no sale or loan is planned, filing the death certificate is not necessary. To learn exactly how you own your real estate, look at your deed and see how the buyers (often called grantees) are listed at the top. If the language looks like John and Mary above, i.e. had the words "husband and wife," you own as tenants by the entireties.
Another form of ownership of real estate is, "joint tenancy with full rights of survivorship." If your deed states you and another person are the buyers (grantees in deed talk) as "joint tenants with full rights of survivorship" this is the category of ownership you fit within. Note: some deeds abbreviate this as "joint tenants w.f.r.s."
The rules of joint tenancy are much like tenancy by the entireties, although you do not have to be married to the other owner to use joint tenancy. Two sisters can be joint tenants and often are when they inherit property together. With joint tenancy there is also a right of survivorship on the death of one owner. The remaining owner(s) automatically own the property without probate or new deeds.
There is also some protection from debt collection against the property for the debts of just one of the owners. Although a court lien can be placed against the property, it can't be foreclosed easily. Both joint tenants have an equal legal right to enter on the property and use it. This is sometimes a problem for widows who invite their grandchild to live with them and add them to the deed as a joint tenant. If the living arrangement doesn't work out, not only is the widow unable to change the deed back without the grandchild agreeing to sign off, but she can't evict the grandchild who has an equal right to live in the home as a joint owner.
The practical impact of these legal rules sometimes cause greatly unexpected problems for widows who "add" their children to the deed as joint owners. As an example, after John's death, Mary went to the lawyer to have a new deed prepared. She had heard it is always best to avoid probate, so she added her son as joint owner with full rights of survivorship, so he would be the sole owner automatically on her death. Five years later, her son's construction business failed, leaving significant debts. The son's creditors, after going to court and getting a court order, placed a lien against Mary's home, because the son was a joint owner and it is a potential asset for him, if he survives Mary.
While it is highly unlikely that the court would permit the son's creditor to foreclose on this lien while Mary is living, the recorded lien will limit Mary's ability to get a home equity loan, or a reverse mortgage. If she wants to sell and move to a smaller home in a few years, she is going to have to prove to the son's creditors why they aren't entitled to half of the money when she sells the property.
A third type of legal ownership of real property is "tenants in common." The most significant difference between tenants in common and the two ownership forms described above are that there is no right of survivorship for tenants in common. If two sisters own property as tenants in common, when one dies, her half of the property will go to her heirs through probate, under the direction of her will. The property does not go automatically to her surviving sister.
Another legal difference with tenants in common ownership is that one part owner can sell her share without the consent or signing of the other owners. Although as a practical matter, it is not easy to find a buyer who wants to buy a partial share of real estate. It is possible however, to go to court and force a sale of the realty by a legal action called partition.
In Michigan, a tenant in common is the default form of legal ownership. If the deed doesn't use any of the special words to indicate tenancy by the entireties or joint tenancy was intended, then the owners will own as tenants in common. For example, "to grantees, John and Bill Doe" on the deed would mean these brothers own as tenants in common. Thus, when having a deed prepared, it is important that the preparer be told exactly how the person wants to own the property. Since the words in a deed are so important it’s best to have it prepared by a lawyer.
All of the above forms of legal ownership describe two or more owners at the same time. There is another way to divide ownership of real estate, and that is with a life estate or life lease. Under a life estate, the owner of the property either gives or sells the future ownership of the property and keeps the current right to use the home. Another variation is to do the opposite, keep the future interest, but give another person the current ownership for their lifetime. The event that will switch ownership is set out in the deed. Usually it is the death of one person.
Common uses of life estates are:
- In second marriages, when the spouse who owned the home originally adds the new wife or husband to the deed as a life estate holder, and the future interest goes to the children from the first marriage. In this case, if the husband dies before the second wife, she owns the home while she lives, but she cannot pass it on to her heirs.
- An unmarried woman who wants to leave her home to her sister, but also wants to have sole control of the property during her lifetime. In this case, keeping a life estate interest and giving or selling the future interest to her sister means the sister's ability to have control of how the property is used or if it should be sold, would not begin until the widow's death.
