Common Mistakes to Avoid When Transferring a Property Tax Base

Transferring Property Taxes in California

Transferring Property Taxes in California

The Right Advice & Tax Plan from a Trust Lender 

Much to the relief of Californians who own property and/or are in the process of inheriting a home from a parent, for example, in any of the 58 county across the state, the parent-to-child exclusion from property tax reassessment is still alive and well in all 58 counties, in 2022.

However, quite often, new homeowners and beneficiaries trigger a property tax hike strictly by accident, and end up facing thousands upon thousands of dollars in property taxes from property tax reassessment – that could and should have been avoided, had the right advice and tax plan been in focus.

High property values in California highlight the need for careful property tax planning. If you have owned your property for many years Generally, in terms of property taxes, homeowners who have owned their home for a long time typically have a lower assessed value than current or “fair market” property value tends to be.

Parent-to-Child Exclusion

As far as parent to child transfers are concerned, when one beneficiary who is inheriting a home decides to buyout property shares inherited by co-beneficiaries (siblings) – to have complete ownership of said property – it’s easy to misstep and mistakenly trigger property tax reassessment.

A parent to child property tax transfer in is line with the effort to  avoid property tax reassessment under Proposition 19’s parent-child exclusion, retaining a parent’s Proposition 13 low property tax base. Therefore a loan to an irrevocable trust working in conjunction with Proposition 19 allows us to transfer property between siblings – buying out property from siblings.

Likewise, beneficiaries, upon inheriting property from parents, still have a property tax transfer at their disposal to transfer parents property taxes and keep parents property taxes when inheriting a parental home, and thus inheriting property taxes, but at a low  base rate.  Hence, the use of a parent-child transfer… enabling the use of the invaluable parent-to-child exclusion – bottom line, helping us avoid any possibility of triggering property tax reassessment! 

Choosing the Right  Trust Lender, to Keep a Low Property Tax  Base While Buying Out Inherited Property From Siblings

We prefer a trust lender who can formulate and deliver the more reliable, simple Proposition 19 rules & regs, in conjunction with an irrevocable trust loan to equalize beneficiary buyouts of inherited property shares.

We have found that any type of unconventional property financing other than irrevocable trust loan funding may run into unpleasant surprises such as property tax reassessment – due to an abrupt change in control, or revised ownership!

LLCs, Corporations, or various Partnership entities owning real estate are subject to a myriad of property tax rules & regs that can change on a dime, often disqualifying beneficiaries from taking full advantage of the parent-to-child exclusion, to maintain a low property tax base, and perhaps buying out inherited property shares from co-beneficiaries – avoiding property tax reassessment and running headlong into pricey financial surprises.

Transferring Your Base Year Value Under Proposition 19

Given new changes to Proposition 19, if you happen to be over age 55, or are severely disabled, you may be able to transfer your home’s current base year value to the purchase of a different home, thereby keeping your property tax payments low. To qualify, you must acquire your new home through a sale transaction. If you acquire any portion of the new property by gift or inheritance, you will not be able to transfer your base year value.

CA Parent to Child Property Transfer & Buying Out an Inherited Home From Siblings

Avoiding Property Tax Reassessment on an Inherited Home

Avoiding Property Tax Reassessment on an Inherited Home for Californians

Most beneficiaries in California favor a parent to child transfer to avoid property tax reassessment.

As long as a transferred home is, initially, a primary family residence and the offspring receiving gifted or inherited property is moving in as a primary residence,  plus an  exclusion is claimed inside 12 months from change in ownership… remaining aware of the fact that the first $1,000,000 is not reassessed.

At any rate, despite certain limitations, the financial savings from this process  are genuine savings for beneficiaries inheriting property – avoiding property tax reassessment – and for many children of parents leaving a beloved family home to them.  This often makes the difference between being able to keep that family home, or losing it – frequently at a financial loss.

Plus, besides trust distribution to co-beneficiaries to keep an inherited home – also being able to take advantage of property tax breaks such as the right to transfer parents property taxes during a property tax transfer, with the legal right to keep parents property taxes basically forever… after inheriting property taxes through a standard parent-child transfer, and parent-to-child exclusion!

We also have to remember that, in 2022 California, a loan to an irrevocable trust, working in conjunction with Proposition 19, allows a beneficiary to buyout inherited property shares from siblings looking to sell their inherited property… thereby speeding up the trust distribution process. 

Moreover, an irrevocable trust loan also generates a much higher profit margin for beneficiaries selling their inherited property shares, by avoiding expensive home prepping for a sale, as well as avoiding a costly 6% realtor commission, expensive legal fees, and other pricey closing costs.  All in all, avoiding property reassessment, property tax hikes, and higher expenses  in general for all concerned.

When a trust loan is used to process trust distribution to co-beneficiaries, on average each beneficiary or sibling gets an additional $15,000 in distribution as opposed to selling the home to a conventional buyer. The family member keeping a family home also saves money – generally $6,500 or more per year in property tax savings by avoiding property tax reassessment on an inherited property.

That’s why many families inheriting a home from parents go to a reliable trust lender to be able to take full advantage of Proposition 19 tax benefits. Beneficiaries and homeowners continue to take advantage of Proposition 19 and Proposition 13 and basic property tax transfers in California and related tax breaks… keeping a low property tax base when inheriting a home – inheriting property taxes at a low rate from parents.

Saving beneficiaries many thousands of dollars, this is often a life-saver – and could, in many ways, be considered a final act of parental affection, from parent to child.

Understanding New Prop 19 Rules & Calculating Taxable Value

California Proposition 19 Property Tax Transfer

California Proposition 19 Property Tax Transfer

Parent-to- Child and Grandparent-to-Grandchild Transfers

Prop 58 & Prop 193 allowed parents, and in certain qualified cases grandparents, to transfer their existing property assessments of a “principal” or “primary” residence of any value  without  triggering property reassessment, which is generally required upon a change in ownership – even when real property was used as a rental property by [offspring] beneficiaries.

