The History of Property Tax Relief in California

California Property Taxes

California Property Taxes

An Historical View of Property Tax Relief

A property tax measure entitled “Proposition 13” locked in property tax relief in 1978 that, despite efforts from certain parties to turn the clock backwards for financial reasons, California has managed somehow to maintain for middle class and upper middle class homeowners and beneficiaries inheriting parental property.

This tax relief process, along with Proposition 58 in 1986, providing residents with a means to establish a low property tax base, and to transfer a home from parent to heir with a parent-to-child exclusion from paying current property tax rates…. While keeping a low parental property tax base.

Traditional banking and other lending institutions no longer provide Californians with loans that solve financial requirements for irrevocable trusts, estates, probates, conservators, and other non-traditional inheritors and borrowers. We now must look to Trust Lenders to bridge this financing gap when it pertains to funding trusts, to buyout co-beneficiaries, siblings typically… as well as locking in a Proposition 13 protected low property tax base, with tax rates that cannot exceed 2%.

Property tax breaks like property tax transfers and the parent-to-child exclusion; the right to transfer property taxes that cemented the foundation of Proposition 58 – now in the foundation of Proposition 19…. With some restrictions that, regrettably, many Californians were not fully aware of when they cast their property tax vote in Nov of 2020.

Property Tax Relief – Involving Prop 13 & Prop 19 Trust Loans

The process that makes up the robust foundation of Prop 13 and Proposition 58, now Proposition 19, has managed to survive despite fluctuations and changes throughout 2020 and 2021, enabling funding of a trust or estate to allow equalization of distribution to beneficiaries inheriting property that are looking to sell out their property shares; while those looking to keep inherited property get to establish a low property tax base, and avoid property reassessment.

Your situation may reflect elements sin one or more of the following inheritance scenarios – frequently requiring a non-traditional solution; typically an inheritance funding assignment, or the funding of an irrevocable trust… Trust lenders like Commercial Loan Corp offer a free consultation in which some of the following scenarios and options will most likely be discussed – 

a) Siblings may be going through intra-family conflicts concerning which assessed evaluation of the property in question reflects the “true value of the property”; or confirming which beneficiaries want to keep inherited property, at their parent’s low property tax base – and which siblings insist on selling their property shares to a buyer, at which point it becomes obvious that a buyout from a trust will furnish beneficiaries looking to sell with far more cash than a typical buyer going through a realtor will provide – by avoiding a realtor’s 6% commission, additional fees, legal costs, etc. 

b) Does your family agree there is a need for a loan to an irrevocable trust, or an estate loan. An experienced trust lender is able to fund an intra-family trust that will furnish enough liquidity to equalize funding to all beneficiaries intent on selling off their inherited property shares… while at the same time establishing a low property tax base for heirs that are committed to keeping the family home — avoiding property reassessment in conjunction with Proposition 19.

c) Does your family agree to a specific loan amount required to liquidate an irrevocable trust; to “equalize” buyout cash for beneficiaries within a middle class or upper middle class family that wish to sell off their inherited property shares. Property value and whether or not all the siblings agree on the assessed evaluation, the amount of liquid assets in a trust, as well as the number of siblings set on selling their property shares — influence the liquidity requirements of an irrevocable trust.

d) “Funding equalization” and “cash distribution” should be reviewed during a free consultation – insuring that equalization will result in a sufficient amount of funds being directly distributed to all beneficiaries intent on selling their inherited property shares. Therefore, change of ownership will handled properly and filed to ensure an exclusion from reassessment (i.e., a “parent-to-child exclusion”, often called an “exemption”) – bottom line, making sure that the family can avoid property tax reassessment, keep parents property taxes when inheriting property taxes  becomes a reality.  Property tax transfer, the ability to keep parents property taxes, is still a bottom line property tax relief benefit in California.

The heir or beneficiaries keeping the home pays back the trust loan with personal funds, or with a conventional loan, or through some other means of repaying the irrevocable trust loan.  Keeping the finalization of the process as straight forward as possible. It must appear to be simple, and in a way actually be simple, or residents will shy away from it, if they can’t understand how it works, even in a general way.  

Avoiding Property Tax Reassessment When Transferring an Inherited Home

Avoiding Costly Property Tax Reassessment On An Inherited Home

How To Avoid Property Tax Reassessment On An Inherited Home

Should I Give My Home to My Children as “a Gift”?

Many people wonder if it is a sensible idea, given their personal tax situation, to give their home to their children as a gift.  For middle class or upper middle class families this really is a moot question, as the threat of steep taxation clearly applies only to folks with high net worth.  Bottom line, you can gift $11.58 million over an entire lifetime without bring hit with a gift tax. 

How many people do any of us know who will  be giving away over eleven million dollars in real estate over the next 50 years?  Think for a moment how wealthy you would have to be in order to give away over eleven million dollars in property to your children.  Regardless,   giving away a house to offspring can have a variety of peculiar financial or tax consequences, among other outcomes. 

In 2021, and the years following, the annual “gift tax exemption” will stay at $15,000 per recipient. This means you can give up to $15,000 to as many people as you want during the coming year without any of it being subject to a gift tax.

A gift tax is imposed if you transfer money or property to another person without receiving at least equal value in return. This could apply to parents giving money to their children, the gifting of property such as a house or a car, or any other transfer. There is also a lifetime exclusion of $11,700,000. The very idea that any entity outside a family group can make decisions on taxing what a family does or does not do with their real estate is a most unpopular idea among most citizens.

