Do I qualify for Montana’s tax rebates if my property is in a trust? It depends.
By TONY DALTON
While many Montanans are currently facing an increase of nearly 40% in property taxes, some are eligible for rebates of up to $675 for property taxes paid in both 2022 and 2023.
But it’s important to understand the qualifications for the rebates, particularly if your property is held in a trust. And don’t forget the application deadline of Oct. 1, 2023 for the 2022 rebate.
Qualification Criteria
The Montana Department of Revenue sets the conditions and qualifications that individuals must meet to receive a property tax rebate.
To qualify, a person must:
- be a Montana taxpayer.
- have lived in the Montana residence for at least seven months during the tax year.
- have been billed for and paid the property taxes.
- be an individual, deceased person, or grantor of a grantor revocable trust.
Understanding Grantor Revocable Trusts
What exactly is a grantor revocable trust, and how can you determine if your trust qualifies for the rebate?
A rebate application will generally be rejected if the property is titled in the name of a trust, except when it is a grantor revocable trust.
In a grantor revocable trust, the creator (grantor) retains control over the trust assets and is usually the beneficiary, meaning they can use and benefit from the assets. Furthermore, all trust income, losses, and gains are reported on the grantor’s individual tax return. The primary purpose of a grantor revocable trust is to avoid probate and streamline the transfer of assets upon the grantor’s death.
However, it’s important to note that grantor revocable trusts do not provide the same level of asset protection as irrevocable trusts.
Conversely, with a non-grantor trust, generally, the person who creates the trust has no interest or power over trust assets, and the trust has its own Taxpayer Identification Number (TIN) and pays taxes on any income.
Revocable Vs. Irrevocable Trusts
The status of trust as revocable or irrevocable relates to the grantor’s ability to modify or revoke the trust after its inception.
Except in rare instances, irrevocable trusts cannot be modified or revoked once they are created. On the other hand, the grantor of a revocable trust can amend or dissolve the trust at any time.
Irrevocable trusts should only be created after meeting with an experienced estate planning attorney. The potential upsides are often outweighed by loss of control. And poorly drafted documents can sabotage a lifetime of planning.
How To Determine The Status Of A Trust
For most individuals, delving into the intricacies of a trust document can be daunting. Fortunately, there are simpler ways to determine if your trust qualifies as a grantor revocable trust.
- Ask the attorney who drafted the document: This is the most straightforward way to ascertain the trust’s status. Your attorney will have the necessary knowledge about your situation and the trust’s status.
- Consult with an experienced estate planning attorney: If the drafting attorney is unavailable, another experienced estate planning attorney can help determine the trust’s status quickly.
- Review your trust document for key phrases: While not foolproof, you can look for specific language within the document. Your trust is likely a grantor revocable trust if it was created to avoid probate, the grantor reports all trust income on their individual tax return, all grantors are still alive and have capacity, and the trust can be amended or revoked. However, there are exceptions, so consult with an attorney for certainty.
Special Considerations
Certain situations warrant special considerations when it comes to trust status and property tax rebates.
- The Death of a Grantor: When a grantor passes away, the trust may become irrevocable based on the trust’s terms, potentially affecting eligibility for the rebate.
- Incapacity of the Grantor: In most grantor revocable trust agreements, the trust becomes irrevocable when the grantor loses capacity, ensuring that the grantor’s intentions are upheld even when they can’t make decisions.
How To Apply
If the property is held in a grantor revocable trust, you are eligible for the Montana property tax rebate. Visit getmyrebate.mt.gov to apply.
Tony Dalton is an Associate Attorney with the Helena branch of Silverman Law Office, PLLC; mttaxlaw.com.