Prop 58 & Prop 193 enabled assessments of inherited residential or commercial property up to $1,000,000 – covering additional real estate being gifted to, or inherited by, an heir.

Now, under CA Proposition 19 (as of Feb 16, 2022), parents and grandparents can leave their home, with Proposition 13 base year value intact, to their children or grandchildren – as long as inherited property was the primary residence of the parents or grandparents – as well as the primary residence of  the beneficiaries moving into the home that is now being inherited…

Moreover, a beneficiary has plenty of time to move into an inherited home as a primary residence (12 months), plus a good deal of time to file a Homeowners’ Exemption (one year) to qualify for a parent-child or  exclusion.

A Prop 19 exclusion from reassessment of a primary residence of  a parent or grandparent, keeping a low property tax base when inheriting a home, plus all updated requirements, qualify beneficiaries for these types of base-year-value transfers; avoiding property tax reassessment and enabling these new homeowners with the right to transfer property between siblings through a loan to an irrevocable trust; plus all the usual property tax relief bells & whistles that go along with property tax transfer. 

Naturally, this includes the right to transfer parents property taxes and keep parents property taxes by inheriting property taxes generally through a parent-child transfer and parent-to-child exclusion (from paying currently reassessed property taxes).


Selling An Old Home – Distributing Cash Equally Among Heirs

A trust loan from a trust lender, to create equal cash distribution for co-beneficiaries looking to sell off their inherited property, can help those beneficiaries  become sole primary owners of an inherited residence.  Moreover, a primary residence homeowner in California over age 55 can transfer a low property tax base to a “replacement residence” (that is also a primary abode).

In order to qualify for a CA Prop 19 exclusion from reassessment (of your property taxes) – at the same time keeping your parents’ low property tax base – distribution of your trust funds to all beneficiaries have to be equal… especially when it comes to beneficiaries that are selling their inherited property shares to a co-beneficiary inheriting the same property. Each sibling must get the same amount whether it is cash, equity or other assets – to qualify for a Prop 19 exclusion from reassessment.

Many times the trust or estate will not have enough cash or other assets to make an equal distribution.  In these situations the trust or estate can borrow the money from a third party (not the person taking the property) and use the loan proceeds to pay off the other siblings’ share.

A Commercial Loan Corp calculator will demonstrate “how long it will take for the property tax savings to cover the costs of a loan from a third party. One needs to be fairly certain they will live in the home longer than the time it takes to break-even on third party loan costs or have a plan to transfer the low tax base to another property after the sale of the parents’ home.”

What to Look For in an Estate & Trust Lender

Trust Loans in California

How to get a trust loan in California

Retaining a Low Property Tax Base in California

Establishing and locking in a low property tax base helps you as a new homeowner, or beneficiary inheriting parental property, to minimize your property tax burden over the long-term. As most Californians know, to save on taxes it’s essential to utilize existing property tax relief tools to reduce taxes on inherited real estate… Tools that support property tax transfer and property tax breaks;, the ability to  transfer parents property taxes and keep parents property taxes as long as an inherited home remains a primary residence; inheriting property taxes.

Most residents believe expert help is essential, from a property tax consultant, a tax attorney, or a trust lender; and feel it would make very little sense to ignore this.  

What we should find in an experienced California trust lender, along with providing a loan to an irrevocable trust, is expertise guiding new homeowners, or beneficiaries inheriting a home, through the inheritance process – able to establish the low property tax base still possible under Proposition 13 – in conjunction with Proposition 19…

Proposition 19 is still clinging to the frayed edges of Proposition 58, as homeowners and renters alike show signs of buyers remorse, all across California, having voted for Proposition 19, thinking that their ability to avoid a property tax reassessment was the key ingredient… amidst confusion over the fine print concerning property tax transfers – hidden behind sentimental window dressing claiming to be tax revenue going mainly to firefighters, the elderly, and folks hindered by wildfires or other natural disasters and disabilities.

Californians are sentimental Westerners by nature, and what Westerners could possibly vote against the elderly and homeowners with severe disabilities!

At any rate, a loan to an irrevocable trust from a trust lender, working in concert with Proposition 19, in conjunction with a parent to child property tax transfer — better known as a parent-child transfer and parent-to-child exclusion, allows heirs and  beneficiaries to avoid a property tax reassessment – while also being able to buyout inherited property shares from siblings, for more cash than an outside buyer would offer.

Essential Trust Lender Tasks

Meanwhile, California real estate taxes are maintained at a reasonable level by Proposition 13, which limits real estate tax increases to 2% maximum per year. Proposition 58, Proposition 193, and Proposition 19 allow for this low tax basis to continue if real property is transferred to heirs from a parent or grandparent.

At any rate, a good trust lender should be able to complete the following tasks flawlessly and without issue:

1. Deciding which beneficiary will own the inherited property in question.

2. Determining how much money is needed for an irrevocable trust loan.

3. Funding a high six-figure or low seven-figure trust loan.

4. Distribution of an irrevocable trust loan, equalizing the amount of cash going to each beneficiary that is looking to sell off their inherited property shares.

5. Filing change-of-ownership, while keeping a legacy tax basis.

6. Mapping out how beneficiaries will repay a trust loan. 

Finally, a relationship with a trust lender is based on belief, and good faith, as all relationships are.  Plus results, which surface soon enough.

Establishing a Low Property Tax Base in California

Property Taxes in California

Property Taxes in California

Establishing a Low Property Tax Base ~ Who to Turn to in 2022

It’s always interesting, with respect to estate funding and inheritance financing, how different schools of thought come up with different solutions for saving money on property taxes, for out-of-the-box funding solutions against inheritance assets, and for mortgage capitalization. 