Being Aware of all Consequences, Giving Your Home to Heirs

ElderLawAnswers.com weighs in on this issue, which is highly appropriate, as these writers and editors frequently deal with tax problems facing older Americans. June 23, 2020 they published an article entitled “Giving Your Home to Your Children Can Have Tax Consequences”

When you give anyone property valued at more than $15,000 in any one year, you have to file a gift tax form. Also, under current law (2020) you can gift a total of $11.58 million over your lifetime without incurring a gift tax. If your residence is worth less than $11.58 million, you likely won’t have to pay any gift taxes, but you will still have to file a gift tax form.

While you may not have to pay gift taxes on the gift, if your children sell the house right away, they may be facing steep taxes. The reason is that when you give away your property, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient. For example, suppose you bought the house years ago for $150,000 and it is now worth $350,000. If you give your house to your children, the tax basis will be $150,000.

If the children sell the house, they will have to pay capital gains taxes on the difference between $150,000 and the selling price. The only way for your children to avoid the taxes is for them to live in the house for at least two years before selling it. In that case, they can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.

Inherited property does not face the same taxes as gifted property. If the children were to inherit the property, the property’s tax basis would be “stepped up,” which means the basis would be the current value of the property. However, the home will remain in your estate, which may have estate tax consequences.

Beyond the tax consequences, gifting a house to children can affect your eligibility for Medicaid coverage of long-term care. There are other options for giving your house to your children, including putting it in a trust, or selling it to them. Before you give away your home, consult your elder law attorney, who can advise you on the best method for passing on your home

Potential Property Tax Surprises for the Middle Class

As we can plainly see, if you’re not extremely wealthy you don’t face the same severe real estate tax burden that high net worth families face when gifting property to offspring. However, the tax man just doesn’t quit there. If you leave your home as part of your entire estate to your children, the property’s “tax basis” would be stepped up, in other words the “basis” would be the actual current value of your inherited property. 

Moreover – if the house remains in the estate, it will most likely will impose a significant estate tax burden on you, unless you take advantage of some other options, such as using an irrevocable trust loan in tandem with Proposition 19, to lock down a low Proposition 13 protected property tax base.

On top of these sort of tax consequences, middle class and even upper middle class homeowners are generally stunned when they discover that  gifting a home to heirs can also affect their eligibility, when becoming elderly, for Medicaid “long-term care” coverage. What many senior Californians call “a sneak  attack”.

Options to Help Your Children Avoid Property Tax Reassessment

Fortunately, there are some attractive options that you, as a home-owning parent, can turn to – prior to giving your children a house… such as (a) placing the house into a trust; (b) speaking with your children about how loans to irrevocable trusts work in their favor  when used in conjunction with Proposition 19 to buyout property shares from siblings – in other words keeping the home at a low property tax base with an irrevocable trust loan from a trust lender     whose expertise includes taking complete  advantage of California Proposition 19 parent-to-child property tax transfer on an inherited home as another option to turn to when you’re gone; or (c) simply selling your home  to your kids at an incredibly low price.

So before you decide to gift, or give away, your home – definitely consult with an estate lawyer, or an elder law attorney… who can advise you correctly on the best next-steps for transferring property over to an heir or several beneficiaries. Your children may very well turn to an irrevocable trust loan down the road, and this could save them from a severe tax burden that they may not even be aware of at this stage.

Naturally, if you have several children and some wish to buyout other siblings who decide to sell their shares, then your children who want to retain your property may wish to enlist the help of a trust lender as well as an attorney, to get an irrevocable trust loan to buy those siblings out while keeping the home at a low property tax base, given that your home is your primary residence, which is most likely is. 

Choosing the Right Trust Lender to Keep Your Parent’s Low Property Tax Base When Inheriting A Home

How to Choosing the Right Trust Lender to Keep Your Parent’s Low Property Tax Base When Inheriting A Home

Choosing the Right Trust Lender to Keep Your Parent’s Low Property Tax Base When Inheriting A Home is Critical.

It would be best, in choosing a trust lender, to pick a firm that is a self-funded private lender, offers a fast approval process, has flexible underwriting terms, has no prepayment penalties, has no minimum monthly interest, and can fund a trust within a 7-10 day period.

This process may look simple when discussing from behind a desk, however it is not as simple as it appears. By leveraging cash from a private loan in conjunction with an agreement between the heirs, executors and trustees can provide a valuable service to families who otherwise would have to forfeit their valuable real estate in the course of estate administration.

Parental property is typically an older home with a little land, and a host of memories and emotional attachments… Beneficiaries of this type of middle class inheritance that don’t execute a personal loan to a trust in conjunction with Proposition 19 to equalize that trust would be viewed as beneficiaries looking to sell their shares in that property simply taking a payment from siblings looking to keep their inherited property.

The outcome of this would be a “transfer between beneficiaries”, without the ability to keep inherited property at a low base rate, that is to say, your parents’ low property tax base, as opposed to a “transfer from parent to child”, the type of transfers between parent and child that enable exclusion from reappraisal. Side-stepping this process would disqualify the transfer from operating under the parent-to-child exclusion. As the BOE interprets it.  And this involves benefits all the way down the line.

