Trust Loans

Trust Loans

Trust Loans

Trust Loans and Proposition 19 In California

A trust loan in California is an inheritance loan typically planned  and implemented by a licensed trust & estate lender, or a private money lender.

Conventional lenders like banks and credit unions won’t extend a complex lending instrument (like a trust loan working with Prop 19) to borrowers, who are generally beneficiaries to a family trust, whose names never appear on the property title, making the loan even more complicated to the likes of banks and credit unions in the state of California.

a)  For one, the trust that a loan is issued to should be an irrevocable trust…

b)  An irrevocable trust has to permit the trust’s beneficiary, or beneficiaries, or trustee – to accept a loan associated with property and in fact be owned by the trust as collateral.

c)  Secondly, the trust should also allow beneficiaries selling out their inherited property to accept the trust money as buyout funds…

d)  Thirdly, the trust must position the trustee to function mainly for the benefit of the beneficiaries…

e)  Moreover, with the authority to borrow against the trust as security for the loan.

f)  A California beneficiary property buyout is generally executed within seven to ten days, with a trust loan working with Proposition 19. That being said, a trust loan and trust lender will work around the needs of the trust, executor, trust administrator or attorney.

g)  Once beneficiaries selling off their inherited property shares have received their trust loan funds, the title of the property can be transferred to the beneficiary buying the property from the iron-clad irrevocable trust.

h)  Finally, the property-owning beneficiary having bought out his or her co-beneficiaries, can now get approved for a conventional  loan to refinance an irrevocable trust loan.

An Irrevocable Trust Loan Beneficiary Buyout

In California, trust loans are generally used to implement a beneficiary property buyout, to equalize buyout cash for each and every beneficiary selling their inherited property shares – working in conjunction with Proposition 19 to insure the beneficiary buying out co-beneficiaries get to minimize property tax reassessment, keeping a low property tax base when inheriting a home; since a trust loan is viewed as a third-party loan; and can pay for all the expenses of the trust, the trustee’s fees, and even pay for the trust estate’s attorney fees.

Why Borrow With An Irrevocable Family Trust Loan

An irrevocable family trust loan makes it possible for a trustee to get a mortgage secured by real property held by a family trust.

Borrowing money from a family trust like this lets a trustee or beneficiary equalize funds among beneficiaries selling-out their inherited property… while implementing a simple property buyout typically of sibling beneficiary property shares – dividing ownership in the inherited property; and receiving enough funds to resolve most family trust obligations. Californians, by now, are very aware of new CA property tax relief transferring low property tax values.

A family trust loan is made directly to the trust. Usually, the trustee or one of the beneficiaries is responsible for paying off the trust loan, and making sure the family trust mortgage is paid off as well.

If you are in need of a trust loan or loan to an irrevocable trust, contact Commercial Loan Corporation at (877)464-1066. They can provide you with a free benefit assessment and will be able to let you know how much you may be able to save in property taxes by utilizing a trust loan to buyout siblings and keep a parents low property tax base on an inherited home.

Parent-to-Child Property Tax Transfers Under Prop 19

California Parent to Child Property Tax Transfer

California Parent to Child Property Tax Transfer

CA Proposition 19 Tax Relief & Exclusion From Reassessment

As of Feb 16 in 2021, Proposition 19 changed everything. Despite some revisions to California’s primary property tax relief system impacting beneficiaries inheriting property, and homeowners, affecting future inheritance property tax breaks.

Homeowners over 55, with physical disabilities, or whose home has been destroyed or seriously damaged by forest fire or other natural disasters – can now take advantage of significant exclusion from reassessment for property transfers… or “exemptions” from the affect of steep property reassessment under Proposition 19 property tax relief.

Prop 19 allows transfers of a family home, or a family farm, between parents and their children, or grandparents and their grandchildren, without causing “a change in ownership” which would unravel tax benefits such as exclusion from reassessment for property transfers, and trigger crippling property tax reassessment.  Fortunately, we can still avoid “change of ownership” which would cause a steep property tax burden to descend on beneficiaries.     

Parent-Child California Property Transfers

Let’s make sure we understand that this isn’t some sort of automatic overnight property tax relief solution. There are certain qualifications that must be met. Every beneficiary has to be found to be “eligible” for a homeowners’ exclusion or a disabled veterans’ exemption – and applied for no longer than twelve months after the transfer of property or the purchase of the property in question.

To reiterate, before any inherited property transfer, parents must prove they have been primary residents of the property being transferred or inherited;  and at least one child/beneficiary will show that there is one or more  primary residents living in that property inside of twelve months after the intra-family property transfer.  

