Property Tax Relief for All Americans, Not Just California

Property Tax Relief

Property Tax Relief

A recent survey from Ameriprise Financial:

  • 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.

The Function of a CA County Assessors Office

The Role of the County Assessors Office

The Role of the County Assessors Office

The CA County Assessor’s Job

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

Financial Firms Help Californians Lower Property Taxes & Stabilize Financial Standing

Keep a low property tax base on an inherited home

Keep a low property tax base on an inherited home

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, Michael Wyatt Property Tax Relief  Consulting, 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 Michal Wyatt Consulting, 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.

What is Proposition 13?

What is Proposition 13?

What is Proposition 13?

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.

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.