Name brand name lenders, setting the tone  for most lenders in California, such as Quicken Loans, e-Loan,  Wells Fargo and Bank of America – are admittedly all high-end, reliable finance-information and lending sources.  Yet – when it comes to important income tax or property tax matters, or inheritance funding solutions – their editors and writers, talented as they may be, still only nibble around the edges on anything but the most conventional, largely ineffective solutions. 

For example, where tax relief is concerned these firms typically dance around the critical issues associated with property tax exemptions, establishing a low property tax base, or avoiding property tax reassessment – when inheriting a home in any of the  58 counties in California. So who do we turn to for help?

Many property owners embrace basics, and enlist assistance from established property tax experts such as Rachelle Lee-Warner, Esq. — well known Partner, Managing Attorney & Trust Administration / property tax relief expert at Cunningham Legal. Or trusted property tax consultant Michael Wyatt, President of Michael Wyatt Consulting in Corona. Or a reliable trust lender like Commercial Loan Corp, led by inspirational CEO, Kerry Smith in Newport Beach – specializing in irrevocable trust loans, avoiding property tax reassessment and establishing a low  property tax base – for middle class California families… guiding them through while showing them all the new advantages that Proposition 19 offers.  Perhaps not as generous as Proposition 58 might have offered… however, lowering property taxes to a greater degree than you might think.

Avoiding Poor Solutions and Time-Wasters 

With regards to lowering property taxes — these are typical solutions from “expert websites” that homeowners might not want to take very seriously, or avoid completely…

  • Limiting your “home improvement” projects;
  • Researching nearby neighborhoods for pricing and home values;
  • Asking uninformed young attorneys or relatives (to save money) if you qualify for tax exemptions;
  • Walking around your neighborhood with your Tax Assessor;
  • Checking your tax bill for inaccuracies;
  • Getting a second, third and fourth opinion from unproven  Assessors and property tax consultants;
  • Meeting with your local Tax Assessor to convince him/her to revise your tax bill;
  • Researching and filing a property tax appeal challenge with your County Tax Assessor without a professional property tax appeal firm – on your own, simply to save money.

Checking for inaccuracies, or getting a second opinion isn’t a bad suggestion.  But walking through your house with your local Tax Assessor?  Researching prices around your neighborhood? With all due respect to the financial websites that hand out this kind of advice, these suggestions would be laughable – if they weren’t so serious.  Limiting your home improvement projects – to lower your property taxes? 

Effective Solutions with a Tax Professional or a Trust Lender

We will never be free from property taxes while we own our own home, but one does need to be on the there are a few simple “tricks” you can use to lower your property tax bill, as certain websites claim. 

We can investigate comparable homes in our neighborhood for “discrepancies”. Never making any changes to our property exterior right before a tax assessment, as this can increase the value of our property; hence increase our property tax bill.

Or, we can stroll around our house and chat with our Tax Assessor during our yearly assessment. That makes a lot of sense. Lastly, we can look for local and state exemptions, and, “if all else fails, write up and file a tax appeal to lower our property tax bill”  so suggests a well known financial site.  Listen, if we’re going to file a property tax appeal with a County Tax Assessor, we’d be a lot better off doing it through a professional property tax appeal firm.

If we want to address this issue seriously, and not simple throw silly and unrealistic suggestions out there simply to see what sticks – we have to look at realistic opportunities to take advantage of. 

For example, if we’re an heir of an estate, or a trust beneficiary inheriting a house from our Mom or Dad – and the house is in an irrevocable trust – a loan to an irrevocable trust from a trust lender is likely required if the trust does not contain sufficient cash to make an equal distribution to all of the co- beneficiaries looking to sell off their inherited property shares. This is frequently taken advantage of by beneficiaries, perhaps like yourself, who intend to keep a home inherited from a parent at the original low property tax base.

A loan to an irrevocable trust makes it possible to buyout inherited property shares from co-beneficiaries and greatly speeds up the trust distribution process. A trust loan also saves a great deal of money when you compare selling the family home through a realtor or broker receiving a 6% commission, plus legal fees, and other closing costs.

Inheriting Parents’ Home While Keeping Their Low Property Tax Base

Bottom line, avoiding property tax reassessment  and establishing a low property tax base by transferring property taxes, are property tax relief benefits available to all property owners in California, protected by Proposition 19 & Proposition 13. This should always be taken full advantage of.  You can transfer parents property taxes when inheriting property and inheriting property taxes – and keep parents property taxes basically forever, establishing a low property tax base with Prop 19 benefits as well as taking advantage of a trust loan buyout of property inherited by siblings. Why not?  It’s your right.  Plus, there is no better time than the present to become better acquainted with the parent to child property tax transfer.

This type of property tax transfer is at the foundation of property tax relief for all Californians, generally through a parent to child property tax transfer on an inherited home – usually referred to as a Prop 19 parent-child transfer or parent-to-child exclusion… all the way to a transfer of property between siblings through a loan to an irrevocable trust, in conjunction with Proposition 19 – with an entire year to settle in to an inherited principle residence, or multiple residence (although only one heir is actually required to lock this tax relief benefit in). As long as the parent leaving that property to heirs resided there as a principle residence as well – which is usually the case anyway.      

Using a Trust Loan to Establish a Low Property Tax Base

Buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base is a popular avenue for many families.  Not only that, if your siblings are receiving funds from an irrevocable trust to sell their inherited property shares, they would receive far less money getting cash from an outside buyer, as opposed to funds from an irrevocable trust. The costs associated with preparing a home for sale, expensive realtor fees, and potential closing costs associated with selling an inherited home can be incredibly expensive.

