Trust Loans

Using a Trust Loan to Minimize Property Tax Reassessment

First, what is a trust… and what is the role of a trustee?  Once we understand that, we can move on to look at minimizing property reassessment with a trust, a trust loan, and Proposition 19 tax relief benefits. 

A trust is basically a financial instrument that  allows a company or person to own or hold assets for a collection of people, sometimes a family group – typically known as “trust beneficiaries“, for lack of a better term; managed by a “trustee”.  A trustee can be an individual, or a company. The ability for a trustor to name basically anyone a trustee leaves a lot of flexibility open to the person drafting the trust with a lawyer…

However, this flexibility in choosing a trustee can sometimes be problematic, as many people are named trustee of a trust who know absolutely noting about administering or managing a trust for beneficiaries – being an older sibling, or someone’s nephew or brother-in-law, for example. Trustees often allow the little authority they have been given to harbor ”delusions of grandeur”, especially when it is a high net worth trust.

The trustee can dictate terms to beneficiaries. We frequently see trustees acting as if a trust’s real property, liquid assets, or investment funds belong to them, and not the beneficiary or beneficiaries…. Often treating beneficiaries as if they were working for the trustee when in fact it’s the other way around – a trustee is in fact working for the beneficiaries, and in our view this should be more firmly dictated by the language set forth in trusts by the attorney drafting the trust.

Can All California Beneficiaries Get an Irrevocable Trust Loan?

The answer is basically “yes”… although with some exceptions.  An irrevocable trust can use real estate assets as collateral for a trust loan to a successor trustee or a beneficiary named in a trust.  Naturally it goes without saying that a beneficiary will need approval from a trustee to receive an irrevocable trust loan.

A trust loan can then be applied to an irrevocable trust for a sibling property buyout, to minimize property tax reassessment of real property; plus there can be other assets held in trust, securitized as a trust loan, after the originators of the original trust have passed away, typically making it impossible to change, alter or revise the irrevocable trust in any way.

Trust Loans & Sibling Co-Beneficiaries

Trust loans, irrevocable trust lending, provides a relatively fast solution for sibling beneficiaries looking to retain sole ownership of inherited property – using a trust loan to buyout co-beneficiaries that are seeking a way to cash out, to sell off their inherited property shares.

With Proposition 19 in the mix, there can be a guarantee of minimized property reassessment – avoiding a fair market or current assessment of inherited property; in other words inheriting property while keeping a low property tax base.  Thereby avoiding a steep property tax burden.

In fact, if a home is a product of two or three generations of ownership, triggering fair market property reassessment will unravel an opportunity to minimize property tax reassessment, and this scan be crippling – for many affluent families, and even for some high net worth beneficiaries who might be inheriting very expensive property, but may not have a great deal of liquid assets or outside cash flow coming to them.