2021 forward, those in leadership roles in the state of California really should to get one thing straight. Middle class homeowners, working families, and even upper middle class property owners – which accounts for most of the state, frankly – do not need more property tax hikes, and they do not need to be reaching deep into their pockets to be sending yet more tax revenue to the state; especially during a virulent pandemic, where middle class property owners are not getting any richer, nor (as the saying goes) are they getting any younger.
With so many people still furloughed, reduced to part-time work, or “temporarily” laid off… with more folks than you might think at 100% unemployed status… with a fair amount of companies shrinking their work force, with some even going completely out of business or leaving the state to set up shop in a nearby state where taxes are lower and property less expensive, plus lower overall cost of living.
Therefore, with survival at the top of most peoples’ list, middle class families in California are not particularly interested in reading about all the billions going into the state coffers as a result of new property tax measures, in editorials and articles in local newspapers…
On the contrary, homeowners are far more interested in saving money through long-term, time tested California property tax breaks – often with information provided by seasoned property tax consultants and attorneys with decades of property tax relief expertise such as Rachelle Lee-Warner, Esq. at Cunningham Legal trust administration, estate-law firm in Auburn; or estate & trust lenders like Commercial Loan Corp in Newport Beach.
These firms help beneficiaries that are inheriting property from a parent save many thousands of dollars every year by taking advantage of a (formerly Proposition 58) Prop 19 parent-child exclusion – working in conjunction with an irrevocable trust loan, making it possible to avoid property tax reassessment – buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base – buying out co-beneficiaries that are looking to sell off their inherited property shares for substantially more cash than an outside buyer would offer, which is the extra bonus.
Firms like this will guide families through a Prop 19 parent-child exclusion and property tax transfer when inheriting property taxes, with the ability to transfer parents property taxes and keep parents property taxes through the parent-child transfer.
Every property owner and beneficiary should have reliable access to a firm that can lend money to an irrevocable trust – typically a trust loan lender. Every property owner in California should also have access to property tax appeals and property tax reduction, from boutique property tax relief companies.
When we read local news or editorials, we’re encouraged to think about how wonderful all the extra property tax revenue is for California, and how helpful it is for local firemen and school boards, and how fortunate it is for realtors and well connected companies with special interest construction contracts. Neither commercial property owners and homeowners don’t have the luxury of thinking about the state government’s terrific success at driving more tax revenue into the coffers from well disguised property tax hikes!
All property owners in California should have locked in rights to keep their yearly property taxes low, and when inheriting a home from parents and inheriting parents’ property taxes — to establish a low property tax base that will last literally forever. This is the most important safety net middle class and even upper middle class residents and beneficiaries have in the state of California… and should be focused specifically on taking advantage that, not on the states’ fabulous increases in property tax revenue.
It would be worthwhile, for once, to provide interested property owners with a breakdown of little-known details on the property tax relief system in California. The California Legislature has implemented numerous property tax relief measures that many residents know very little or nothing at all about, such as a CA parent-child transfer for example. Furthermore, some of these programs are complicated, with voluminous forms to fill out — which is why consulting with a tax attorney, a property tax specialist or trust lender is crucial, when inheriting a home in CA or moving from one home to another.
However – despite mixed feelings from property owners, that is what the County Assessor’s office is for, besides happily taking your cash – to assist with difficult, complex issues. Unless you have deep pockets and can get all of your tax questions answered by a pricey tax attorney… which most middle class residents are not in a position to do.
For example, claims have to be filed with the County Assessor for any new construction, to ensure this will be excluded from property tax reassessment – if it concerns modification of any existing structures, for instance to make sure a certain structure is more easily accessed by anyone who is physically disabled or impaired in any way.
Disaster Relief Protections & Exclusions
Properties that have been substantially damaged or destroyed by a so-called “natural disaster” such as wildfire, a massive flood or an earthquake can be reassessed to determine if the damage has reduced the value of the property. If the county where such a property is located has a “disaster relief ordinance”. Written claims for this type of relief has to be filed with a County Assessor inside the time-frame allotted in the ordinance paperwork – or within 12-months from the date the property was damaged or destroyed (whichever is later).
The reduced value of a damaged property like that remains reduced until the property is completely restored. At that point, the factored base year value can be restored – as long as it’s similar to the way the property looked before it was damaged. If a county has no disaster relief ordinance, a taxpaying resident can ask the County Assessor for a “Proposition 8 reduction in value”. But only if the natural disaster occurred in an area validated by the Governor as an area in a state of emergency and the resident decides not to restore the damaged property.
The taxable value of damaged or destroyed property can be transferred to a reasonably comparable replacement property that is in the same county and was purchased constructed within 5-years after the natural disaster. The County Assessor will accept claims for this exclusion.
Replacement Residence Transfers
The taxable value of a principal residence that is genuinely damaged or destroyed can be transferred to a “replacement residence” in another county, as long as the alternative residence is in a county that has an ordinance permitting taxable value transfers like this.