When a trust loan is used to facilitate a trust distribution, each beneficiary receives an average of an additional $15,000.00 in distribution when compared to selling the home. The person keeping the family home also benefits – saving $6,200+ per year in property tax savings – simply by avoiding property tax reassessment on a nice old inherited home from Mom and/or Dad.

Voters passed CA Proposition 19, just squeaking by with a handful of votes from confused voters in Nov of 2020, and the tax measure became active on April 1, 2021. If you want to intake good advice and avoid mistakes, have property tax experts carefully walk you through Proposition 19, and Proposition 13.

Most middle class and upper middle class California homeowners probably have heard about Proposition 19, the new property tax law that allows seniors and disabled homeowners to keep their current property tax rate when they sell their home and buy a new one. But they may not know how to apply this new law when moving to a new home.

It’s the state’s largest expansion of property tax benefits in decades, basically allowing qualified homeowners to take their Proposition 13 tax base with them anywhere in the state, no matter the price of their new home.

Helping California Middle Class Homeowners Avoid Property Tax Reassessment

Under Prop. 13, tax hikes are capped at 2% a year, meaning the longer you own your home, the lower your property taxes relative to the market value of your home. But some homeowners lose their Proposition 13 tax break when they sell their old home and see their new tax jump to the full market value of their new one.

If you are 55 years or older, a person with a severe disability or a victim of wildfires or natural disasters, you can move to any home in the state, regardless of the home’s price. Your tax is unchanged up to the value of your old home. If your new home costs more than your old one, you pay an additional amount based on the market value over your old home’s price.

When you’re used to a low property tax bill, it can be a shock to your monthly expenses when buying a replacement home includes a huge property tax increase – especially if you have lived in your current home for many years.

Some older middle class homeowners feel trapped because they can’t leave their current home, even if it no longer fits their needs, because they are on a fixed income like Social Security, or a modest pension or military retirement, and can’t afford to move. Taking advantage of Proposition 19 may appear challenging.  But as time passes, more and more tax assessors are providing online links to forms and resources to help homeowners understand how to benefit from these new property tax rules and regulations.

 

Does a Change in Ownership Affect CA Property Taxes?

California Change in Property Ownership

California Change in Property Ownership

Californians who make it their business to know – now understand that triggering property tax reassessment to “a new Base Year Value” as a result of new construction to a home, or a complete change in ownership – which makes it virtually impossible to establish  a low property tax base; and results in a yearly tax rate that increases abruptly to  current or “fair market” rates.

Translation in everyday language – you pay much higher property taxes every year. For example, the different between $600 per year and $9,000 per year. Significantly higher property taxes.

Every County Tax Assessor in California, in all fifty-eight counties, records and reviews every single property deed in every county, to figure out which homes and various other real properties require reappraisal, and which do not. The Tax Assessors also determine ownership changes with other investigative tools such as such as kept records from homeowner self-reporting, or from records of building permits; from newspaper files; or field inspections.

When a County Tax Assessor has determined that a property has changed ownership, Proposition 13 stipulates that the County Tax Assessor must reassess that property to its current (i.e., fair market) tax rate, as per the date of change of ownership.

Because property taxes in California are based on a property’s assessed value – at the time of acquisition – the property taxes will be increased if the current market rate is higher than the original assessed Prop 13 base year value adjustment. Therefore – if the current market tax rate is lesser than the previous adjusted base year value assessment, then taxes on that property will go down. Which is what everyone wants.

It is important to note, however, that a portion of ownership of that property may be reappraised. Let’s say that 50% of a home is transferred under Proposition 13, and the changes that the Tax Assessor is going to reassess is 50% of the home at the current market rate, as per the transfer date, so 50% will be deducted from the base year value, under Proposition 13 property tax relief… 

Typically, when someone buys a home, the home goes through a “change in ownership” and 100% of the home is reassessed at full current market value.   Even if the outcome of transferring real estate is a change in ownership, there are a number of exclusions from paying current tax rates – and so certain homes or other real estate will often not be be reappraised under these sorts of home transfers.

If a property owner files the proper claim, an exclusion from paying updated current property taxes will kick in as long the owner’s property, or portions of this property, are correctly excluded from reassessment.

The best way to cover changes in ownership that are excluded from automatic reassessment, or reassessment by claim; is to enlist the help of a tax attorney, a property tax consultant, or a trust lender who specializes in establishing a low property tax base for heirs upon inheriting a home from a parent.

Frequently, this will assist beneficiaries in buying out inherited property shares from co-beneficiaries through a loan to an irrevocable trust, which realtors and property tax specialists call a transfer of property between siblings or a sibling-to-sibling property transfer – working in conjunction with a California Proposition 19  parent to child property tax transfer on an inherited home – a parent-to-child exclusion (from property tax reassessment at full, current market rates), to establish a low property tax base.  

Naturally, this line of property tax relief, based on a parent’s property  also includes the ability to transfer property taxes when inheriting property taxes from a parent. Under these tax breaks, a property tax transfer like this can help heirs keep parents’ property taxes basically forever, based on a parent-child transfer; or a parent to child exclusion from reassessment – to legally avoid property tax reassessment.

You can always consult your Tax Assessor, however it is generally in the Tax Assessor’s best interest to charge you the maximum amount possible. A property tax consultant or trust lender, on the other hand, is motivated to save you money on taxes, not see you spend more.

Postponing Property Taxes in California

We have discussed this issue previously in this blog… however, it does bear further introspection. Property taxes that have been deferred for a few months can hardly be called property tax relief! Regardless how many people in state leaders hip positions call it “property tax relief”, it simply is not. It’s merely tax deferment. A parent-child exclusion avoiding property reassessment is a genuine property tax relief benefit.  The press should not conflate the two in headlines as if they were the same. They’re not.  