Avoiding a loan to an irrevocable trust will disqualify new homeowners and beneficiaries inheriting property from being able to keep parents property taxes when inheriting property taxes  during property tax transfers – more specifically being able to keep parents property taxes.  Not utilizing a trust loan with a trust lender will make it impossible to keep inherited property at a low base rate as would be possible through a parent-to-child transfer and parent-to-child exclusion (from paying current property tax rates).

The same goes for the right to transfer parents property taxes alongside inheriting parents property and inheriting parents property taxes to avoid property tax reassessment.  Obviously, a trust loan is well worth not ignoring, when your inheritance calls for it, in concert with Prop 19, formerly Proposition 58.

Middle class and even upper middle class estates and trusts with limited funds, or “liquidity” would lose these critical tax benefits if the estate or trust has no resources available which would allow heirs or beneficiaries to retain the old family home. Hence, the California Board of Equalization has sanctioned third-party real estate loans to trusts to “equalize” the value of beneficiaries’ interests in the trust assets while keeping the allowed property tax exclusion from tax reassessment (at current updated rates).

In a recent interview, noted property tax and trust expert, Michael Wyatt, CEO of Michael Wyatt Consulting, whose expertise includes helping families ensure legal property tax assessment avoidance – summed it up like this:

California was pretty bad before 1978, when Proposition 13 tax relief went into affect. California was raising taxes more than any other state, before 1978. Most seniors – before Prop 13 – were reassessed at present-day rates. And many, many were forced out of their home. They simply could not afford the property tax hikes descending on them. Period. People, especially older people, were being impacted with higher property taxes year after year. And in many cases – with catastrophic results, obviously.

Commercial Loan Corporation reachable at (877)756-4454, loans to trusts give my clients several invaluable benefits. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America. Also, Commercial Loan Corp is self funded, and that’s basically why they can extend easier terms to clients. Compliance for both commercial and residential property owners is far less strict.

Commercial Loan Corp doesn’t charge any fees up-front, that’s another great benefit. Plus, they don’t require paying interest on their trust loan in advance. Not only that, there is never a “due-on-sale” clause… that requires the mortgage to be repaid in full when sold; or that all or some of the interest owed must be paid up-front to secure the mortgage. No “alienation clause”… in the event of a property transfer, stating that the borrower has to pay back the mortgage in full before the borrower can transfer the property to another person. There is none of that.

The speed of their trust loans is much faster, typically five to seven days instead of two or three weeks. And if you sold a property outright, without using a trust loan, you have closing costs, legal fees; a commission; etc. It gets very expensive. Going with a firm like Commercial Loan Corp – costs are offset.

When Mr. Wyatt and the CEO of Commercial Loan Corp, Mr. Kerry Smith, speak… people listen.

Prop 19 Expanded Benefits for Seniors, Disabled Residents & Victims of Natural Disasters

Proposition 19 Property Taxes

Proposition 19 Property Taxes

There seems to still be a great deal of confusion in California regarding Proposition 19 benefits and homeowners over age 55, property owners who are severely disabled, and residential or commercial property owners who have been impacted physically and/or financially by a California wildfire or natural disaster such as a flood or earthquake.

Thanks to Proposition 19, also entitled “The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act”, approved by California voters Nov 3, 2020, these residents can now transfer the taxable value of their initial primary residence to a replacement principle residence as many as two or three times prior to their death; in any of the 58 counties in California. Therefore, to clear up some of this confusion and misinformation, we’ll delve into some these benefits here.

Commenting on these new California Proposition 19 benefits,  specifically for seniors and other property owners impacted by disabilities and natural disasters, California State Board of Equalization (BOE) Chairman Antonio Vazquez commented in his usual articulate fashion: “Seniors, the severely disabled, and victims of wildfires or natural disasters can now move to a replacement home anywhere in California and avoid significant property tax increases if eligible… Property tax relief can be beneficial for those especially on limited incomes or who have been affected by wildfires or natural disasters.”

Seniors, age 55, and others who qualify have to verify that both the original property and the “replacement residence” they are moving into are both eligible for the Disabled Veterans’ Exemption and the Homeowners’ Exemption. The BOE tells us quite specifically, concerning both the homeowners’ exemption and the disabled veterans’ exemption:

The Disabled Veterans’ Exemption reduces the property tax liability on the principal place of residence of qualified veterans who, due to a service-connected injury or disease, have been rated 100% disabled or are being compensated at the 100% rate due to ‘unemployability’. An unmarried surviving spouse of a qualified veteran may also claim the exemption.

As for the Homeowners Exemption: The California Constitution provides a $7,000 reduction in the taxable value for a qualifying owner-occupied home. The home must have been the principal place of residence of the owner on the lien date, January 1st. To claim the exemption, the homeowner must make a one-time filing with the county assessor where the property is located. The claim form, BOE-266, Claim for Homeowners’ Property Tax Exemption, is available from the county assessor.

A person filing for the first time on a property may file anytime after the property or claimant becomes eligible, but no later than February 15 to receive the full exemption for that year. Homeowners’ Exemption claimants are responsible for notifying the assessor when they are no longer eligible for the exemption. December 10th is the last day to terminate the Homeowners’ Exemption without penalty; the assessor should receive notice of ineligibility by that date.