Los Angeles County, Orange County, San Diego, San Francisco, Santa Clara, Contra Costa, Modoc, Solano, Sonoma, Sutter, and Ventura Counties have all signed onto ordinances that accept transfers of base year value. And naturally, all County Assessors accept claims for this type of exclusion.
Parent-Child and Grandparent-Grandchild Exclusion
The purchase or transfer of a principal residence and the first $1 million of other real property between parents and children is not subject to reassessment. Under the CA parent-to-child exclusion, to avoid property tax reassessment, CA parent-child transfer allows for a full year to move into a home inherited from a parent, as long as it is a primary residence, and the parent had used it as a principle residence as well – enabling a beneficiary to transfer parents property taxes on a standard property tax transfer when inheriting property taxes.
The CA parent-child transfer and exclusion also applies to property transfers from grandparents to grandchildren when both qualifying parents are deceased, subject to certain limitations. As usual, claims for this exclusion have to be filed within a certain time-frame.
Eminent Domain Exclusion
Eminent Domain is the right of a government to expropriate private property for public use, with compensation. The taxable value of property may be transferred to a comparable replacement property if the person acquiring the real property has been displaced from property by eminent domain proceedings.
This is basically an acquisition by a public entity, or by some sort of pointed government action that resulted in an adverse legal judgment of some kind. The replacement property does not have to be located in the same county as the property that was taken; or as it’s referred to in polite company, as “removed”. Claims for this exclusion has to be filed with the County Assessor within four years of the displacement.
Property Tax Exclusion for Residents Age 55+ or Disabled
People over the age of 55 or who are severely and permanently disabled can transfer the taxable value of their principal residence to a replacement property if it is of equal or lesser value, located within the same county, and purchased or newly constructed within two years of the sale of the original residence. This type of unique property tax relief can be utilized only once in a lifetime.
There is one exception to this one-time-only limit. If a candidate for this exception proves to be permanently disabled, after transferring the taxable value, and is under age 55, he or she can transfer the taxable value a second time under the disability requirement if the move is directly related to the disability.
Lastly, the taxable value can be transferred to a replacement property located in the same county, or to a replacement property in another county – as long as that property is in a county that has an ordinance that allows transfers like this. Alameda, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura Counties all have ordinances that allow transfers under this program.
However, claims have to be filed with the County Assessor inside of three years after the purchase of the replacement property, or after the completion of construction of the replacement property. It’s critical to pay attention to this deadline.
Solar Exclusions
The construction or addition of a solar energy system (with the exception of a solar swimming pool heater or hot tub heater) is excluded from being viewed as “new construction”, and cannot be charged property tax until the property changes ownership.
To keep it simple – a trust is a legal/financial instrument that allows a 3rd party (trustee), to manage cash or invested assets; real property; securities; retirement accounts; art or collectibles and other valuables; life insurance or other annuities; as well as any number of different assets, held in trust… usually to be inherited by a trust beneficiary, or several beneficiaries – and set up by a valid “trustor” who is a parent or some other family member.
California Trusts
In California trusts are often used by wealthy families, or by an individual, to avoid probate; to use as a trust loan & Prop 19 parent-child exclusion to keep inherited property at a low tax base; to avoid property tax reassessment; to defer taxes, or avoid taxes altogether.
Or, when it comes to irrevocable trusts (trusts that can’t be altered), California homeowners and beneficiaries frequently make use of a trust loan & Prop 19 parent-child exclusion (formerly a Prop 58 exclusion) when inheriting a home in California & looking for trust loan property tax savings, and possibly buying out siblings that are inheriting the same property, that are looking to to sell their property shares for a higher price than an outside buyer would offer them.
Many people believe that beneficiaries get access to inherited assets more rapidly with a trust than they would through an estate with a Will… However, that is often not the case. Inherited assets held in a trust fund are frequently received from any number of different “final distribution” or inheritance payout schedules – i.e., for example cash distribution every five or ten years; or when a beneficiary turns 21, or 30, or 50, or on some other birthday.
A Spendthrift Clause (written into many California trusts) will make a trust even more inflexible, and insufferable for the beneficiary.
Trusts can be arranged in all sorts of ways, to specify exactly how and when inherited assets pass on to beneficiaries. Often stemming from the view the person leaving the trust had of the beneficiary… whether he is responsible handling money, or if she is a spendthrift with liquid assets… and so forth.
Different Types of Trusts
A Marital or “A” Trust is designed to provide benefits to a surviving spouse; generally included in the taxable estate of the surviving spouse
A Bypass or “B” Trust (also referred to as a “credit shelter trust”) is established to bypass a surviving spouse’s estate in order to make full use of any federal estate tax exemption for each spouse
A Testamentary Trust is created through a Will after a someone passes away, with funds subject to probate and transfer taxes; and often continues to be under probate court supervision.
An Irrevocable Life Insurance Trust (ILIT) is an irrevocable trust designed to exclude life insurance proceeds from the deceased’s taxable estate while providing liquidity to the estate and/or the trusts’ beneficiaries.