Similarly, a parent must also be eligible for the homeowners’ or disabled veterans’ exemption within one year of transfer or purchase.  The purchase or transfer of “a family home” between parents and their children (beneficiaries) can be qualified for exclusion from reassessment if and only if the property in question is continually lived in as “the family home” of the transferee.

Moreover, at least one of the children-beneficiaries involved has to show that they are residing full time in their inherited home as “a primary residence” – as opposed to renting it out to others as a vacation home, or using it as a weekend swelling, for instance.

The BOE & Property Tax Exclusion From Reassessment

The BOE, CA State Board of Equalization, tells us that if a parent or their principle beneficiary/child did not get final approval for their property tax exclusion (or “exemption”) inside a year, but was actually eligible – they can apply for an exclusion by showing that their inherited home is indeed their primary residence.

To qualify, the assessed value of the home upon purchase or transfer has to go through a valuation examination. Any Tax Assessor’s Office provides a digital “calculator” to help homeowners estimate potential tax savings. 

The value limit is equal to the home’s taxable value at time of transfer plus $1,000,000.  Any amount at market value that goes over the limit is added to the taxable value for the transferee.  Partial tax relief is allowed to mitigate the tax burden…  under the parent-to-child exclusion up to the value limit; with the remainder assessed at the current, up to date, market value.

A tax relief exclusion from reassessment for transfers between grandparents and their grandchildren follow the same rules and regulations as the standard parent-to-child exclusion… providing the parents of any grandchildren have passed away. Moreover, special rules apply to multi-unit residential residences and mobile homes.

At the same time, beneficiaries inheriting a home from parents, as well as homeowners, must continue to watch for any changes to their ability to maintain a low tax rate, inheriting property taxes, from a parent to child transfer, and to steer clear from triggering steep reassessment of inherited property – thereby avoiding property reassessment through a parent-child transfer and a parent-to-child exclusion… still intact, thankfully, despite all these new rules for property tax transfers in California – but still must be watched carefully at all times.

Californians’ property tax breaks, their right to transfer parents’ property taxes and to keep their parents’  property taxes basically forever, with a property tax transfer, has to be watched incessantly by non profit watchdog organizations, such as Howard Jarvis’ California Taxpayers Association, http://www.caltax.org, or http://www.ftb.ca.gov  

San Joaquin County Bar Assoc. Offers Perspective on Prop 19

On paper, Prop 19 seems confusing, so a practical example might help: Mary owns her primary residence, which is worth $1 million and assessed at $300,000. Mary also owns a rental property worth $900,000 and assessed at $200,000. Mary has one child, John, to whom she will leave both properties.

Before Prop 19, John could inherit both properties and continue to pay the same property taxes Mary would have via the parent-child exclusion.  After Prop 19, if John inherits the rental property, it will be reassessed at fair market value because it was not Mary’s primary residence. If John inherited Mary’s primary residence and chose not to use it as his primary residence, it would also be reassessed at fair market value.

But if John chose to use it as his primary residence, there would not be a reassessment, as the difference between a primary residence’s fair market value ($1 million) and assessed value ($300,000) is less than $1 million. 

However, assuming that the fair market value of a primary residence is $1.5 million, instead of $1 million, with the same assessed value of $300,000. In that case, the property would be reassessed, since the fair market value ($1.5 million) is greater than $1 million more than the assessed value ($300,000) – but there would be a $1 million exclusion from assessment, so the residence would be reassessed at $500,000 ($1.5 million – $1 million).

This information is intended to provide a general summary of Proposition 19. It is not intended to be a legal interpretation or official guidance. Our advice is subject to change. So we encourage you to consult an attorney for advice on your specific situation.

We could not have described and illustrated it better ourselves.

Assistance with transferring a property tax base on an inherited home

If you require assistance transferring a property tax base from a parent to a child on an inherited home, we suggest you call Commercial Loan Corporation at (877)464-1066 or visit their website at cloanc.com. Even if you do not require a loan to an irrevocable trust to make an equal distribution, they can help answer questions you may have and put you in contact with a Trust & Estate Attorney in your area if needed.

Homeowners Make the Best of New Property Tax Measures in California

Property Tax News

Property Tax News

In Nov 2020 voters in California were presented with a new property tax measure… Proposition 19.  So in addition to a Prop 19 parent child exclusion, a mission was apparently added to help fire-fighters; providing seniors and disabled homeowners with property tax breaks,  along with folks over 55 who have suffered property damage from a natural disaster such as flooding, or an earthquake.

Californians Still Have Property Tax Relief to Turn To

Despite several limitations, parents in California can still transfer property they own to beneficiaries, with parent’s low property tax base since the parent-child transfer provides grown children with an exclusive property tax break that provides exclusion from property reassessment – thereby avoiding or minimizing property tax reassessment.