An application has to be filed with a County Assessor in order to transfer any taxable value. Moreover, the so-called ‘replacement residence’ has to be purchased or constructed as a new property inside of 24-months from the sale of the original primary residence. However, should the fair market value of the replacement residence be larger than the sales value of the original residence, the difference in dollars must be added to the “taxable value” when the property tax transfer occurs. We realize this is still a bit confusing, however your trust lender or attorney will fill in any gaps to clarify how this works.

As for victims of a California wildfire, of which there have been many… or a so-called “natural disaster” such as an earthquake or flood, for example, the same requirements apply as the taxable value for the transfer for seniors, just without the age requirements. The primary residence damaged by a wildfire or state government-verified “natural disaster” in will need to be fairly damaged, obviously, in order to qualify for these new Prop 19 exemptions.

New CA Parent-Child and Grandparent-Grandchild Property Transfer Rules Under Proposition 19

California Prop 19 Rules for Transferring Property Taxes

California Prop 19 Rules for Transferring Property Taxes

As an updated review of sorts, we would like to revisit certain Proposition 19 issues governing California property taxes. These issues have become particularly important to beneficiaries and new homeowners in particular throughout the state. The following updates address measures that are especially popular with homeowners…

In terms of basics, it’s important to reiterate that under Proposition 19 an inherited home can be transferred from a parent to their child/heir without triggering property tax reassessment, with the right to keep parents CA property taxes. However it’s essential these days to pay more attention to deadlines and filing stipulations — whereas previously this was not as necessary.

Beneficiaries frequently want to know if a parent died prior to Feb 16, 2021, but the change in ownership forms were not filed with the assessor until after Feb 16, 2021 — if the parent-to-child exclusion (from current property tax rates) is applied under former Proposition 58 measures, or if it is applied under current Proposition 19 tax measures, with the ability to keep parents CA property taxes…. The confirmed answer is that an inherited property transfer is calculated by date-of-death to determine the official date of change of ownership.

A good number of trust beneficiaries inheriting real property from a parent, considering their option to buyout siblings’ inherited property shares, often ask trust lenders if a parent is leaving a family home to three siblings/heirs, will that family home be the primary family home of all three heirs — or just the one heir.  And it turns out that only one sibling/heir is expected, under California tax law, to take over that family home as a primary residence. Yet all three siblings still have to be valid heirs.

Beneficiaries and heirs of an active estate, inheriting assets, often ask their attorney about the correct time-frame to establish an inherited family property as their “primary family home”…  Estate attorneys typically confirm that beneficiaries inheriting a house from a parent who wish to keep parents CA property taxes on a property tax transfer, when inheriting property taxes, are expected to establish that house as their “principle family residence” within 12-months of the purchase or transfer of that inherited property, if they want to avoid property tax reassessment using their existing ability to transfer parents property taxes, when inheriting property taxes from a parent. 

Yet heirs are still being able to take advantage of their right to a parent to child property tax transfer on an inherited home  and a  parent-to-child exclusion; even with all these confusing and sometimes baffling new rules for property tax transfers in California  additional intra-family options are available to heirs such as buying out co-beneficiaries’ property shares on a sibling-to-sibling property share while keeping a low property tax base when inheriting a home.

If beneficiaries or heirs are inheriting a family farm, they often look to their estate lawyer, or trust lender, for answers… if they are looking to buyout co-beneficiaries to retain the inherited property for themselves – at their parent’s low property tax base – to find out if the Proposition 19 parent-to-child exclusion (from current tax rates) also applies to family farms.

In other words, does a family farm also have to be a principal or primary residence of the inheriting beneficiaries or heirs… And the answer is no, the family farm does not have to be the principal residence of the inheriting parties in order to qualify for the parent-to-child exclusion. A family farm is viewed as any real property which is under cultivation or which is being used for pasture or grazing, or that is used to produce an agricultural product.

Many Californians want to know if Proposition 19 is retroactive; if property transfers that have already benefited from Proposition 58 parent-to-child exclusion benefits are going to be reassessed… And they are informed that Proposition 58 applies to transfers that were implemented on or prior to Feb 15, 2021. The current Proposition 19 ability to keep parents CA property taxes applies only to transfers that take place happen after Feb 16, 2021.

An inherited house, when transferred from a parent to their child/heir – is expected to be the “primary family home” of an heir. Beneficiaries or heirs frequently ask their property tax consultant or attorney how long they need to reside in or maintain their inherited property as “a primary family home” to be able to retain the parent-child exclusion. The answer is unequivocally that the Prop 19 exclusion applies only as long as the heir, or beneficiaries, reside in inherited  property as their “principle family home”.

In the event that a family home is no longer used as the primary residence of a beneficiary inheriting a home, that property should receive the factored base year that applies, had the family home not qualified for exclusion at the time of purchase or transfer. The new taxable value will be the fair market value of the home on the date of inheritance, adjusted yearly for inflation. 

Hence, an updated look at certain new parent-child and grandparent-grandchild property transfer rules and regulations under Proposition 19. 

FAQ: Property Tax Transfers & Taxes on Inherited Homes

Trust Loan Question and Answers

Trust Loan Question and Answers

California Proposition 19 Trust Loan Questions and Answers

If you are staying abreast of updates and news, concerning property tax relief in California, you are most likely aware that there is still some confusion among homeowners as far as where Proposition 58 leaves off and Proposition 19 picks up… with respect to tax breaks like the parent-child exclusion, low tax base issues, and all property tax benefits associated with property inherited from a parent.

