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Volume 11 - Opinions of Counsel SBRPS No. 44

Opinions of Counsel index

Alternative veterans exemption; school tax relief [STAR] exemption; senior citizens exemption (ownership) (trustee’s discretionary power to sell beneficiary’s residence); Assessment roll (designation of owner) (trustee’s discretionary power to sell beneficiary’s residence) - Real Property Tax Law, §§ 425, 458-a, 467, 502:

A trust beneficiary’s current eligibility for the alternative veterans, school tax relief [STAR], or senior citizens exemption is not affected by a trust instrument which vests in the trustee discretion to sell the beneficiary’s residence where the beneficiary vacates the property for a period of time specified in the trust.

We have been asked whether a certain clause in a trust document renders the grantor/settlor (i.e., the creator of the trust) ineligible for the school tax relief [STAR] (Real Property Tax Law, § 425), senior citizens (RPTL, § 467), and alternative veterans (RPTL, § 458-a) exemptions. An assessor notes that she has received several trust instruments which provide that the trustee may sell the property if the trust beneficiary vacates for a period of two to six months. The attorney for one such trust provided a copy of sample trust language, which reads as follows: “If the Settlor ceases to use such property as a residence (permanently or seasonally) the Trustees may, in the exercise of their absolute discretion, either continue to hold such property as an investment or sell such property.” The issue therefore is whether this power conferred on the trustee to sell the primary residence of the settlor/grantor disqualifies or prohibits such settlor/grantor from receiving any of the listed exemptions. We think not.

As we noted in 10 Op.Counsel SBRPS No. 25, sections 458(7), 458-a(5), and 467(9) all include a provision that, where real property is held in trust solely for the benefit of a person otherwise eligible for exemption under such section, the statutory ownership requirement is deemed satisfied.{1}   STAR simply provides that, if property is held in trust, the trust beneficiaries are deemed to own the property (RPTL, § 425(3)(c)).

As a general rule, a trustee is empowered by law to convey real property. Section 11-1.1 of the Estates, Powers and Trusts Law provides, in relevant part, that:

(b) In the absence of contrary or limiting provisions in the court order or decree appointing a fiduciary, or in a subsequent order or decree, or in the will, deed or other instrument, every fiduciary is authorized:
(5) With respect to any property or any estate therein owned by an estate or trust, except where such property or any estate therein is specifically disposed of:
(B) To sell the same at public or private sale, and on such terms as in the opinion of the fiduciary will be most advantageous to those interested therein.

(see, also, Warren’s Weed New York Real Property, Trusts, § 10.06[1].) Therefore, under this provision, unless a trust instrument itself expressly prohibits the trustee from conveying real property held within the trust, such trustee is authorized to sell that property. The trust provision quoted above is consistent with the assumed statutory authority, albeit, while granting great discretion to the trustee.

In 10 Op.Counsel SBRPS No. 27, we concluded that whether a trust is revocable or irrevocable is irrelevant to the cited exemption provisions. We concluded, “Where property held in trust receives an exemption, based on the . . . trust beneficiary’s eligibility, should the trust be revoked and the revocation results in the passing of title to real property formerly included in the trust corpus to someone ineligible to receive such exemption, the provisions of section 520 of the RPTL should be used to remove the exemption.” Similarly here, the fact that a trustee might in the future sell the residence of a trust beneficiary who currently qualifies for exemption does not adversely affect that beneficiary’s current exemption eligibility.

That is, one of the fundamental precepts of real property tax administration is that property is to be assessed according to its condition and ownership as of taxable status date (RPTL, § 302(1)). In addition, it is the assessor’s obligation to maintain a current inventory of real property, including the names of the owners of such property (RPTL, § 500(1)). Property is to be assessed in the name of the owner, last known owner or reputed owner (RPTL, § 502(2)).

The fact that property currently qualifying for exemption perhaps may not qualify next year is not relevant to its current eligibility. In the event the property is transferred by the trustee and the property ceases to be the primary residence of the taxpayer, there are safeguards in place (such as the filing of Form RP-5217), to alert the assessor that the property is no longer exemption-eligible.

Our opinion with respect to this inquiry is distinguishable from the conclusion we reached in 10 Op.Counsel SBRPS No. 20. That opinion involved the purported conveyance of a life estate but added the provision that the life estate would terminate automatically upon the submission of an affidavit by the remaindermen if the holders of the life estate failed to occupy the property as a residence for a period of 120 days. As we noted therein: “A true life estate cannot be extinguished in such a summary manner even if the residence requirement has been breached.”

The fiduciary powers conferred by law upon a trustee are readily distinguishable from the limited legal interest of a remainderman. Here, the trustee has been given great discretion over the possible sale of the beneficiary’s residence. In our opinion, however, that mere potentiality does not affect the current exemption eligibility of such residence.

November 25, 2002

{1}  The exemption for persons with disabilities and limited incomes, enacted subsequent to the issuance of 10 Op.Counsel SBRPS No. 25, also includes such a provision (RPTL, § 459-c(9)).