One odd characteristic of life estates is that either owner can sell their portion without the consent of the other, but the sale only effects that owner's share or interest. For example, the woman could choose to sell the house, and if her sister didn't also agree to the sale, the buyer would only be getting the ownership and use during the woman's lifetime. On her death, the property would still go to the future interest holder -- the sister. For this reason, as a practical matter, it is difficult to sell the life estate without the future interest too. If both are sold together, the buyer has full ownership; the two interests in the property are joined back together. Other problems, like which owner is responsible for repairs, can occur. If you are thinking about a life lease you should talk to a lawyer with experience in this area and proceed cautiously.
State Property Tax and Assessment Assistance
While home ownership is often the biggest source of wealth for older women, it can also cause the biggest drain on fixed income. There are some special state policies to help older and/or disabled property owners faced with a big property tax or special assessment for public improvements.
[Back to Top]Homestead Property Tax Credit
Depending upon your income, and the amount of property tax you pay, you may be eligible for the Homestead Property Tax Credit. If you are 65 or older, you are in a special category that can increase the amount of the credit you can claim. Renters who pay a portion of the rent for property taxes are also able to apply for this credit. The amount of the credit depends on how high your property taxes are, and on how low your annual income is. Generally, the higher the taxes and the lower the income, the more of a credit you can receive. The maximum amount available is $1,200 per year.
The Homestead Tax Credit is filed with your state income tax forms. If you don't earn enough income to file state income tax forms, there is also a single form (1040CR) for applying for the Homestead Tax Credit alone. If you would have qualified for the Homestead credit in past years, but didn't know or didn't file, you can apply for it retroactively. Under Michigan law you can request the credit for up to four years' past credits if you qualified for the credit in those years but didn't receive it.
Seniors usually can get help with obtaining and filling out the Homestead Tax Credit form from the local Senior Center. AARP also offers free tax return preparation at many local sites around the state. Call the AARP number listed in the Resource section of this website to find a site nearest you.
Property Tax Exemption
If your annual income is very low, you can receive an "indigent" exemption from owing property taxes in that year. To receive the exemption, a homeowner must apply for it at the local taxing authority (usually the Tax Board for the local county). The exemption must be applied for each year, after January 1, and before the last day the tax board of review meets, which is usually in March.
To qualify for the exemption, the homeowner must provide proof of total household income and assets, and proof of ownership of the property. The household income test is likely to be the yearly federal poverty guidelines, although the local authority can choose to use a higher amount. Federal poverty guidelines change each year, and are set according to the number of people in the household. As an example, the federal poverty guideline for 2006, for a household of 1 is $9,800 and for 2 is $1,320.
Property Tax Deferrals
There are two tax deferrals that can assist an older homeowner: the summer property tax deferral and the special assessment deferral. Tax deferrals are not the same as exemptions. With an exemption, the year's taxes are excused completely. With a deferral the taxpayer doesn't have to pay immediately, but will have to pay up some day.
The Summer Property Tax Deferral
Under Michigan law, persons who are age 62 or older, or who are the widow of someone age 62 or older, and in the prior tax year had total household income of $35,000 or less, can apply to defer paying their summer taxes.
To use the deferral, a request must be filed by September 15th or when local summer taxes are due, whichever is later. Usually, the local township or tax board has a short form available that you can fill out.
If the request is approved, the summer taxes do not need to be paid until the following February 15th. This delay is useful for seniors who need the Homestead Tax Credit to pay their taxes. The credit can be filed and the check from the state cashed before the taxes are due.
Special Assessments
A second deferment that is available to seniors, age 65 or older, is for special assessments. These are assessments charged for public improvements to the land, such as sewers, drains, paving the road, or new sidewalks.
Under Michigan law, a homestead owner age 65 or older can defer payment of a special assessment until one year after the owner's death. This allows the bill to be paid out of the estate or after sale of the home if that needs to take place.
To qualify for this deferment, all the following must be true:
- The owner is a resident of Michigan for five or more years.
- It is the homestead. This means it is the owner's home, not vacation property or rental property. If the use of the property later changes to rental, the deferral ends.
- The property is solely owned by the senior, or senior and spouse. A surviving spouse can continue to use the deferment so long as she or he doesn't remarry. Property jointly owned with a child will not qualify unless the child is also a senior and resides in the home.
- The special assessment is at least $300.
- The request for the deferment is filed within 30 days after the special assessment's due date.
The senior's income is low enough to qualify for the deferment. The amount is adjusted each year according to the Consumer Price Index (for 2006 the income must be below $19,584).