A Charitable Lead Trust makes specific assets available to a charity; with the balance of the decedent’s assets going to his or her beneficiaries.
A Charitable Remainder Trust enables a beneficiary to receive an income stream for a defined period of time and stipulate that any remainder go to a charity.
A Generation-Skipping Trust takes advantage of the “generation-skipping tax exemption”, distributing trust assets to grandchildren or even generations coming of age after grandchildren; without a generation-skipping tax or estate taxes being imposed on the subsequent death of ones’ children.
A Qualified Terminable Interest Property (QTIP) Trust distributes cash flow to a surviving spouse. When the spouse passes, those assets will then be distributed to other additional beneficiaries listed in the trust document. Often used in second marriage situations, or to maximize estate and generation-skipping tax or estate tax planning.
A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust funded by gifts by its grantor; designed to shift future appreciation on quickly appreciating assets to the next generation during the grantor’s lifetime.
It is important to make note of the fact that an “irrevocable trust” is inherited as a document left by a “grantor” once that person is deceased, and cannot be altered; plus it may not be considered part of a taxable estate, therefore fewer taxes may be due on your passing.
Whereas a “revocable trust”, also known as a “living trust”, can be a much more flexible inheritance instrument — and most importantly, the grantor who wrote the trust document can maintain control while still alive. It is also worth mentioning, due to the problems many beneficiaries have with trustee, that it is critical to choose a trustee who will know his or her place, and not adopt an attitude that the money and assets belong to the trustee.
Moreover, the trust lender can help you, as a beneficiary inheriting a parental home, buyout a sibling or several co-beneficiaries looking to sell their inherited property shares – with a sibling-to-sibling property transfer; at a much higher price range than any outside buyer would offer – due to the avoidance of a realtor, who would typically charge a 6% commission – plus other pricey closing costs such as legal fees, paperwork processing fees; transfer taxes, escrow expenses, notary fees; as well as fees for credit checking, value appraisal, title search, home inspection, etc.
When it comes to selling a home, there is, as they say, “no free lunch”. Meanwhile, beneficiaries keeping a family home at their parents’ low property tax base, through an irrevocable trust loan in conjunction with Proposition 19 (formerly Proposition 58), is able to keep that inherited home in the family basically forever at the parents’ low property tax base, thanks to tax relief still protected by Proposition 13.
To be clear, an irrevocable trust typically transfers assets out of an estate and potentially out of the grasp of estate taxes and probate, but it can’t be altered by the grantor after it has been executed. So once you establish this sort of trust you lose control over the assets and cannot change any of the terms, or dissolve the trust. However, if you’re gaining the financial advantage of a parents’ low property tax base going forward – it’s generally worth the trade off.
A “revocable trust” can help assets pass outside of an estate in probate, and allows you to keep control of the assets, as long as you are alive. A revocable trust is flexible, and can be dissolved whenever you wish. A revocable trust generally becomes irrevocable when the grantor or trustor (i.e., the person who placed the assets into trust for his or her beneficiaries) passes away.
Trust Assets and Inheritance Distribution
An irrevocable trust is generally preferred over a revocable trust if your objective is to reduce the amount of estate taxes by removing inheritance trust assets from your estate. When the assets are transferred into a trust, you are of the tax liability on the income generated by the trust assets are relieved. Even though inheritance distributions will most likely result in income taxes. However, this type of trust will also provide protection against a legal judgment, should that occur.
Assets in a trust may also be able to distribute to heirs outside of probate, saving time, court fees, and potentially reducing estate taxes as well. Other benefits of a trust include managing your money. You can set the terms of the trust to control when and who assets will be distributed to.
You can set up a revocable trust so the trust assets stay accessible during your life while deciding who remaining assets will pass to, regardless of family complications. Parents often set the terms of trust distribution to protect the money in a trust by holding off on final distribution until the beneficiary is sufficiently mature to handle inherited money wisely, such as distribution at age 30, and again at 40, or whatever.
Final Trust Distribution
Some trusts do not reach final distribution until a beneficiary, who may be considered to be a spendthrift, reaches his or her 60th birthday — imagine waiting that long! This type of trust can also protect an estate from creditors coming after heirs who unwisely get deep into debt. Most importantly for some, a trust can allow assets to transfer to beneficiaries outside of probate and thus remain private, along with lessening money spent on probate court fees and taxes.
However, attorneys bent on convincing a family to leave inheritance assets in trust and ignore probate when they pass on may fail to mention fees associated with a trustee, who typically remains with a trust for the life of that trust, as well as subsequent attorney fees, bank fees, and other nominal costs that add up.
Typically, beneficiaries who are seeking a mid to high six-figure or low seven-figure loan to an irrevocable trust are looking to accomplish an important outcome that is generally not possible with other types of financing such as inheritance advance assignments, credit union financing or personal bank loans – as reviewed below…
What Type of Trust Lender do You Want to Work With?
