New Benefits Provided to Families by Proposition 19

Unlike prior years, Proposition 19 now gives every CA homeowner an exclusion from reassessment; available in every county – in other words, 100% statewide. This particular change now enables California residents to purchase a more expensive home, in any county, rather than a more inexpensive home to keep the tax relief benefits of the base year transfer.

If a more expensive primary residence is purchased, there is now a rather complex formula to minimize base year value. Moreover, Proposition 19 now increases the number of times an exclusion from reassessment, or rather certain exclusions,  may be used by homeowners over age 55, up to three times in a lifetime.

Generally this option revolves around a common family or sibling conflict that typically has beneficiaries insisting on selling their inherited property shares strictly for as much cash as they get – which they finally realize their co-beneficiary sibling buying them out can provide, dispensing with a realtor’s 6% commission, closing costs, legal costs, and processing fees. plus all sorts of annoying, ancillary charges.

While the beneficiary buying them all out gets to retain the family home, generally with the help of an estate & trust lender, and often with an estate attorney watching over their shoulder, it becomes obvious tight away to all concerned that this trust loan / Prop 19 buyout solution furnishes a win-win formula for everyone. The trust lender funds the trust and provides “equalized distribution” so every sibling who is selling their shares receives an equal amount.

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.

Helping Families Avoid Property Tax Reassessment

Many attorneys as well as trust lenders truly believe that a loan to an irrevocable trust is the safest, most secure and most beneficial option available to beneficiaries – to keep their inherited home at a low base rate, or walk off with a good deal of cash from selling their property shares.   Depending on which way they chose to go.
One or more family members, beneficiaries, retaining an inherited family home, buying out siblings that want to sell their inherited property, discover quickly enough that this is a viable option. But the siblings who want to keep their family home have to take great pains to avoid triggering reassessment.

Even with a parent-child transfer, using a parent-to-child exclusion (from property reassessment) – when inheriting property while keeping a low property tax base – how do you know for sure you’re not paying more property tax than you should be paying? 

New homeowners have to consult with their attorney and trust lender, or CPA, to make sure they are taking the correct steps right from the beginning of the buyout process, to retain the low property tax base their parents had, thanks to CA Proposition 13, avoiding fair market (i.e., current) property tax reassessment.  It’s a good thing there is new access for homeowners to “CA State Board of Equalization” & “Property Taxpayers’ Bill of Rights”

Without loans to irrevocable trusts, this type of property transfer would be seen as a sibling-to-sibling transfer and would trigger current property reassessment, the outcome being a huge tax hike! Beneficiaries keeping an inherited home through this sort of solution ends 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 – with the ability to keep parents property taxes, keeping property at a low base rate through the parent-child transfer and parent-to-child exclusion.