A Tax Break for the Elderly

Many states offer some tax relief for their elderly citizens.  There may be some generosity behind the offer, or it may be part of an attempt to compete with lower-tax states for retiree residents.  That competition may heat up now that the state and local tax deduction is limited to $10,000.  The tax relief takes different forms around the country:

• tax credits that phase out at higher income levels;
• homestead exemptions to lower property taxes;
• freezes on assessed valuations; or
• property taxes deferred until death, payable when the home is sold.

Deferred property taxes may include interest charges, as seen in a recent Massachusetts case:

Frances Arntz filed for property tax deferral on her home in 1989, when she was 76 years old.  Her son suspects that she mistook “deferral” for “forgiveness,” and did not understand that the tax eventually would have to be paid, because she had the financial resources to pay the tax.  Frances never told anyone what she had done.

Frances moved out of the home in 2008, so the deferrals ended.  Her son began to rent the home, and he took charge of paying the property tax every year.  The tax bills included a notation at the bottom: “Prior tax bills outstanding.”  Unfortunately, the son overlooked that warning.

When Frances died in 2018, her children expected to inherit the house free and clear, as the mortgage had been paid long ago.  Instead, they received a property tax bill from the town for $170,000.  Some $50,000 was for the deferred taxes; the rest was interest that had been charged at 8%.  About $70,000 of the interest was incurred after 2008, from the time that Frances moved out until she died.

The heirs are understandably upset that the town didn’t warn them about the tax time bomb.  But the town did follow the letter of the law, and in fact, had that notice on the bottom of every tax bill.  The notice just didn’t spell out how big the bomb was, or the interest that was running.

Financial discussions between elderly parents and their adult children can be difficult, even emotional. But they are very important to have.  We can help with this.