Families buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base typically enlist the help of an experienced California trust lender that is self-funded. Beneficiaries generally want a self-funded lender as they deliver funding at a faster rate than institutional lenders, such as five to seven days, versus three to four weeks. They also offer terms that are more flexible than an institutional lender such as Bank of America or Wells Fargo. Their compliance requirements for both commercial and residential property owners are also less restrictive than traditional lenders.
Self-funded trust lenders seldom charge up-front fees, they do not require borrowers to pay advance interest on their trust loan; and there is never a “due-on-sale” clause that requires the mortgage to be repaid in full when the property is sold. Lastly, beneficiaries like the fact that this type of firm does not impose an “alienation clause”… in the event of a property transfer, insisting that the borrower has to pay back the mortgage in full before the borrower can transfer the property to another person. Estate and trust attorneys, or property tax consultants will always advise beneficiary clients to avoid these types of restrictive and costly requirements.
Buying Out Property Shares Inherited By Co-Beneficiaries
Generally this option revolves around a common family or sibling conflict that typically has beneficiaries insisting on selling their inherited property shares, while other beneficiaries are looking to keep the family homes, and are enlisting the help of a trust lender to buyout siblings who are determined to sell.
This type of family conflict is stressful, however the trust loan process provides a win-win solution for all concerned – keeping property at a low base rate for those who are retaining their parent’s home, and putting a lot more cash in the pocket, as far as beneficiaries who are intent on selling their inherited property shares are concerned. The trust lender funds the trust and provides “equalized distribution” so every sibling who is selling their shares receives an equal amount.
Avoiding Property Tax Reassessment
Beneficiaries looking to keep their inherited family home, while buying out siblings that are looking to sell off their inherited property shares with personal funds, will discover quickly enough that this is not a viable option. Siblings who wish to keep their family home must avoid triggering reassessment, hence using a loan to an irrevocable trust is the most beneficial option, keeping property at a low base rate, or walking off with a lot more cash from selling inherited property shares. Depending which side of the fence you’re on.
As a CA homeowner – how do you ensure, as with a parent-child transfer, that you’re not paying more property tax than you should? New homeowners must take the right steps in the beginning to keep the low property tax base their parents had, avoiding property tax reassessment at high current rates. Without trust loan funding, the transaction would be viewed as a “sibling-to-sibling transfer” and thus would not avoid property reassessment.
A beneficiary keeping the inherited home winds up saving on average $6,200 in yearly property taxes. Borrowing against an irrevocable trust ensures that the process moves directly through the estate and locks in a low property tax rate. Closely related property tax benefits – that beneficiaries and new homeowners need to get extremely familiar with – stem from Proposition 13 as well as Proposition 58; and have morphed rapidly into Proposition 19…
This all begins with basic property tax transfer… meaning the ability to keep parents property taxes, keeping property at a low base rate through the parent-child transfer and parent-to-child exclusion. Beneficiaries, and believe it or not their estate attorney, absolutely have to know all about their right to transfer parents property taxes when inheriting parents property and inheriting property taxes from Mom or Dad…
Paying Trust Expenses
For beneficiaries, when a trustee passes away, there is often not enough cash or “liquidity” in an estate or in a trust to pay debts an initial trustee owed, such as attorney fees, medical bills, mortgage and personal loan debt, and other financial obligations. A trust loan can help resolve these debts.
Renting or Selling Inherited Property
If heirs or beneficiaries decide they’d like to rent out an inherited property, there are often maintenance costs and repairs to be considered. Especially when dealing with an inherited homes, age is an issue… hence there are often roof issues, boiler problems, pipes to be replaces, and so on. Before one is able to put an older home on the market to rent or to sell.
Irrevocable trust loans and Proposition 19 property tax exclusion, working in conjunction with each other, insures that beneficiaries and new homeowners can get these fairly complicated tasks accomplished in a relatively easy, stress-free and inexpensive manner.
Discovered that 65% of Americans have never written and signed off on a Will;
77% of Americans plan to leave a financial inheritance for their children or grandchildren;
64% of Americans believe they are actually in a position to even leave an inheritance of any kind to their children;
only 50% of aging American parents have an estate plan in place reflecting inheritance assets being left to their children.
Some retirees are committed to leaving money and assets to their children; while other parents see it as “a good thing to do”… yet “not essential” as part of their plan for retirement. Not exactly a sign of high interest on the part of parents, is it, where leaving money to their children are concerned!
However, middle class and even upper middle class families in the United States are understandably concerned about cash flow, and the future of their net worth. Exacerbated by increasing concern over the variant Covid virus issues; which further discourages parents from leaving anything at all to their children upon passing away… virus or no virus.
These concerns are causing many families in America to believe that all states in America, not just California, should have tax relief laws benefiting middle class, lower middle class and upper middle class consumers, not just tax cuts and property tax breaks for wealthy residents.
Different state economists are looking specifically at property tax relief for their state, as this is one of the simpler areas to affect in this manner to help free up more consumer cash, and thereby improve their overall economy in this fashion, step by step.