Genuine Property Tax Relief VS Postponed Property Taxes

The State Controller’s property tax postponement program permits senior property owners and homeowners with a severe disability to defer property taxes on a primary residence – if they are in compliance with the new Prop 19 requirements plus have 40% or more equity in their house; with a household income of $45,810 or less per year. With a lien against the house, until taxes are paid off.

You get to delay paying the tax man for ninety days. So Californians need to determine what this actually accomplishes. Does this help homeowners financially? Now, deferring taxes for five-years might be helpful to some property owners. But a few months is simply not going to move the needle into the “help” column.

Other than being a rather weak gesture, this is a dismal effort to help residents in California get through an unprecedented, tough time. If the folks running the state wanted to really help Californians, they might want to consider simply deleting property taxes this year, and see how the virus crisis is next year.

Not only would this be a great political move – it would actually help homeowners in a big way. It would be a genuine property tax relief initiative.  Postponing property tax payments is merely deferring taxes that have to be repaid anyway, therefore there is no authentic relief of taxation involved here, merely a delay.

Property Tax Exemptions for Disabled Veterans

If a military veteran is 100% disabled as a result of a combat wound or whatever, that veteran can get approved for a full property tax exemption.  Other homestead exemptions exist for veterans over the age of 65, along with surviving spouses.

Eligibility

To be eligible, a homeowner has to apply and subsequently meet all of the criteria below for every year in which a postponement of property taxes is being requested:

• Residents must be age 62 or older; or severely disabled (including blindness);
• Residents must own and reside in a primary home (exception being house-boats);
• Residents must verify a household income of $45,810 or under;
• Residents must own  40% or more of the property;
• There can be no reverse mortgage on the property in question.

Property Taxes that are in Default, or are Unmanageable

CA state law does not allow the SCO (State Controller’s Office) to pay for delinquent or defaulted property taxes that are owed on a home, for example, that is under consideration for postponement of property taxation. Late These taxes simply have to be paid, by California law. Regardless of a Pandemic, or whatever.

However, you can qualify for postponement of current taxes. The amount of defaulted property taxes will be added to the amounts owed against the property to determine equity. Therefore “delinquent” or “defaulted” property tax payments do not qualify for tax deferment. Another reason this mild gesture does not contain any of the earmarks of genuine tax relief…. such as those provided for by tax breaks like a parent-child exclusion avoiding property reassessment.

Interest Rates on Deferred CA Property Tax Payments Owed

The interest rate imposed on “postponed” taxes under this PTP (Property Tax Postponement) program is 5% yearly.  Interest on postponed property taxes is computed monthly on a simple interest basis.  Interest on the postponement account continues to accrue until all postponed property taxes plus interest are repaid to the state. So $1,000 in deferred taxes would be $50 yearly – $4.17 monthly.

Property tax relief? It looks more like loan sharking than it does tax relief.

A Lien or Security Agreement for Postponed Property Taxes

To secure repayment of deferred property taxes, the State Controller’s Office (SCO) imposes a lien against property with the county or a security agreement with the Department of Housing and Community Development. The lien or security agreement remains in effect until the account is paid off. A one-time fee is added to release a lien once the account has been completely paid off.

Property Taxes Paid By California Lenders

The State Controller’s Office (SCO) is not responsible for contacting your lender if your property taxes are currently paid through an impound, escrow, or other type of account.  If you’re approved for Property Tax Postponement (PTP), the SCO will typically agree to make a payment on your behalf directly to the County Tax Collector.  PTP does not reduce your monthly mortgage payment. A business property owner or homeowner must contact their lender directly to pay off monies due.

Refund of Paid Property Taxes

Once an application is approved and property taxes have been paid for a current-year, or if the property taxes are paid by a lender, a property owner receives a refund from their county tax collector.
All full or partial payments are applied to accumulated interest and to the balance owed. Checks or money orders are payable to the “California State Controller’s Office” and mailed to:

California State Controller’s Office
Departmental Accounting Office – PTP
P.O. Box 942850
Sacramento, CA 94250-0001

Collection and repayment process

Homeowners can pay all or a portion of the balance to the State Controller’s Office at any time. However, postponed property taxes and interest are due right away or payable when a homeowner:

a) Moves away from a property;
b) Sells or conveys title to the property;
c) Is deceased but does not have a spouse, registered domestic partner, or other qualified individual who continues to reside in the property;
d) Is delinquent on future property taxes or has other senior liens;
e) Refinances or gets a reverse mortgage on the property in question.

Authentic Property Tax Relief

As you may or may not know – genuine property tax relief does exist in California, in terms of establishing a low property tax base when inheriting a home; through a process discussed in this blog several times, combining a parent-to-child exclusion avoiding property reassessment protected by Proposition 19 in concert with a 5 or 6 figure loan to an irrevocable trust from a trust lender.

The process of buying out siblings’ shares of inherited property through an irrevocable trust loan – the transfer of property between siblings or “sibling to sibling property transfer” – equalizes payment among beneficiaries selling their inherited property shares, and furnishes them with far more cash than a conventional outside buyer would.

Likewise, genuine property tax relief such as keeping a low property tax base when inheriting a home; or property tax transfers in California for those inheriting real estate from parents… giving homeowners the ability to transfer parents property taxes under Proposition 19 in tandem with a locked-in parent-child transfer or a parent-to-child exclusion avoiding property reassessment at high current tax rates when inheriting property taxes, and transferring property taxes in California

Although, manufactured home owners with delinquent and/or defaulted property taxes do not qualify for property tax postponement.  However, as we have already indicated, it’s high time to cease discussions altogether about property tax postponement – and start pivoting rapidly towards property tax cancellation, while the pandemic continues to cause shutdowns and job losses and economic hardships for middle class homeowners.