We will attempt to dispel some of that homeowner confusion here today through  some well worn questions and answers among beneficiaries, estate & tax attorneys, property tax consultants and trust lenders in California.

Q: If we forgot to apply for the parent-to-child exclusion before Feb 16, 2021, can we still qualify for this exclusion anytime thereafter in 2021 to avoid property tax reassessment through Proposition 58 and Prop 193 for the grandparent-grandchild exclusion?

A: As long as the change in ownership of your property from your parent took place on or before Feb 15, 2021, the transfer will qualify for the exclusion under Proposition 58/193. The date of death is the same as the date of the change in ownership. However, bear in mind that your claim has to be filed with your County Assessor within 3 years of the date of transfer (or prior to transfer to a third party) or within six months of the date of notice of “supplemental” or “escape assessment”. So no, your actual claim did not have to be filed by Feb 16, 2021.

Q: Regarding Proposition 19, if I inherit my parent’s family home and move into it as a primary residence, do I have to reside in that house to take advantage of the parent-to-child exclusion? Can I move somewhere else?

A: Apparently at least one beneficiary has to reside full time in that family home in order to avoid property tax reassessment with the parent-child exclusion. Once that property is no longer your full time home it will be reassessed at current market rates.

Q: Property transfers were executed under Prop 58 prior to Prop 19 becoming law on Feb 16, 2021. Is it true that Proposition 58 can also apply to property transfers after Feb 15, 2021?

A: No, it is Proposition 19 that will apply to property transfers after Feb 16, 2021.

Q: How does Proposition 19 affect my inherited property that’s being held in an irrevocable trust?

A: First of all, the trust governs the property. For a home held in trust, tax law states that a change in ownership occurs when real property goes to anyone other than the trustor or the trustor’s spouse or “domestic partner” when a revocable trust becomes irrevocable, and cannot be revised. The date of the decedent’s passing is viewed as the date of change in ownership. Proposition 19 states that Prop 58 applies to transfers that were executed before Feb 15, 2021. Proposition 19 applies to transfers that occur after Feb 16, 2021.

Q: If a family home is given to three sibling beneficiaries as a gift, must all three siblings reside in this home as a primary residence in order to take advantage of the Prop 19 parent-to-child exclusion?

A: As long as at least one sibling inheriting this property continues to live in the home as a primary residence, or principal residence, the exclusion will remain active for that property, and that beneficiary.

Q: Does Proposition 19 apply to a property transfer of a rental home, as Proposition 58 did?

A: No, under Proposition 19 the parent-child exclusion from reassessment applies only to the transfer of a family home that remains the principal residence of the beneficiary that moved in and continues to live there.

Q: If the value of my inherited home is more than $1,000,000 exactly what are Proposition 19 rules and regulations concerning the parent-to-child exclusion?

A: Under Prop 19 it is the sum of the factored base year value plus $1,000,000. Should the assessed value exceed this limit, you can benefit from partial property tax reassessment, or partial property tax relief. The amount greater than the excluded amount would be added to the factored base year value.

Q: If my county Tax Assessor doesn’t know about the passing of my Dad before Feb 16, 2021, and becomes aware of his death 15 months later and so reassesses the property I inherited from my Dad on the date of my Dad’s passing… Is a parent-to-child transfer or  parent-to-child exclusion applied through Proposition 58 or Prop 19?

A: The law in effect today tells us that the date of death will apply. It has been made clear that Prop 58 applies to an inherited property transfer from a parent on or before Feb 15, 2021.  It’s important to remember that California Proposition 19 applies only to property transfers that go through after Feb 16, 2021.

Q: Now that Prop 58 parent-child exclusion has morphed into Prop 19 property tax breaks, how do I apply for the homeowners’ exemption or disabled veterans’ exemption within 12 months of the transfer to qualify for a parent-to-child exclusion and grandparent-to-grandchild property transfer exemption from fair market property tax rates, as dictated by Prop 19? Who can help me apply for homeowners’ exemption or or disabled veterans’ exemption in my county?

A: To keep it simple, a claim will have to be filed with your County Tax Assessor, who will be on the BOE list of all California Tax Assessors;  and who will inform you as to what forms to complete, to apply for the homeowners exemption or disabled veterans exemption.

Is There Support in California to Reverse Potential Property Tax Hikes?

Are Trusts Only for the Wealthy

Are Trusts Only for the Wealthy

California Assembly Constitutional Amendment 9  

As most Californians know by now, CA Assemblyman Kevin Kiley introduced property tax measure ACA 9 to try to return long term property tax relief benefits to their original state.

Specifically, Assembly Constitutional Amendment 9 focuses on strengthening and bolstering parental property tax transfer in California, meaning the parent-child transfer and popular parent-to-child exclusion – which still gives Californians the ability to transfer parents property taxes and  keep parents property taxes when gifting or inheriting parents property.  As well as buying out co-beneficiaries’ property through Proposition 19, formerly Prop 58, in conjunction with a loan to an irrevocable trust; establishing a low property tax base upon inheriting a home… and always bearing in mind California’s long running right to avoid property tax reassessment. 

All California property tax relief rights were, and still are, hand-in-hand with the overall ability to transfer property, parental property tax transfer mainly, during inheritance from parent to child, and a tax break that is still protected by property tax measure Proposition 19 – mainly affecting middle class beneficiaries inheriting property, and mid-income homeowners residing in all 58 counties in California, and yet not fully understood by many residents.

