Resolving a Family Dispute Over Inherited Property – Keeping or Selling – With a Trust Loan, in Conjunction With Prop 19

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.

Why Are Trust Loans So Popular With Families Inheriting Property in California?

California Trust Loans

California Trust Loans

Trust Loans Creating a Low CA Property Tax Base for Heirs

Trust loans in California – typically irrevocable trusts – are usually taken advantage of by sibling beneficiaries, with the invaluable help of a reliable trust & estate lender, to find a method of dividing inherited shares of real property held within a trust instrument…

Meanwhile, one or more beneficiaries interested in retaining sole ownership of their inherited property with a low CA property tax base, generally use a trust like this, in conjunction with Proposition 19, to buyout siblings looking to sell their inherited property shares, who get more cash than if they were to sell out through a realtor.

Financing an Estate Buyout Through a Trust Lender

A trust loan is generally viewed as the safest and easiest way to make equalized cash available to each beneficiary selling off their inherited property shares… providing them each with an equal share of the overall total worth of a home being bought out by a beneficiary or beneficiaries looking to retain sole ownership of inherited property… Unfortunately, credit unions and banks are not willing to lend to a trust to help a family in need of funding. However, a trust & estate lender invariably is.

This particular trust financing solution allows a beneficiary to keep a beloved family home, while co-beneficiaries looking to sell off their inherited property shares take their fair share of buyout cash plus an extra $14,000 or $15,000 by not selling through a realtor, given the standard 6% realtor commission and other ancillary fees and charges imposed on sellers in California. It gets expensive!

Embracing an intra-family buyout solution – Proposition 19 and an irrevocable trust loan – beneficiaries selling their inherited property shares end up walking away with that extra cash in their pocket… while the beneficiary or beneficiaries buying out their siblings happily receive their parents low Proposition 13 property tax base; as well as the opportunity to retain sole ownership of their parent’s home. This means everything to some folks – not only for the sake of important family memories, but also for the benefits found in owning a family home that could never be duplicated at anywhere near the original price the parents paid for it two or possibly three generations ago… 

Inheriting a Low Property Tax Base

The unique benefit of inheriting your parents’ low property tax base, unique to California – minimizing property tax  reassessment –   could never be duplicated except for the tax relief provided by Proposition 13, and the Proposition 19 parent-to-child exclusion.

Proposition 13 locks in a base-year value to a home whenever it originally changed ownership, and limits the annual property tax cap to 2% until ownership changes again – or until the realtor community manages to pass another property tax hike.  Which is why time is ripe to become better acquainted with the parent to child property tax transfer, and its’ crucial, subsequent parent-child exclusion from reassessment… As well as new access for homeowners to CA State Board of Equalization & Property Taxpayers’ Bill of Rights.

These are still such invaluable tools to use, when transferring inherited property from parent to child-beneficiary, in order to avoid property reassessment at such dangerously high current tax rates; plus other challenging taxes and obstacles.