PART TWO: The History of Property Taxes in California

The History of Property Taxes in California

The History of Property Taxes in California

Socio-Economic Developments Leading Up to Proposition 13

California residents voted Proposition 13 into law (otherwise named “The People’s Initiative to Limit Property Taxation”) as a property tax limitation measure, after years of arbitrary tax hikes, which were viewed by state economists as an unprecedented statewide mass response to limit property taxes that had expanded to degrees that were seen by the citizens of California as unreasonable and spiraling upwards out of control since the 1960s – which was reportedly creating a statewide revenue surplus of five billion dollars.

Many elements brought about Proposition 13. Aging and elderly Californians living on a modest fixed income were experiencing compounding difficulties paying their property taxes… and frequently older homeowners, veterans, retirees and other aging middle class and even upper middle class Californians living on a fixed income were being displaced by foreclosure and sudden eviction, literally with their belongings and furniture on the street!  This certainly brought about greater public interest in property tax relief for homeowners  over 55.  There were also issues arising from population growth in California, and severe inflation during the 1970s, which created a growing demand for homes suitable for starting a family.

Residential properties were reassessed at such high rates that property taxes escalated to such a degree that many retirees could no longer sustain these inflated rates and hold onto the homes they had bought decades before. Naturally, Proposition 13 attracted their votes and protecting older homeowners from property tax hikes, so older Californians would no longer be priced out of their home from egregiously high property taxes, was the image that framed the branding for Proposition 13 in the run up to the Nov 1978 ballot when voters actually had the opportunity to vote property tax relief from Prop 13 into law as an Amendment to the CA Constitution.

Proposition 13: Property Tax Relief Replaces Arbitrary Tax Hikes

Proposition 13 was listed on the ballot through the California ballot initiative process. The Proposition 13 amendment to the CA Constitution, impacting all 58 counties, formally passed on June 6, 1978, with 2/3 of the vote in favor and with the participation of around 2/3 of all registered voters in the state – becoming Article 13-A of the California Constitution.

As Proposition 13 took affect in 1978—1979, California properties were reassessed at current or “fair market” value only when there was a change in ownership or there was completion of brand new construction, referred to as “base year value”.

In addition, Proposition 13 limited annual increases in the base year value of real property to no more than 2% except when property changes ownership or is under construction. Proposition 13 successfully changed a market value-based property tax system to an acquisition value-based system.

Feb 2021: Proposition 13 Morphs into Proposition 19

As the history of present day property tax relief further unfolds, new tax assessment exclusions for inherited property could, in some cases, have a less than positive affect on wealthy homeowners and beneficiaries.

Paul DeLauro, property tax relief specialist and manager of wealth planning at City National Bank, informs us, “Proposition 19 changes several tax rules, but the biggest impact will be on high-net-worth families [impacting heirs inheriting family owned high-end real estate]. Proposition 60, which passed in 1986, allowing property tax relief for homeowners over 55 who wanted to sell their home and move to another house of equal or lesser value in the same county to take their tax assessment with them. The idea was to make it easier for seniors to move without worrying about a huge jump in their property tax bill that might be difficult for them to pay.”

The 1986 Proposition 58 parent to child property tax transfer on an inherited home morphed into Proposition 19, which was, as you probably know, voted into law in Nov of 2020 and adopted other property tax relief benefits such as property tax relief for homeowners over 55, for residents with severe disabilities, and who are victims of natural disasters such as forest fires, floods or earthquakes.

Another property tax relief expert, attorney Bruce M. Macdonald with law firm Carico Macdonald Kil & Benz LLP in El Segundo CA tells us, “If someone over 55 sold a house for $5 million, but they were paying taxes on a lower assessed value based on their original purchase price, they could buy a new house for $2 million and still pay taxes at their original, lower tax assessment”.

Prop 19 Enhanced Certain Benefits While Limiting Others

So while Proposition 19 admittedly limited certain benefits for Californians with respect to avoiding property tax reassessment, especially beneficiaries inheriting a home from a parent, such as property tax transfer, the right to transfer parents property taxes, and the ability to keep parents property taxes after inheriting property taxes from parents with a parent to child property tax transfer; as well as the important and highly popular parent-child exclusion from paying fair market (i.e., current) property tax rates.

However, on the other hand, Prop 19 allowed transfer of property between siblings through a loan to an irrevocable trust, without limitations; and actually expanded property tax relief for homeowners over 55, for residents with severe disabilities, and for victims of natural disasters, as we mentioned a moment ago.

Mr. DeLauro went on to add, “Prop. 19 is highly attractive for eligible homeowners who want to sell their existing primary residence and move to another residence in the state without incurring a higher property tax bill“.

Mr. Macdonald also added, “These new rules allow people to move to any county in the state and not just within their own county. The new house can even be more expensive than the one they sell, and homeowners over 55 can transfer their tax assessments three times in a lifetime.”

Legal Challenges to Proposition 13

After Proposition 13 passed, its constitutionality was challenged. The California Supreme Court upheld the constitutionality of Proposition 13 in Amador Valley Joint Union High School District v. State Board of Equalization on September 22, 1978. Moreover, in 1992 the United States Supreme Court ruled, in Nordlinger v. Hahn, that Proposition 13 did not violate the equal protection clause of the United States Constitution. This ruling more or less effectively ended speculation about whether the judicial system could overturn or revise Proposition 13.

State Board of Equalization and the Taxpayers’ Rights Advocate

The Taxpayers’ Rights Advocate, appointed by the BOE (State Board of Equalization) is responsible for identifying areas of recurring conflict between taxpayers and property tax assessment officials; as well as determining how effective the BOE’s County Tax Assessors are providing materials to property taxpayers as well as dealing with inquiries, complaints, and challenging issues requiring fast resolution.