California Proposition 19

Proposition 19 passed on Nov 3rd by a slight majority, following a very effective $40 million promotional campaign mostly paid for by the California Association of Realtors (the C.A.R.);  highlighting property tax breaks that favored residents over the age of 55, as well as sentimental favorites, such as school children and firefighters.  The campaign rivaled anything Madison Avenue could have come  up with!

Soon after Feb 2021, Californians and local media began to discuss Proposition 19 in terms that characterized Proposition 19 parental property tax transfer rights — enabling families to transfer property taxes to and from anywhere in the state — as basically replacing   Proposition 58 property tax breaks, a long-standing property tax measure that was voted into law in 1986 with a 75% voter majority; after a unanimous vote in the Legislature placed it on the ballot. Proposition 58 amended the state constitution to permit parents to transfer a home of any value and up to a $1 million of other property — such as a vacation cabin, rental property or small business – avoiding property reassessment.

Protecting Property Tax Relief & the CA American Dream

“The opportunity to own a home is central to the California Dream, but our state’s affordability crisis has put this beyond the reach of too many working families,” Kiley said. “Now, thanks to a Special Interest deal, Californians face a large and unplanned-for tax increase when they pass down property to their children. ACA 9 restores a vital protection that was in place for 35 years.”

As certain residents and activists try to change certain confusing revisions to property tax relief in California, they also acknowledge positive property tax breaks, such as benefits for property owners over 55 years old, who are eligible for tax assessment transfers; people with severe disabilities, victims of wildfires and other natural disasters; as well as sentimental favorites such as fire-fighters and school children. And who is going to deny eligible homeowners like that.

Positive property tax relief measures allow eligible homeowners to transfer their tax assessments anywhere within the state and allow tax assessments to be transferred to a more expensive home with an upward adjustment. The number of times that a tax assessment can be transferred increased from one to three for persons over 55 years old or with severe disabilities (disaster and contamination victims would continue to be allowed one transfer).

California Assembly Constitutional Amendment 9 focuses on parents and grandparents transferring primary residential properties to their children or grandchildren while avoiding property tax reassessment. ACA 9 also addresses issues revolving around parents and grandparents transferring vacation homes and business properties to their children and  grandchildren; with the first $1 million exempt from re-assessment when transferred.

Limitations on One Hand & Huge Benefits on the Other

Now, it’s true that there are some limitations in certain circumstances. People who want to take advantage of the parent-to-child exclusion and grandparent-grandchild exemption must move into their inherited property as a primary residence, which many residents want to do anyway, and they do have an entire year to move in. 

On the other hand, senior rights being a central issue  for middle class and upper middle class families in California, residents over the age of 55 have a whole suite of new property tax benefits, along with folks with disabilities, and victims of natural disasters such as  earthquakes and floods, as well as forest fires (which are extremely timely these days in California, especially for middle class residents).

When inherited property is used as a primary residence but is sold for $1 million more than the property’s taxable value, an upward adjustment in assessed value would occur. The ballot measure also applied these rules to certain farms. Beginning Feb. 16, 2023, the first $1 million is adjusted each year at a rate equal to the change in the California House Price Index.

Jon Coupal, president of HJTA, weighed in on the new activities designed to reverse any questionable changes to California property tax relief. Mr. Coupal stated: “The Howard Jarvis Taxpayers Association is proud to support ACA 9 to reinstate Propositions 58 and 193, reversing any stealth tax increases on California families!”

No one could have put it any clearer.

Why Consulting With an Attorney, a Property Tax Specialist or Trust Lender is Crucial Now, When Inheriting a Home in California

Inheriting a Home in California

Inheriting a Home in California

When inheriting a home from parents, one should always have a reliable estate attorney, if we’re looking to transfer a parent’s property taxes or we’re inheriting assets in trust or in a standard estate or probate; with an experienced eye on all  proceedings, especially the process of “equalizing trust loan distribution among beneficiaries” if a trust loan is a part of the process – a phrase often used by property tax specialists, and frequently misunderstood by heirs and beneficiaries.

“Equalizing trust loan distribution” simply means that each heir or beneficiary / sibling intent on selling their shares of inherited property  left to them by a parent, will receive an equal amount of money… settling expenses when there is little or no cash in the trust. 

Paying off a debt that a parent or grandparent has on a home can impact beneficiaries looking to borrow, as well as lenders. Having a competent attorney who knows how to structure a trust so that beneficiaries looking to keep inherited property at their parent’s low property tax base can retain that family property… while making sure that co-beneficiaries intent on selling their inherited property get an equal share of cash from a loan to an irrevocable trust.

This is where an experienced trust lender comes into play, preferably a lender that provides trust funding with their own capital, which ensures that interest charged will be as low as possible. Not using expensive money from investors, lenders with their own capital are free to charge as little as they wish, in terms of fees. In fact, a trust lender like this is free to exercise extreme flexibility with underwriting, maintaining particularly reasonable terms and conditions; as well as being able to implement trust loan transactions quickly, in seven to ten days.

