Although trust beneficiaries, estate heirs, and homeowners in general hear more and more these days about “trust loans” and “intra-family trusts” used in conjunction with Proposition 58, which has graced Californians with its’ parent to child exclusion from property tax reassessment at current market value… there are, however, a good deal of misconceptions and a fair amount of confusion about this process that we should try to clear up a bit.
With recent changes to property tax relief surfacing, we don’t fully know what the effect these changes will have on Proposition 58 on Prop 13 property tax relief benefits, including the wonderful benefits trust loan funding provides, in terms of buying out property shares inherited by co-beneficiaries, or “sibling to sibling property transfer”, as realtors and tax attorneys like to refer to this process.
Middle class residents are getting more interested in this type of transaction, as it is moving the lending process away from more conventional, credit-based, hard money loans replete with high-interest charges and fine-print fees, piles of invasive personal-info paperwork… monthly payments that go on for years; so on and so forth.
So starting February 16, 2021, if you transfer your property to your children (or, grandchildren, if the parents have passed away), by way of inheritance, gifting, a sale, any hybrid sort of property transfer; estate planning outcomes; etc. – inherited real property taxes will be reassessed at yearly current market value.
Due to changes to the CA Proposition 58 parent to child exclusion benefit, heirs in the future will no longer be privy to inheriting property taxes, your Proposition 13 low tax base or “Proposition 13 Basis” has been California tax law for decades. With Proposition 58 protected rights such as sibling to sibling property transfer, or transferring parents property taxes inexpensively since 1986… with homeowners being able to continue inheriting property taxes, while having the right to keep parents property taxes on pretty much all property tax transfer scenarios.
However, if this property tax issue involving the watering down of Proposition 58 tax relief benefits is in fact a trend… and it does keep going in the direction is appears to be going – beginning with Proposition 19, with the possibility of Proposition 15 re-surfacing again with a more effective marketing plan the next time around – property tax transfer, parent to child transfer of property and the ability to keep parents property taxes may continue to be unraveled to a point where genuine property tax relief in California may be rendered virtually inactive.
Most Californians certainly hope this will not be the case, since California is the only state with property tax relief programs that really count, so therefore we trust voters will be more circumspect next time, and perhaps pay closer attention the next time a political measure looking to unravel property tax relief in California comes up for a vote – to help the CA Legislature pay for unfunded pensions as well as assisting the California Association of Realtors in getting more homes up into the market for sale!
Let’s hope that does not occur… and keep sending emails and letters, plus phone calls, to our state political representatives, now that it looks like voters are waking up to what they have been manipulated into voting for – not realizing what actually lurked in the details, under the hood of Prop 19 – with heartstring-tugging provisions, cleverly giving Californians something to vote for, with titles such as Property Tax Fairness for Family Homes, Property Tax Fairness for Seniors, the Severely Disabled, and Victims of Wildfire and Natural Disasters.
The CA Association of Realtors and the CA Legislature was clearly not going to be able to engender support for a property tax measure entitled Prop19, Removal of Parent to Child Exclusion & Unraveling Your Right to Avoid Property Tax Reassessment…
A limited version of the parent to child exclusion, or parent to child exemption, does still seem to be secure for beneficiaries; that is to say moving into inherited property as a primary residence within a year after a parent passes away is a safe way to retain Proposition 58 benefits, with, additionally, the valued ability to buyout property inherited by siblings through a trust loan; as long as one is able to move ones’ residence over the course of a year – essentially turning ones’ life upside down after the death of a parent – which is hopefully not so inconvenient or troublesome as to be paralyzing or traumatic. And time will tell how this will play out.