Two weeks ago, I wrote about the In re Cyr case out of the Bankruptcy Court in San Antonio. That court held that a home inside a trust was not protected from creditors under the Property Code because the trust did not allow the debtor to live in the home “at no cost.” Instead the trust said the debtor could live there “rent free and without charge,” which is the phrase commonly used in revocable living trusts because that’s the language that gets the home its property tax breaks.
The case was appealed to the District Court which reversed. At the conclusion of that newsletter from me, I said that because the decision was by a District Court and not by the 5th Circuit, and not a decision by a Texas Court of Appeals or the Texas Supreme Court, people who have trusts, whether they are revocable living trusts, or trusts in their wills for the beneficiaries of the will, or other trusts that might own residential real estate that might be used as a home, 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.
A few people will read that, and take action. Some will not. The vast number of people who have revocable living trusts won’t know about any of that. In the meantime, the vast majority of revocable livings trusts say “rent free and without charge” but don’t say “at no cost.” How will all of the people who have trusts with that language ever know that they might want to consider such a change?
An easy way to solve the problem would be for the Texas Legislature to change the Property Code to say that homestead protection from creditors extends to homes in revocable living trusts that say the home can be used “rent free and without charge.”
The Real Estate, Probate and Trust Law Section of the State Bar of Texas has proposed exactly that sort of change. However, the problem at this moment is that while attorneys in that Section of the Bar have drafted the legislative language, no member of the legislature has yet agreed to sponsor that bill. If a sponsor cannot be found, the bill will not be introduced. If it’s never introduced, it won’t be enacted. If that occurs, the problem won’t be fixed unless individuals who have trusts contact their attorneys and discuss whether they think it’s appropriate to make the changes. Many trusts don’t hold title to homes, so those trusts don’t need to be changed. Some attorneys may decide that the District Court opinion is good enough, and think no change should be made.
In the meantime, we will keep an eye on the proposal and keep you up to date.