Our conversation with CEO Michael Wyatt of the Michael Wyatt Consulting firm, Real Property & Property Tax Advisory, based in Corona, CA continues…
Property Tax Transfer: Mr. Wyatt, how do you see the inner dynamics of your average real estate conflicted estate, or trust? Meaning, the conflict between those who are determined to keep their inherited property, and those who prefer to sell…
Michael Wyatt: When your parents die, and your trust agreement says “equal shares”…. That means equal shares. People basically just get the overall concept of getting money from a trust loan even if it doesn’t sell. If you’re going to hold a property for more than 7 years, it makes more sense, and it’s more money in your hand… It makes more sense all around to get a trust loan; and everyone gets more money. For short term it may not be more beneficial to not sell.
Property Tax Transfer: From your experience, do more people prefer to sell inherited property? Or do they lean towards keeping property they inherit from their parents?
Michael Wyatt: Judging from the beneficiaries that come to us, more beneficiaries end up not wanting to sell their inherited property. And if they did want to sell, a lot of people can be easily convinced, with cash from a trust loan equalizing things for them.
Property Tax Transfer: Aside from fast, inexpensive trust loan cash, how is it that so many beneficiaries are easily convinced? Relatively, anyway.
Michael Wyatt: You have to look at it this way: there are always one or two, minimum, who insist on selling their shares in an inherited property. And there is our initial client contact, with those who want to sell. And that is where these family estate or trust conflicts begin. When mom and dad die proceeds are in effect, since inheritance is not subject to capital gains tax. But people who do plan on selling an inherited property come to see very quickly that they are going to be hit hard by capital gains tax. If they sell their property, capital gains tax always hits them.
Property Tax Transfer: And so that, in fact, is a very strong convincing factor.
Michael Wyatt: Correct.
Property Tax Transfer: And property tax relief in general… How did this come about in California, whereas there is nothing quite like this anywhere else in the USA?
Michael Wyatt: Well, we have Oregon, and they’re close, with a maximum property tax rate of 3%… which is close to California’s Proposition 13 cap of 2%. But, right – you’re correct, that’s about it in the United States for serious, meaningful property tax relief.
Property Tax Transfer: So how did this type of property tax break actually start, and evolve into such a strongly supported property tax system, with rock solid rights to parent to child transfer, or rather parent to child exclusion… consistently avoiding property tax reassessment, and so on?
Michael Wyatt: These property tax benefits from Proposition 13 came about in California because people didn’t want property tax increases of 25% or 30%, or whatever. It really was out of control. And property tax rates were particularly high and unpredictable and unstable in California, for whatever reason, prior to 1978 when Prop 13 passed. So, as you know, property appreciates let’s say on average 20% per year. For the sake of argument, let’s say 20%. But property tax values are only going up by 3%… People know intuitively that they can’t rely on the Assessors evaluation. Property value goes up 10% or more let’s say, as opposed to assessed value going up by 2%. That’s a significant difference.
Property Tax Transfer: Was property taxation in California so bad before 1978 that something like Proposition 13 property tax relief, parent to child transfer rights, was simply inevitable?
Michael Wyatt: Was California really that bad before 1978, when Proposition 13 tax relief went into affect? Yes. 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.