This also applies to grandparent to grandchild beneficiary transfers… However, necessitating that both parents of the beneficiaries must be deceased to qualify the grandparent-to-grandchild exclusion, or exemption.

Under new property tax requirements under Proposition 19, a parent must have lived in the residence being transferred, usually via inheritance to beneficiaries… as a primary residence. And must have filed a “homestead exemption” for the inherited property going to their beneficiaries.

An inherited home can be valued up to $1,000,0000; with the beneficiary prepared to move into the home within one year as a primary residence; plus claim a homeowners’ exemption – in order for the property transfer to be excluded from property tax reassessment.

Prop 19 Favors Seniors, and Folks with Bad Luck or Poor Health

Under Proposition 19 homeowners age 55 and up, severely disabled, or victims of wildfire or a natural disaster, can buy a new primary residence anywhere in California up to three times, and transfer their lower property tax basis from their existing property to their new property. The new property has to be of equal or lower value of the original property being sold.

This is all in addition to, not replacing, the old Proposition 58 property tax benefits that provide Californians with the ability to avoid a sibling to sibling buyout directly, while still being able to buyout siblings and retain sole ownership of inherited property… all the while managing to  avoid property reassessment with a parent-child transfer… with the right to keep parents property taxes (low property taxes) through a Prop 19 parent child exclusion in California.  A property tax transfer is still accessible for all Californians inheriting property from parents, while at the same time inheriting property taxes.  In other words, inheriting property while keeping a low property tax base

Even though a Prop 19 parent child exclusion is subject to certain new limitations… as long as one stays in compliance — the property tax breaks are there to take advantage of. Which is why many beneficiaries work with a trust lender to buyout co-beneficiaries,  retaining sole ownership of inherited property along with minimizing their property tax reassessment…. Moreover, so beneficiary property disputes can be resolved by a loan to a trust.

Estate Taxes

On the other hand, if a beneficiary sold his or her inherited property after the date of parental death, capital gains tax would be low, if any.  The estate tax for 2021 was capped at $11.7 million… Estates valued at less than $12.06 million in 2022 for individuals are exempt from an estate tax.

Every property owner in California resident is allowed to gift a certain amount of property per year, tax-free.  In 2021, this amount was $15,000, and in 2022 this amount is $16,000. There is a good chance estate taxes will not be imposed, looking ahead… unless the estate tax cap is revised… And that’s highly unlikely in the foreseeable future.

Loans to Trusts

Loans to Trusts

Loans to Trusts

Trust Loans & Prop 19: Minimize Property Tax Reassessment

As you probably know, a trust in California generally reflects a financial instrument, frequently associated with a family estate, usually created with an estate attorney — and if it’s an irrevocable trust, usually with a trust lender involved — where a “trustor” (the person who created the trust agreement) entitled someone with the authority to manage the trust, called a “trustee”… also able to hold title to property or assets for the benefit of any and all beneficiaries to the trust.

Besides the fact that trusts are known to be a financial instrument good for deferring or lowering income taxes and property taxes… a trust often allows a company or a person to own assets that belong to a group of people that would be called beneficiaries, a family that would officially be known as beneficiaries to the trust… or even just one person, that would be known as “the beneficiary to the trust”.

However, frequently much to the chagrin of the beneficiaries – a trust is always managed and controlled by a trustee, which can be a person or a company. Including the distribution of liquid assets, if there are liquid assets, to the beneficiaries. Often a source of contest or dispute between trustee and beneficiary, or beneficiary vs. beneficiary.

Trust Loans for Sibling Beneficiaries

Trust loans are often utilized by sibling beneficiaries who want to minimize property tax reassessment, buying out an inherited home from siblings who are looking to sell off their inherited property – generally to establish and retain sole ownership of an inherited home.

Here is where an irrevocable trust loan often steps in to resolve these differences in objectives with their inherited property shares. The solution involves a fast trust loan to fund a beneficiary property buyout – plus usually works in conjunction with Proposition 19 to help minimize property tax reassessment or completely negate property reassessment – saving inheritors thousands of dollars in the final analysis. Californians need to keep a close eye on these new rules and regs just as they must keep up with new rules for property tax transfers in California.

Moreover, using this property inheritance solution, the sibling beneficiaries selling out their inherited property shares end up, in seven to ten days usually, with at least an extra $14,000 or $15,000 in their pocket, as opposed to selling off their inherited property through a realtor, given the standard 6% property sales commission and other ancillary fees and charges.

It adds up. There’s no free lunch, working with a realtor. No matter how convincing the sales pitch is.  It’s certainly worth exploring other options.

If you are in need of a lost to a trust or irrevocable trust, we highly recommend that you call Commercial Loan Corporation at 877-464-1066. The are California’s #1 Trust & Estate lender and can provide you with a free cost benefit analysis on trust loan and parent to child transfer.