Allowing beneficiaries of trusts and heirs of estates to be able to access genuine property tax relief… with the ability to get a loan to an irrevocable trust from a trust lender, when parents leave a home to them as an inheritance. This enables these folks to keep their family home, inherited from parents, at a low property tax base.
This process also enables beneficiaries to buyout sibling beneficiaries – or as attorneys put it, “the transfer of property between siblings, without a direct sibling-to-sibling transaction” – by lending money to an irrevocable trust – typically from an irrevocable trust loan lender, who can guide your ability to buyout sibling beneficiaries, and show you how you’re putting a lot more cash in siblings’ pockets when you go through a trust loan to buyout sibling beneficiaries. The fact is, we need to know our rights, with respect to these unique tax breaks.
Homeowners and beneficiaries in all states should know how to buy out beneficiaries’ shares of inherited property; and how sibling-to-sibling property transfer works. Moreover, all Americans should know how loans to irrevocable trusts can help co-beneficiaries get cash while avoiding selling their share of an inherited house – keeping yearly taxes on property at their parents low tax base.
All middle class Americans should be aware of the California system, of California advantages of inheriting parents property and thus inheriting property taxes that are lower and can remain low. Property tax transfer is an unknown in so many states…whereas inheriting a parents’ low property tax base, and avoiding property tax reassessment, as well as being able to buyout sibling beneficiaries with a trust loan – should be known to all, and be a normal state of affairs in all states. It certainly is a “best kept secret” for wealthy families all across America!
Property owners in other states can surely find the time to start the ball rolling to start adopting these property tax relief laws, plus they should be able to see how these types of yearly savings free up cash for many homeowners to be able to purchase a larger home later on.
This would feed more sales activity and cash back into the local economy, with loans to trusts to avoid property tax reassessment, working in concert with new property tax measure that became active in Feb of 2021, California’s Proposition 19 – which used to be the ultra popular Proposition 58, enabling exclusion from current tax rates with a parent to child property tax transfer – along with Proposition 193 for grandparent-to-grandchild exclusion from high fair market rates.
Designing a system like this that has been so successful in California would keep property taxes at a much more equitable system state by state, whereas right now most states do not have a system in place similar to California are not offering middle and lower middle class families a sustainable system within which they can thrive and increase their spending ability.
Californians would then be able to give back more consistently into the general overall economy – inheriting property taxes they can afford, hence being able to maintain inherited property, while helping to increase overall intra-state consumer spending. Creating positive overall financial connectivity, instead of separate declining family spending capabilities, which do not benefit the whole at all.
Economists in many states now believe that within struggling families, if beneficiaries were able to transfer a low property tax base from parents, with an iron clad right to keep parents property taxes as a part of the inheritance process, from parents and grandparents – middle class, upper middle class, and working families would all benefit greatly, and at the end of the day their state would benefit as a whole as well.
If this system were in place in other states, families would be able to free up more cash to spend on goods and services all across their state, thereby benefiting merchants and other consumer businesses, benefiting their families, so they can spend more, moving more cash into the economy, and so on – benefiting each state economy all the way around in every state that shifted in this direction with property tax relief measures designed to help not only individual homeowners and beneficiaries but each state in general.
Saving money on inheritance based property transfers would (as it does in California) allow middle class and upper middle class beneficiaries who do not wish to sell out to keep their parents’ home in the family, which most middle class inheritors otherwise could not afford to do. And yet, unfortunately, California is still the only state that provides a systemic system to help residents avoid property tax reassessment at current, unaffordable rates.
This sort of property tax relief program… capped at 2% taxation, as offered by the 1978 CA Proposition 13 would allows residents in other states to keep parents property taxes, and inherit property taxes at a low property tax base… having the ability to use a Proposition 19 style property tax transfer, with a parent-child transfer or parent-to-child exclusion.
As we all know, property taxes in California are determined by the value of our property. Every county Tax Assessor has to identify and calculate the value of many different types of taxable property in all 58 counties in California, as well as deal with property tax appeal challenges, as they come into the Assessor’s office.
The Assessor has always been independently elected in California, and is supposed to be completely objective, working for the people (i.e., voters) in each Assessor’s county – to be able to avoid political or financial influence from any governing county body; to avoid coercion from any city, school or district to accelerate the number of county tax assessments in order to generate more property tax revenue.
Principle Tax Assessor Responsibilities
The Assessor is charged with making sure property owners in California are taxed at the appropriate rates; ensuring that county public services are receiving the funding they need to continue functioning. Tax Assessors have to locate real property, land, various taxable structures via maps, which reveal every known land parcel, along with an “assessment roll”, which details improvements on property as well as ownership. It’s worth noting that household furnishings, livestock for the most part, and business inventory are no longer considered “taxable property”.
Four critical duties Tax Assessors must address are:
1. Locating taxable property
2. Identifying the owners of all taxable real estate
3. Determining the assessed value of all taxable property
4. Publishing yearly assessment rolls, plus supplemental reporting
Locating Taxable Real Estate
The Assessor must locate real property, land, various taxable structures via maps, which reveal every known land parcel, along with an “assessment roll”, which details improvements on property as well as ownership. It’s worth noting that household furnishings, livestock for the most part, and business inventory are no longer considered “taxable property”.