Lisa Thompson is currently the Taxpayers’ Rights Advocate. Lisa and the Taxpayers’ Rights Advocate Office staff are independent of the agency’s program staff. The Taxpayers’ Rights Advocate Office helps taxpayers who are unable to resolve a problem through normal channels. Miss Thompson tells us:
 
We can help if you have a question regarding your rights or if you have a disagreement with the programs administered by the State Board of Equalization, or county agencies involved in California’s property tax system. Some taxpayers contact us to communicate their frustration with aspects of the property taxation system or seeking confirmation that they have been treated lawfully and fairly by a county or state office.

In cases where the law, policy, or procedure does not allow any change to the staff action, but a change appears justified, the Taxpayers’ Rights Advocate Office is alerted to a potential area that may need clarification or modification. Several past recommendations for policy, procedural, and legislative changes have resulted from these types of contacts with taxpayers.

Our office facilitates communication between taxpayers, the State Board of Equalization, and county staff to eliminate potential misunderstandings. Taxpayers are provided information on policies and procedures so they can be better prepared to discuss their issues with the appropriate staff and increase the opportunity to affect a resolution which will satisfy them.

The BOE holds public hearings to address the report and related property tax issues. In addition, the Property Taxpayers’ Bill of Rights provides measures designed to promote the fair administration of the property tax.

 

What is The Role of a CA Property Tax Consultant?

California Property Tax Consultant

The Role of a California Property Tax Consultant

What Property Tax Consultants Provide

This article provides an overview on property tax consulting and the benefits that come with enlisting the help of a property tax consultant with expertise in California property tax relief, among other key issues.

To begin with, County Property Tax Assessors – as every homeowner or relevant property owner, new beneficiary and estate heir in California knows – are solely responsible for implementing property tax assessments in their county. The County Assessor is also who one has to deal with when negotiating or submitting a property tax appeal, or filing various related paperwork; or to confirm deadline dates for filings.

However, we find that most homeowners and property owning landlords wind up enlisting the help of a tax appeal firm, or a professional property tax consultant to mitigate what they believe are property tax overcharges, to minimize their long-term property tax burden on a residence or an inherited home.

As many Californians know, property tax consultants frequently handle Tax Assessor negotiations or litigation issues for homeowners and business property owners; and often refer homeowners and beneficiaries to a trust lender, to take advantage of an irrevocable trust loan, while keeping a parents low property tax base.

And as many residents are aware, a loan to an irrevocable trust also works jointly with a parent-to-child exclusion from Proposition 19 (i.e., formerly Proposition 58) and as we mentioned a moment ago keeping a low property tax base while retaining an inherited home from a parent… Also being able to buyout inherited property shares from a co-beneficiary intent on selling their inherited property – for far more cash than an outside buyer would offer.  So in a sense, property tax consultants are aiding both estate heirs and trust beneficiaries looking to buyout siblings’ inherited property, as well as the siblings, or co-beneficiaries, interested in selling out. 

As most Californians that own property know, property tax relief  under Proposition 19 mainly revolves around  the property tax transfer measure, more specifically the parent-child transfer and  protected right to transfer parents property taxes when inheriting property and inheriting property taxes, generally with the ability to keep parents property taxes basically for as long as one resides in a primary residence – initiated by the parent-to-child exclusion.

CA Property Tax Consultants: Popular Categories

There are different types of property tax consulting services. Some consultants are experienced appraisers, with expertise in both residential and non-residential corporate real property evaluation. Some companies lack the expertise to some up with their own property tax valuation assessments on their own, and so hire property tax valuation consultants to produce customized property tax assessments for them.

On the other hand, there are “strategy consultants” who can negotiate property tax appeals, help with tax reduction planning, and handle payments for property owners. There are also property tax consultants that concentrate on helping property owners with compliance issues, assembling data and preparing documents to file with the County Assessor.

Michael Wyatt Consulting: General Practice CA Property Tax Consultants

Many property tax consultants offer a combination of services. This is generally the best type of property tax consultant to work with, as they are a lot less limited, in terms of what they can offer you and your family. It’s often helpful to look closely at an actual property tax consultant in California to get a real-life sense of what a professional service like this can actually offer.

For example, let’s take a look at the Michael Wyatt Consulting firm in Corona, California. Since 1978, this boutique firm has specialized in commercial and real estate appraisal, as well as property taxes and property tax relief, custom property research, real estate finance, real estate law, and real estate market analysis, site planning, and entitlements.

Setting them aside from many property tax consultants in California, this particular firm, and most generalist property tax consulting firms like them, will review your real property values every year, getting a fresh look at the status of whatever specific issues are in focus or at stake. If there are proposed property transactions in the works, a reliable property tax consultant will look at that transaction from every angle, to avoid property tax assessment.

Moreover, an on-staff general property tax consultant will always take time to respond to a client’s various needs, such as researching an issue that requires deeper investigation to ensure that all “t’s” are crossed and all “i’s” are dotted; and will always look carefully at any real estate deeds or other related items to make sure all data and numbers are completely accurate before committing final tallies and results to writing, and/or filing with the Tax Assessor.

Generalist tax consultants also tend to stand in as a “middle-man” between you, the property owner, and the Tax Assessor, coordinating your accepted fee payment – or your property tax appeal – and will complete all communications and filings with the County Tax Assessor’s office… and/or any other required government entity or agency.

Like all established, seasoned property tax consultants, the Michael Wyatt Consulting firm provides property owning clients with the knowledge they’ll need to make informed, correct real estate and/or property tax decisions – in order to meet all financial and residency challenges head on; in a timely and cost-effective manner.

