Crucial Property Tax Breaks: “The Parent to Child Exclusion”

It would be worthwhile for a professional polling organization in California to conduct a objective poll or survey to see whether homeowners in particular are now more appreciative of the gift they were given in 1978 with Proposition 13 as well as Proposition 58 and how that excludes from reassessment transfers of real property between parents and children, used in conjunction with trust lenders such as the Commercial Loan Corp… referred to as a “Parent to Child Exclusion” or “Parent to Child Transfer” as attorneys like to call it. h

We believe it would be clear from such a poll that Californians now  see more clearly that such precious property tax breaks, more or less taken for granted for decades, are now under direct threat… from numerous organizations, such as the CA Association of Realtors (C.A.R.), the Governor of California and the California Legislature itself, supposedly sworn to protect the rights and financial well being of the general public and not of special interest groups such as C.A.R., California Conference Board of the Amalgamated Transit Unions; California Nurses Association; California Professional Firefighters of California; State Federation of Labor; California NAACP State Conference; California Senior Advocates League; California Statewide Law Enforcement Association; Californians for Disability Rights; and the Congress of California Seniors; just to name a few.

Clearly, seniors, to name one of the larger demographic groups, initially bought into the rather deceptive and confusing messaging concocted by promoters of Proposition 19. And never stepped back to open the hood and examine the hidden data-points and details inside the actual tax measure itself… In other words, examining the steak – not the sizzle. The question is, are voters – seniors specifically – now struggling with buyers’ remorse?  A quick survey would answer that question. 

Only in California do you have property tax breaks for middle class property owners such as Proposition 58 and Proposition 13.  Only in California do you have tax benefits like the Prop 58 Exclusion that enables funding to irrevocable trusts; allowing beneficiaries to buyout co-beneficiaries’ shared inherited  property.  Plus, the ability to lock in a low property tax base, in line with Proposition 13, long-term. Ironically, in most other states,  domestic trusts are mainly used for the purpose of allowing affluent families to defer taxes, or to completely avoid paying certain taxes… frequently moving funds held in trust to overseas accounts. 

At any rate, basic California property tax relief still appears to be holding up, despite a few inconveniences imposed by Proposition 19… such as forcing beneficiaries inheriting a  home from a parent to move into that inherited property strictly as a primary residence, within 12-months – or lose the right to avoid property tax reassessment.

The only other option would be to sell the old home… Frequently at a loss. However, the property tax break is basically  the same as when Proposition 58 was passed by a large margin in 1986. A home and up to $1 million in assessed value of additional real property can be excluded from reassessment when transferred between parents and children. 

This keeps the property tax bill the same, with a few inconvenient additions thrown in to keep taxpayers from getting too happy, and we imagine to make realtors happier, if they are selling more properties, as a result of having more properties to sell.  Along with the CA Legislature, who undoubtedly will rake in more cash from property taxes, despite beneficiaries’ ability to take advantage of the Parent Child Exclusion or Parent to Child Exemption – despite some of the tricky new rules & regulations.  Some will not be able to partake of the Prop 58 Exclusion, and that will undoubtedly drive more cash into the state coffers…. which will make the tax assessors happier as well!

If certain beneficiaries inheriting their parents’ home and other property want to sell their shares, they would have to pay much higher property taxes over that average year and a half time-frame, from the date of death to the close of escrow – yet they can avoid owing on average $8,500 in extra property taxes if they are careful to utilize a trust fund loan in conjunction with the Prop 58 “Parent to Child Exclusion”.

These are invaluable options left to California homeowners and commercial property owners; which should be appreciated by residents of this state, as these property tax breaks are basically  unavailable anywhere else in this country. 

We suggest that Californians try to make the most of these gifts… and at the same time, as this is no longer business as usual due to continued efforts to take these property tax relief measures away from middle class property owners — do as much as possible to actively protect these tax breaks. 

As we have now seen, like democracy itself, there is a very thin line between maintaining property tax relief, and losing it forever.