Property Assessment:
Since 1978, California’s property tax system (under state constitution Article-13a), is typically referred to as Proposition 13; with an Amendment in 1986 adding Proposition 58 to the process which provided a parent-to-child exclusion, and allowed beneficiaries to buyout property shares inherited by co-Beneficiaries… abruptly replaced and somewhat altered in Feb of 2021 by Proposition 19; although still providing homeowners and beneficiaries with property tax relief from property tax transfer benefits avoiding property tax reassessment with the right to transfer and keep parents property taxes when inheriting a home, and thus inheriting parents’ property taxes with the help of a parent-child transfer, and parent-to-child exclusion from current, or “fair market value” tax property rates.
Proposition 13 evaluates real estate at the 1975 “fair market value”, including factoring in heirs inheriting parents property taxes; with yearly increases curtailed at a 2% or the inflation rate, as measured by the CA Consumer Price Index – or whichever is less.
Real property is reappraised by the Assessor for tax purposes only when there is a change in ownership; new construction on property has been completed; new construction has not been finished as of the “lien date” (Jan 1); or market value has dropped below Proposition 13 factored value on the lien date.
Reappraising Real Property in California
When any taxable property is reappraised due to change of ownership a Tax Appraiser will examine sales of similar properties. Or if the property happens to generate revenue, the Appraiser will execute “an income approach”. If the real property in question is original and unique the Appraiser could potentially use the amount of money, or budget, the property owner spent on construction – or perhaps research industry-wide studies on similar construction, and use those costs instead to base the appraisal on.
As soon as that property has been evaluated, the property owner will be contacted and notified of the new property reassessment, or evaluation, and will be given the opportunity to review and discuss with the Assessor. If the property owner happens to disagrees with the reassessment, the property owner can always apply for a property tax appeal or “revised assessment” with the local Board of Assessment Appeals. Or enlist the help of a property tax appeal firm.
Property like boats or airplanes are assessed every year based on up-to-date Blue Book information distilled from market sales. Trade equipment is also assessed every year, using a formula based on original cost and age of the equipment.
If none of these items apply, the assessed value of a property can be increased by no more than 2% per year. Sale price of a property is considered be its’ market value unless the Assessor can prove convincingly that market value is not accurately reflected by the sale price. The Assessor is also expected to revise the sales price of a property to prove any value that can be attributable to items that are exchanged in a sale, not for cash; perhaps such as barter.
In many respects, Proposition 13 changed the rules in California – as explained by the County of Napa.org website, which tells us:
“Prior to the passage of Proposition 13 in 1978, the Assessor reappraised all properties on a four-year cycle, with entire neighborhoods receiving increases in value based on recent sales in that area. Under Proposition 13, values are established at a base year, either as of March 1, 1975, or as of a change of ownership or new construction.
Proposition 13 requires an annual inflationary adjustment, not to exceed 2%. A property with a 1975 base-year value of $100,000 has a cumulative adjustment over the past 43 years of 211%, resulting in a current factored base year value of $211,000. Thus the function of the assessor has gone from doing mass appraisal impacting many properties to an individual appraisal of properties that have changed hands or had new construction.
Ownership records are maintained from documents obtained from the County Recorder. Assessor maps are updated as parcels are subdivided or their boundaries adjusted. Building permits are reviewed for accessible new construction and appraisers make discoveries in the field.”
County Assessors Offices, Auditors, Auditor-Controllers, Clerks of the Board & Tax Collectors can found in all 58 counties across the State of California: Here ~ on the BOE Website
Help From Property Tax Specialists – Bridging the Wealth Gap
Important cities responsible for growing jobs and driving opportunities that generate revenue for consumers, such as Los Angeles, San Diego, San Jose, San Francisco, Long Beach and Anaheim – have all experienced population shrinkage since 2020, due in part to shrinking real estate possibilities as well as unreliable employment, fluctuating sales conditions and unstable economic conditions overall.
Some financial services companies are looking to help reverse this trend and contribute to building a more positive economic and business environment for residents to thrive in, rather than struggle in.
Contributing time and effort towards helping beneficiaries that are inheriting property yet are in danger of falling prey to increased property taxes and limitations to property tax breaks – some financial services companies include middle class and upper middle class families in their suite of services, as opposed to just focusing on wealthy families as many investment, lending and wealth management firms do.
Examples of property tax professionals who are more open to helping middle class Californians are specialists like Advanced Tax & Estate Planning, Trust Administration attorney Rachelle Lee-Warner, at Cunningham Legal or Estate & Trust Lending firm Commercial Loan Corp – all who do in fact include middle and upper middle class families in their wide range of property tax services.
These firms, and others, are now seeking broad, proactive ways to reach and assist middle class and upper middle class homeowners and beneficiaries expecting to inherit business property or a home from parents, yet find themselves to be victims of financial bias… unable to enlist the help of high-end property tax experts due to their middle class, or rather non-wealthy, financial status.