It’s always worthwhile to hear what an experienced property tax relief specialist, in this case property tax consultant Michael Wyatt at Michael Wyatt Consulting in Corona CA, has to say about working with an established trust lender that typically provides five and six figure irrevocable trust loans with their own private capital –

A private money lender that loans to irrevocable trusts, applies for and works in tandem with California Proposition 19… So all the beneficiaries [in the family] who are looking to sell their real property shares – for the purpose of facilitating “non pro-rata distribution”, in other words getting an equal share of the entire overall estate – however not necessarily of every asset.

If there is a family that goes to a conventional, pricey lender like Wells Fargo for instance – they will always require adult children, beneficiaries that want to sell an inherited property, to ‘go off-title’, and that always triggers present-day tax reassessment. And that spells an expensive 66.66% tax hike!

If the family in question uses the Commercial Loan Corp, a company we have been using for years… the loan they provide is to a trust, and not to beneficiaries; so there is no title, and no crippling 66.66% property tax reassessment. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America. Also, Commercial Loan Corp is self funded, and that’s basically why they can extend easier terms to clients.

Compliance for both commercial and residential property owners is far less strict. Commercial Loan Corp doesn’t charge any fees up-front, that’s another great benefit. Plus, they don’t require paying interest on their trust loan in advance. Not only that, there is never a “due-on-sale” clause… that requires the mortgage to be repaid in full when sold; or that all or some of the interest owed must be paid up-front to secure the mortgage. No “alienation clause”… in the event of a property transfer, stating that the borrower has to pay back the mortgage in full before the borrower can transfer the property to another person. There is none of that.

Having access to private capital, along with seasoned advice, and expertise from a property tax consultant and a trust lender on how to transfer a parent’s property taxes,  becomes even more crucial in an inheritance scenario when a family is looking to keep a family home for a long period of time. 

California Proposition 19, which was (voted into law in 1986) formerly California Proposition 58, can enable a parent-to-child home transfer of a “principal residence” to be excluded from property tax reassessment even if associated with a “change in ownership”.  Which could trigger reassessment of property taxes, often by accident, resulting in  property tax reassessment – if not for experienced guidance from a trust lender and, frequently, from a property tax consultant or tax attorney as well, guiding the trust loan process and  property tax transfer; working in concert with Proposition 19 and parent-to-child exclusion (from high current  market rates).

Advice from property tax transfer specialists like this generally includes guidance for beneficiaries and new home owners within the process of being able to transfer a parent’s property taxes, plus showing inheritors what they need to do to keep parents property taxes when inheriting property and subsequently inheriting property taxes from a parent.

Michael Wyatt Consulting may be contacted at (951) 264-6152 for questions on retaining a parent’s low property tax base; and how to transfer a parent’s property taxes, through CA Proposition 13; or with questions about getting a loan to a trust, in conjunction with CA Proposition 19.

 

PART TWO: The Home Protection for Seniors, Severely Disabled, Families & Victims of Wildfire or Natural Disasters Act

Move Anywhere in California and Avoid Property Reassessment 

General consensus of California property tax experts who have been watching Proposition 19 even before it was voted into law on Nov 3, 2020 confirm that property owners age 55 or older who are “severely disabled” are eligible for special property tax relief benefits…

And, with all due respect, this is precisely one of those items that Californians in talk about as being a bit vague – in other words, what exactly constitutes a “severe” disability versus a disability that is perhaps “not so severe”. The California State Board of Equalization (BOE), who defines rules and regulations for Proposition 19, hasn’t yet fully determined certain fine-tuned details. 

However, even though trust loans in conjunction with Proposition 19 as well as trust lenders and the CA parent-child exclusion are not discussed in great detail, we still know with a great deal of certainty  that you can still receive a large loan to an irrevocable trust to  buyout a co-beneficiary’s inherited property shares, while at the same time keeping a family home at the parents’ low property tax base.  It doesn’t need to be discussed into the ground to know that these tax breaks are still alive and well, like many others.

The same applies to victims of a “wildfire”, such as we see throughout  California these days; or a “natural disaster” such as an earthquake or a flood.  Point being, how is one to determine how much damage from a natural disaster or wildfire is “sufficient damage” to qualify a homeowner over the age of 55 to be fully eligible for certain property tax relief benefits?

At any rate, one can move as many as three times statewide during a lifetime. This is an increase from the previous property tax law that allowed only one move. During this move, or these moves, one can transfer their lower property value to recently purchased property – moreover, this can done in any of the 58 counties statewide, whereas previously permitted counties were limited to pre-approved counties only.

Therefore if you are over 55, as far as property taxes are concerned, the world is yours, as it were.  This is somewhat ironic, as older Americans usually find themselves at the short end of the stick when it comes to age bias… Not any more, when it comes to real estate.

 Moving to a New Home, While Taking Advantage of Prop 13?

Prop 13 instituted a base-year value for property tax assessments and limitations on the tax rate and assessment increase for real property. While Prop 19 changed some of the 1978 property tax breaks protected by Prop 13, there are certain things you can do to retain its’ original intentions when moving to a new home in California – and make sure you are aware that:

a)  the purchase of your new home, or new home construction, occurs within two years of the sale of the prior property;

b)  your original property is reassessed when it’s sold;

c)  even though the goal is to avoid property tax reassessment on an inherited home – if the new property costs more than the old property, the difference will be reassessed.

d)  The BOE has stated formally:

The transfer of the base year value must be on or after April 1, 2021, and not the purchase or sale of either the original or replacement property. If the replacement primary residence is purchased or newly constructed on or after April 1, 2021, the primary residence may be sold either two years prior to or after the purchase or new construction of the replacement primary residence and qualify.

