Debbie Cunningham recently wrote an article for Headnotes, a publication by Dallas Bar Association, titled “Challenges of the Probate Homestead.” You can click on the link for the full article or continue reading below.
On the face of the issue, the probate homestead is quite simple and straightforward. Estates Code Chapter 102 provides clear direction on how to handle a decedent’s homestead. In summary, the surviving spouse has the right to occupy or use the homestead for the balance of his or her lifetime. The surviving spouse and children have the same rights in the homestead property whether it is separate or community property. Ownership of the property transfers according to the terms of a will or the laws of descent and distribution. The homestead is exempt from certain debts, but not secured debts on the property. Finally, the homestead may not be partitioned among the heirs during the lifetime of the surviving spouse as long as the spouse elects to use or occupy the property.
This right of occupancy is treated like a life estate. As such the surviving spouse must pay the expenses of upkeep, repairs, property taxes and mortgage interest. The title holder is responsible for the casualty insurance premiums and mortgage principal. This is all fairly straightforward when the titleholder and surviving spouse are either the same person or friendly parties, but that is not always the case. If the transfer happens according to the terms of a will and as part of a plan, all the parties may know their role and implement the process seamlessly.
When the homestead vests in someone other than the surviving spouse, the relationship of the parties can turn everything on its head. When the transfer is the result of the laws of descent and distribution, the blended family that once got along may find themselves on opposite sides of the issue. The decedent’s children will own part or all of a house that the stepparent has a right to live in for life. They receive an inheritance that cannot be occupied or liquidated and comes with financial obligations.
Things can be especially difficult in a scenario where there is a mortgage with escrowed taxes and insurance. Do the parties make separate payments to the mortgage company and trust the other party to be timely? Will the mortgage company accept partial payments from multiple sources monthly? Does someone make the payment and count on reimbursement? The surviving spouse may be a co-signer on the loan, which then causes concerns about the impact of late payments on a credit score.
The opposite may also be true. A surviving spouse who cannot afford to remain in the home may be content to await foreclosure and forced eviction. This could leave the children facing the loss of their inheritance or with additional financial obligations.
Furthermore, the right of occupancy and use is not limited to occupancy by the surviving spouse. Renting the property to a third party is an acceptable use that preserves the surviving spouse’s homestead rights. This may leave the title holders uncomfortable about the long term impact on the property, which leads to the issue of waste. Waste is defined as “permanent harm to real property, committed by tenants for life or for years, not justified as a reasonable exercise of ownership and enjoyment by the possessory tenant and resulting in a reduction in the value of the interest of the reversioner or remainderman.” Moore v. Vines, 474 S.W.2d 437, 439 (Tex. 1971). Thus renting and other activities may result in litigation allowing a court to determine if the surviving spouse’s actions or the actions of his tenants are harming the interest of the title holder.
There are numerous ways the parties could address these issues ahead of time. Specific provisions in pre- or post-marital agreements and wills could prevent most or all of these issues. Provisions such as assignment of all property costs to the surviving spouse or requiring an exchange of assets to prevent bifurcation of the homestead occupant and vested owners would help. Additionally, there are other vehicles to circumvent these issues, including but not limited to, life insurance. Insurance could cover ongoing costs of the property, allow for purchase of the property rights from either party or serve as the inheritance in lieu of the property.
As a final thought, I see many unanswered questions on the horizon due to the Windsor ruling. What happens if the currently unrecognized marriages of same-sex partners become recognized? These new surviving spouses will gain homestead rights, but may not have wills or agreements of any kind. If they do have cohabitation agreements, marital agreements or wills, they may not address this issue sufficiently or at all.
Law Offices of Debbie J. Cunningham
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