How Protesting Your Property Taxes Protects Your Estate Plan

Key Takeaways:

• In Texas, protesting property taxes can both save you money and prevent costly tax implications for your estate when you pass.
• Seniors over the age of 65 may freeze or defer their property taxes, but the yearly appraisal can still increase the valuation.
• It is important to protest property taxes even if you have frozen or deferred the tax bill with the Over 65 Exemption because the valuation increases will go into effect upon your death and impact those you have designated to inherit the property.
• The appraised value of the property is sometimes used to determine the value of the estate; failure to protest property taxes could result in meeting or exceeding the estate tax threshold.
• Protesting your property taxes each year protects your estate and maximizes the inheritance you leave behind.

Each year county appraisal districts appraise our homes and land, and each year, we get a bill. Property taxes are a fact of life, not always a pleasant fact, but a fact nonetheless. In Texas, there is a process to protest the valuation used to calculate our property tax. For most, the primary reason to protest property taxes is straight-forward: it saves money. It can reduce the amount of taxes owed significantly. There is another, less-publicized but just as important reason to protest: protecting your estate plan.

We all want to pass the best we can to those we’ve selected to inherit, whether that’s our children or someone else. We save for retirement and care in our old age throughout our lives, and we think about how to invest and manage our assets to ensure that we maintain an estate that serves both our own needs and hopefully, preserves something for the loved ones we will leave behind. 

Saving Money by Freezing or Deferring Property Taxes

For many clients, the largest asset in the estate is unsurprisingly, their home and the land it sits on. The taxes are calculated based on the year’s appraisal for the current property tax bill, but that valuation, if accepted, becomes the starting point going forward. It doesn’t take a genius to recognize that property tax valuations, left unchecked, will continue to increase, especially as Ellis County and the DFW metroplex continue to grow. 

Texas law actually provides a relatively easy solution to this problem. Those aged 65 and above can file for an Over 65 Exemption. The exemption can significantly decrease the tax bill, and it does not require sacrificing the Homestead Exemption for the property you reside in. The Over 65 Exemption effectively freezes property taxes at a lower rate, creating a tax ceiling for seniors, or through the exemption, seniors can actually defer their property taxes. These are great options to leverage as you think about retirement and living the good life on a fixed income. Such solutions may make it a little easier to travel or contribute to a grandbaby’s college fund. However, they are not an excuse to ignore property tax valuation or avoid protesting your property tax altogether.

Why You Should Protest Property Taxes After Filing the Over 65 Exemption

Property tax valuation directly affects what your children or heirs inherit, and it pays to protest property taxes so that you maximize the equity in the home and property you pass down. The over 65 exemption is automatically cancelled at death, meaning the tax will be paid through the estate until the will is formally accepted by the court. At that point, taxes will be paid by the person inheriting the property or through the sale of the property. 

As Ben Franklin famously wrote, “Nothing is certain except death and taxes.” And he was right. The tax man will come to collect, even if that tax valuation has increased to ridiculous highs. Often, seniors with frozen or deferred taxes pay little attention to the property tax valuation. It doesn’t directly affect them anymore; they don’t have to pay based on that number. But if the property taxes shoot up, then the reality of what was intended to be inherited begins to change.

The tax bill and the trends created over the years with accepted valuation increases will have to be paid, either by the person intending to reside at the home or property or through the sale. While freezing the tax bill and failing to protest simply freezes the annual bill at its existing level, it does not freeze the underlying valuation, leaving the appraisal, the basis for taxation, to rise without affecting the tax payer’s annual bill until that tax payer dies. Upon their death, the new tax rate will be reset based on the increased valuation, which is considered accepted because no one protested.

Filing for a deferment can carry far steeper consequences. Deferring the tax bill functions almost like a reverse mortgage. It is effectively borrowing against the value of the property. The taxes are still accumulating, and in Texas, the accumulation also carries interest. Properties and homes with deferred taxes, then, include a large tax payment upfront to cover the taxes previously unpaid. 

Whether it's through a lack of protest or tax deferment, the increased valuation and accumulated tax bill will certainly impact the monetary value of the home and property when it eventually comes due at the end of the tax payer’s life. Paying the property tax would decrease, in some cases significantly, what your children gain from the home and property you leave behind when you pass, both through sale or even if they intended to live there. In some cases, the taxes are high enough that the property has to be sold because your child or inheritor couldn’t afford to pay the taxes required to live there. Unfortunately, I’ve seen that happen. In some cases, potential buyers are also forced to consider the property taxes and, especially in cases where the tax payer’s heirs are unable to pay the increased taxes, it may affect the sale value of the property.

Though these instances are by far the most common ways property tax can affect inheritance and estate planning, the appraisal and valuation used to calculate property taxes could further impact the estate.

Can Property Tax Valuations Impact the Estate Tax

Property tax valuations are often used as a baseline when the will is reviewed and accepted by the court system, so ignoring rising appraisals can influence, depending on your financial situation, whether or not the estate tax is owed. While we often hear horror stories about the estate tax, it isn’t triggered in Texas unless the estate is valued in excess of the estate tax threshold (currently over $15,000,000.00 per person). For most, the estate tax doesn’t factor into a quality estate plan. But as homes and property within Ellis County have generally increased in value over the past several years, the valuation may factor into your estate’s net worth, especially if you have more than one property. 

If the valuation increases have the potential to trigger the estate tax, there are strategies and legal remedies to protect your assets and wishes, such as a Ladybird deed, which would allow you to continue living on and owning the property but automatically transfers ownership upon your death. This is exactly why it’s worth reviewing your estate plan every few years and as you acquire additional properties. 

Importance of Protesting Your Property Taxes for Estate Planning

The appraisal board’s valuation of your property has significant tax implications that extend beyond the current year’s tax bill. The increase in valuation can create a significant burden for your estate that directly affects your children and inheritors. As they navigate their grief, the taxes associated may well impact whether they can keep the home or how much they can sell for. Protesting your property taxes each year protects your estate and maximizes the inheritance you leave behind.

Protect Your Estate Plan by Protesting Your Property Taxes

Evaluating how property tax valuations could impact your long-term goals and estate can feel daunting, and the process for protest can feel intimidating. At Foster Massengill, we can help you navigate both. We provide individualized guidance with every consultation, so together we can ensure your legacy is secure. Contact us today to schedule a consultation at (972) 878-9105.