Free Property Tax Savings Estimate & Consultation
To help preserve net worth for middle class families, the trust lending firm mentioned above recently decided to offer a free consultation & estimate for property tax savings to California middle class and upper middle class homeowners and beneficiaries, as well as affluent residents, all who want to avoid property tax reassessment by keeping parent’s low property tax base… locking in the same low tax rate their parents enjoyed.
Property tax firms are looking to help residents work around obstacles associated with a Proposition 19 parent to child property tax transfer on an inherited home, and is well known for providing ways to save new homeowners and heirs of estates and trusts thousands of dollars in annual property taxes. They are also assisting beneficiaries with applications for trust loans to buyout siblings that are also inheriting property but wish to sell their shares.
This type of consultation helps residents to evaluate, in-depth, the benefit of a loan to an irrevocable trust, and various financial options associated with property tax transfers in California – plus buying out co-beneficiary siblings who are looking to sell their share of an inherited property. Moreover, going through a trust lender you trust; keeping your parent’s low property tax base when inheriting a home.
Firms like Commercial Loan Corp work with families to help them preserve their modest financial security; alongside their attorney, accountant or property tax consultant; and assist family members and beneficiaries by helping them avoid property tax reassessment at current market rates, and determine through in-depth consultation how much a family can expect to save on property taxes,
On average this saves more than $6,200 per year, per beneficiary; as well as weighing costs and benefits of a trust loan working alongside Proposition 58 – now for all intensive purposes having morphed into Proposition 19. This enables a simple buyout of inherited property from co-beneficiaries, providing them with more money than an outside buyer would furnish them with; while keeping parents’ low property tax base.
Thaddeus Farrell, Account Manager at Commercial Loan Corp, offers an Insider’s Viewpoint on Estate & Trust Lending
“We guide beneficiaries through a process that will maintain their parents’ low property tax base. Usually siblings that want to retain inherited property from parents come to us first, generally after being referred to us by a law firm. Middle class families that can’t afford to pay reassessed taxes on an inherited home… Which pretty much sums up most families these days…
… property reassessment can cripple a family financially. I look at it like this – expenses are a part of life, and when you inherit a family home, if the property is reassessed at current rates, those expenses will usually go sky high. Most middle class people can’t afford to pay that type of tax hike. They want to take advantage of Proposition 19 and a trust loan, transferring CA Property Taxes from a Parent to an Heir tax break, to avoid property tax reassessment, and move into an inherited home within a year as a principle residence, which was their parents’ principle residence formerly protected by Proposition 58 and Prop 13.
Siblings inheriting a home have two options. They can sell or keep their inherited property. In other words, your family has to make up their mind – what they want to do, sell or keep. Selling it is far more expensive. By keeping the home, each beneficiary receives approximately $15,000 extra in a cash trust distribution when compared to selling the home because they avoid costly realtor and real estate sale expenses. The child beneficiary keeping the inherited home winds up saving on average $6,200 in yearly property taxes.”
Where to get help from Property Tax Savings professionals
Families, beneficiaries, or their attorneys, who want to take advantage of Commercial Loan Corp’s Free Consultation for Property Tax Savings and/or speak to attorney Rachelle Lee-Warner about Proposition 19, at Cunningham Legal; or perhaps discuss the facts with Commercial Loan Corporation, in terms of keeping parent’s low property tax base; or to receive a trust loan to buyout co-beneficiaries’ property shares, and learn more about keeping parents’ low property tax base when inheriting family property – can call (877) 756-4454 and set up a free evaluation in person or over the phone.
Proposition 13 (i.e., People’s Initiative to Limit Property Taxation) is an amendment to the California Constitution, and was passed by voters in California on June 6, 1978 by close to two-thirds of the voting public. Proposition 13 was designed to decrease property taxes on homes, businesses, and farms by 57% – preventing property tax rates from exceeding 1% of a property’s market value. Property tax reassessment would no longer be able to increase by more than 2% per year, except when a property was sold to a valid buyer.
Boiling Point for the Middle Class & the Elderly
Before the advent of 1978’s Proposition 13, property taxes were notorious in terms of being completely out of control in California, in all 58 counties. Reports and complaints of, for want of a better term, taxation abuse – were mounting. Homeowners, especially elderly residents, were losing their homes due to the simple fact that they were unable to pay their rising property taxes. And yet state and local government officials did absolutely nothing to help.
Stories swept across the state like wildfire describing how senior retirees, military veterans, and elderly widows all living on modest fixed incomes were literally being thrown onto the street for late payments; or simply being unable to pay off increasingly high property tax hikes.
By the late 1970s, property tax burdens were unbearable in the state of California; and just as important – unsustainable for working families, middle class, and even upper middle class homeowners. Obviously, wealthy and ultra wealthy residents could absorb pretty much any tax hike. But that’s merely 1% or 2% of the entire state.