Critical Facts Concerning Proposition 19 

An inherited home must be a primary residence to be eligible for property tax breaks.   Moreover, $1,000,000 of the other property is eliminated.  As a primary residence, the assessed value plus $1,000,000 will not be reassessed (and according to BOE will be adjusted for inflation starting Feb 16, 2023).

•  Heirs (children of parents leaving real property as a gift or an inheritance) has to file a homeowners’ exemption or disabled veterans’ exemption within 12-months instead of 3-years as stipulated previously; and the inherited home must be a primary residence.

•  If the current property value is larger than the assessed value plus $1,000,000 , the property will be reassessed at fair market value (i.e., existing property tax rates) minus $1,000,000.

Proposition 13 Rules & Regs Still Alive and Well in California

The BOE confirms that only one heir has to move into an inherited house.  That heir (i.e., child of the parent leaving the property to the heir) is expected to move into that primary home within twelve months of the date of the parent’s death.  The heir is also expected to complete and file a “homeowner’s  exception claim” within one year of the parent’s death. Even if the parent does not own 100% of the property, a $1,000,000 exclusion will apply to their share.  It is essential that the heir understands that the inherited home must be  a primary residence; however, a period of “temporary absence” is allowed.

It is crucial for those families involved with agricultural activities, and inheriting a family farm, to take note of the fact that a family farm does not have to be a primary residence.  If the date of parental death, or transfer, is prior to Feb 16, 2021 – it preserves Proposition  13.  Naturally, all the correct documents must be  completed, and filed within the proper deadline. 

Gift deeds signed by Feb 15, 2021 do not have to be recorded by that date, in accordance with a CA State Board of Equalization stipulation on Feb 16, 2021.  The $1,000,000 assessed value exclusion applies to inherited assets and gifts.






PART ONE: The Home Protection for Seniors, Severely Disabled, Families & Victims of Wildfire or Natural Disasters Act

California Proposition 19

California Proposition 19

Otherwise known as Proposition 19, the new tax measure, more or less replacing Proposition 58, implemented changes to the parent-to-child and grandparent-to-grandchild exclusion – with the base year value transfer measure going into effect April 1, 2021.

Although we’ve covered these rules and regulations previously in this blog it’s always worthwhile to hear what yet another California property tax specialist has to say, if only to verify what others have described as viable revisions to long standing property tax relief in California – so critically important to middle class and upper middle class residents.

Viewpoint From Los Angeles Tax Assessor Jeff Prang

So let’s take a quick look at what senior Los Angeles Tax Assessor Mr. Jeff Prang has to say about these changes to property tax relief in California, and see if his viewpoint is consistent with, or otherwise deviates from, other noted tax experts and property tax specialists in the state, some that we have reviewed or actually spoken to over the past tumultuous year.

Mr. Prang confirms that Proposition 19 tax base transfers allow seniors, age 55 and up, to transfer the taxable value of their existing home to a new “replacement home of any value” – anywhere in the state of California – up to 3-times, instead of only once, as previous property tax regulations allowed, prior to Feb 2021.

Interestingly enough, Mr. Prang mentions the former Proposition 50 and Proposition 171, and looks at the improvements brought about by Proposition 19 to those tax measures – concerning personal harm and property damage from natural disasters, or wildfire; and the subsequent transfer of base year value of a principal residence to any other county, which was much more limited before Proposition 19 took effect .

Mr. Prang also goes out of his way to point out that Proposition 19 allows homeowners to purchase a replacement home of greater value than their original home and transfer their tax base with an adjustment to account for the value difference in cases of homes destroyed or severely damaged by wildfire, which is ironically running rampant in 2021, or some other natural disaster such as flooding or an earthquake.

Parent-to-Child and Grandparent-Grandchild Property Transfer

As of Feb 2021, most tax experts and property tax consultants agree  that in order to inherit a low assessment of a parent or grandparent’s property, under Prop 19, some new conditions must be met, and estate attorneys must get up to speed with these conditions – such as getting in the habit of informing clients that an inherited home has to be moved into within 12 months, retaining a parent’s low property tax base; as primary residence, plus to qualify for a base year value the inherited home must have been the primary residence of the parent or grandparent leaving the property to heirs.

In fact, there is now so much new information for estate and tax attorneys to get up to speed with notably inheriting property while retaining a parent’s low property tax base, to avoid property tax reassessment that many law firms more frequently,  lately, have  been sending clients who are inheriting real property from parents to a trust lender, as those particular lenders bridge the knowledge gap – and serve a purpose lawyers cannot serve, which is providing funding to irrevocable trusts if you as a beneficiary want to keep your parent’s home and, most importantly, retain their low property tax base – buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base… Basically, taking advantage of Proposition 19 (previously Proposition 58 benefits) in conjunction with an irrevocable trust to buyout one or more siblings’  property shares.  Sounds simple, however it isn’t.

General consensus of tax experts in California is that the CA State Board of Equalization stipulates a concrete set of property tax rules and regs, despite the fact that there are still areas concerning Proposition 19 that remain vague and oddly non-specific, which is still causing accountants and other tax professionals a good deal of distress; and for their business and high net worth clients even more concern – particularly when there is a great deal of money at stake.

 >> Click Here for Part Two…