Homesteads in Trust Safe from Creditors If…
In 2019, the Bankruptcy Court in San Antonio issued an opinion in the case of In re Cyr holding that a home inside a trust was not protected from creditors under the Property Code and the Texas Homestead Exemption. The reason was that the language in the trust allowing the debtor to live in the home “rent free and without charge” was a part of the Texas Tax Code allowing a home to have reduced property taxes, but the trust did not say the debtor could live there “at no cost” which is the phrase used in the Texas Property Code which extends the Texas Constitution’s homestead exemption to homes held in trust.
The Bankruptcy Court laid out why “rent free and without charge” didn’t mean the same thing as “at no cost.” The debtor appealed to the District Court, which reversed the Bankruptcy Court and “rendered” (meaning the case was not sent back to the Bankruptcy Court for further review – instead, the debtor won – period). The District Court looked at another case in Texas law involving Texas taxes in which the difference between “charge” and “cost” was argued, just as it had been in the In re Cyr case. In the Texas state court case, the court decided that the two were synonymous and meant essentially the same thing. By extension, the District Court decided “rent free and without charge” meant the same thing as “at no cost.” As a result, the homestead was exempt from creditor claims in the bankruptcy.
Because this is a District Court case and not a 5th Circuit opinion or an opinion on point in a Texas Court of Appeals or the Texas Supreme Court, parties might want to consider the practice of saying homes in a trust can be used “rent free, without charge and at no cost,” just for safety’s sake.
The opinion of the District Court can be found here:
https://cases.justia.com/federal/district-courts/texas/txwdce/5:2019cv00911/1047127/16/0.pdf.
If that link does not work, please let me know and I can email the case decision to you.
Thank you Jessica Estrada of Leonard Weiner Law, PLLC for bringing this decision to our attention