For elderly middle class folks dependent on fixed incomes, the outcome in the 1970s was frequently a forced sale of their beloved family home – typically the only asset of any real value they owned. And that was what Californians saw month after month, year after year – retirees and middle class working families either selling off their home, their most precious asset, or giving it up to the tax man against their will.
There was even a story circulating around of an elderly woman having a heart attack due to stress while visiting the Los Angeles Tax Assessor’s office, when she couldn’t convince the authorities to take her seriously and lower her tax bill…
Another good example of the state’s inflexible, intractable position on property taxes is a story from the 1920’s concerning a retired couple, as reported in the Newhall Signal newspaper in Newhall, CA. Because this elderly married couple lived in a small home, close to an upscale brand new apartment building, the County Tax Assessor decided to reassess the couple’s tiny house at the highest possible tax rate – as if the land their little home was on would soon boast a massive high-end hotel! Their small home was taxed at $1,800 per year, regardless of the fact that the retired couple’s total fixed income was $1,900 per year.
Hence, support for Proposition 13 swept the state and filled local newspapers with headlines and reports on this urgent statewide phenomena. Californians began thinking seriously about what it actually might be like to not be financially crippled every year by mounting property taxes.
The Howard Jarvis Taxpayer’s Association Viewpoint
The Howard Jarvis Taxpayer’s Association recently wrote: “The San Francisco Assessor was taking bribes to keep business taxes down below the market value. He went to jail. To make sure the valuations were correct and equal in San Francisco, the new assessor used computers. When a property sold in a neighborhood, all the surrounding properties found new tax bills reflecting a new market value, resulting in great increases in taxes for everyone. Property taxes went up so quickly in San Francisco that bumper stickers soon appeared pleading: ‘Bring back the crooked assessor!’
The private sector of the economy fared beautifully in the aftermath of Proposition 13, but some people questioned whether this private sector success might not have come at the expense of the public sector. Opponents of the tax cuts voiced concerns that the tax reductions might have gone too far requiring excessive program cuts. Vital services, they said, would suffer, schools would have to close, and fire and police protection would no longer be adequate. Yet in spite of the precipitous fall of the state’s average tax rate, state and local revenues did not fall proportionately. The total general revenue for local governments fell only 1% in the year following Proposition 13. By FY 1980 revenue had risen more than 10 % the FY 1978 level. The tax base expanded by more than enough to offset the reduction in tax rates.”
Tax Hikes No More
Basically, Proposition 13 managed to lower property taxes by assessing properties at their 1976 value, while capping annual increases at 2% – not allowing property reassessment of any new base year value – with the exception of the home being sold to a new owner… or on the completion of any new construction on the house.
As of 1978, to everyone’s relief and delight, all residential and commercial real estate owned by an individual, a family, or a corporation was impacted by new Proposition 13 property tax relief measures such as transferring property taxes in California, namely a parent to child property tax transfer or parent-child exclusion for all types of property owners – and protected property tax transfers and the right to transfer parents property taxes when inheriting property and inheriting property taxes.
Beneficiaries could keep parents property taxes basically forever, or as long as they resided in their inherited residence as a primary home. This was what everyone had been waiting for, and was desperately hoping for. With added amendments later on, such as the wildly popular Proposition 58 in 1986, with all sorts of California beneficiaries getting trust loans to buyout property from siblings, while locking in a low Proposition 13 based property tax base.
Another lesser known component to this tax measure, that many families did not even take note of, was an important new step that required a two-thirds majority in both CA Legislative houses to implement any further increases of any state tax rates or revenue charged, which included highly sensitive income tax rates.
A two-thirds majority vote was also imposed on local elections affecting local governments who otherwise, perhaps on a Friday evening blitz when no one was looking, would happily increase some sort of special interest tax, before the other party could stop them. A two-thirds majority vote would prevent that from happening going forward. So Proposition 13 wasn’t just about homeowners getting the right to transfer parents property taxes.
For the first time in the state of California, taxation was capped at a strict 2% rate. For the first time property tax relief (in practice as opposed to lip service), was accessible for middle class, upper middle class and working families – with its’ foundation built on a “base year value” for property tax reassessment, with enforced limits to state property tax rates and limits to increases through arbitrary property reassessment.
California Base Year Values
CA Proposition 13 locked in three critical restraints for property tax reassessment: (a) All real estate now had non-negotiable iron-clad base year values; (b) restricted rates limited property reassessment to a 2% yearly increase; and (c) a property tax limit of 1% of the assessed value was imposed along with the right to transfer parents property taxes and the parent-child exclusion.
Once Proposition 13 passed, property assessments for 1978-1979 were required to be “rolled back” to 1975-1976 property values, establishing the first base year values in California. Properties that have not sold or undergone new construction since February 1975 are viewed as having a 1975 base year value.
Reliable Property Tax Expectations
Because of Proposition 13, for the first time, certainty in taxation lay in the hands of the taxpayer instead of the tax collector. Proposition 13 set up an acquisition value system that treats all homeowners alike in that they pay 1% of the market value established at the time of purchase; limiting increases to 2% per year – creating a an even playing field for all property owners.