Communicating With County Tax Assessors Throughout California

Additional benefits homeowners receive from working with property tax consultants include the ability to make good use of an experienced consultant’s in-depth knowledge of valuation principles, negotiating dispassionately and successfully with Tax Assessors concerning property tax breaks such as the Proposition 19 (formerly Prop 58) parent-child exclusion or assess and apply Proposition 19 tax relief measures that come with being over age 55, being severely disabled, or from owning a primary residence that was destroyed by a natural disaster like a flood or an earthquake, or a forest-fire.

Both homeowners and companies look to property tax consultants to help them put together a customized property tax relief strategy, based on the location of their home or properties’ and to present that plan effectively to the local County Tax Assessor.

A competent property tax consultant should be able to provide expertise on a transfer of a primary residence’s property tax base value to a replacement residence of any value, or to expand tax benefits for the transfer of a family farm — anywhere in California, which calls for new benefits and is highly complex, requiring rather specific expertise.

Awareness of Big-Picture Views and Legislative Issues

It is part of a property tax consultant’s job to lower the value of a property for a homeowner or a business, and to communicate this properly and effectively to a Tax Assessor, and to research challenging issues if necessary, and comprehend different industry categories whenever required.

Not only must a property tax consultant be knowledgeable about property taxes and property tax relief – the property tax consultant must also maintain a big-picture view of state or county legislation that may be looming in the future, and that may affect real estate in your particular county or region – or even possibly in the state of California, if statewide issues happen to be at stake.

Property tax consultants are occasionally also estate attorneys, and typically are compliant with Uniform Standards of Professional Appraisal Practice (USPAP) standards; and maintain a good reputation you can check on in the property tax industry associations and non-profit organizations.

Popular Reasons Why California Beneficiaries Get a Trust Loan

California Trust Loans

California Trust Loans

Typically, beneficiaries who are seeking a mid to high six-figure or low seven-figure loan to an irrevocable trust are looking to accomplish an important outcome that is generally not possible with other types of financing such as inheritance advance assignments, credit union financing or personal bank loans – as reviewed below…

What Type of Trust Lender do You Want to Work With?

Families buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base typically enlist the help of an experienced California trust lender that is self-funded. Beneficiaries generally want a self-funded lender as they deliver funding at a faster rate than institutional lenders, such as five to seven days, versus three to four weeks. They also offer terms that are more flexible than an institutional lender such as Bank of America or Wells Fargo. Their compliance requirements for both commercial and residential property owners are also less restrictive than traditional lenders.

Self-funded trust lenders seldom charge up-front fees, they do not require borrowers to pay advance interest on their trust loan; and there is never a “due-on-sale” clause that requires the mortgage to be repaid in full when the property is sold. Lastly, beneficiaries like the fact that this type of firm does not impose an “alienation clause”… in the event of a property transfer, insisting that the borrower has to pay back the mortgage in full before the borrower can transfer the property to another person. Estate and trust attorneys, or property tax consultants will always advise beneficiary clients to avoid these types of restrictive and costly requirements.

Buying Out Property Shares Inherited By Co-Beneficiaries

Generally this option revolves around a common family or sibling conflict that typically has beneficiaries insisting on selling their inherited property shares, while other beneficiaries are looking to keep the family homes, and are enlisting the help of a trust lender to buyout siblings who are determined to sell.

This method of funding provides the beneficiaries looking to sell with a good deal more money than a realtor will get them, with more cash from a trust loan and trust lender than an outside buyer would come up with… Avoiding an expensive, standard 6% realtor commission, avoiding closing costs, legal costs, and processing fees.

This type of family conflict is stressful, however the trust loan process provides a win-win solution for all concerned – keeping property at a low base rate for those who are retaining their parent’s home, and putting a lot more cash in the pocket, as far as beneficiaries who are intent on selling their inherited property shares are concerned.  The trust lender funds the trust and provides “equalized distribution” so every sibling who is selling their shares receives an equal amount.

Avoiding Property Tax Reassessment

Beneficiaries looking to keep their inherited family home, while buying out siblings that are looking to sell off their inherited property shares with personal funds, will discover quickly enough that this is not a viable option. Siblings who wish to keep their family home must avoid triggering reassessment, hence using a loan to an irrevocable trust is the most beneficial option, keeping property at a low base rate, or walking off with a lot more cash from selling inherited property shares. Depending which side of the fence you’re on.

As a CA homeowner – how do you ensure, as with a parent-child transfer, that you’re not paying more property tax than you should?  New homeowners must take the right steps in the beginning to keep the low property tax base their parents had, avoiding property tax reassessment at high current rates.  Without trust loan funding, the transaction would be viewed as a “sibling-to-sibling transfer” and thus would not avoid property reassessment. 

A beneficiary keeping the inherited home winds up saving on average $6,200 in yearly property taxes.  Borrowing against an irrevocable trust ensures that the process moves directly through the estate and locks in a low property tax rate. Closely related property tax benefits – that beneficiaries and new homeowners need  to get extremely familiar with – stem from Proposition 13 as well as Proposition 58;  and have morphed rapidly into Proposition 19…  

This all begins with basic property tax transfer… meaning the ability to keep parents property taxes, keeping property at a low base rate through the parent-child transfer and parent-to-child exclusion.  Beneficiaries, and believe it or not their estate attorney, absolutely have to know all about their right to transfer parents property taxes when inheriting parents property and inheriting property taxes from Mom or Dad…

Paying Trust Expenses

For beneficiaries, when a trustee passes away, there is often not enough cash or “liquidity” in an estate or in a trust to pay debts an initial trustee owed, such as attorney fees, medical bills, mortgage and personal loan debt, and other financial obligations. A trust loan can help resolve these debts.

Renting or Selling Inherited Property

If heirs or beneficiaries decide they’d like to rent out an inherited property, there are often maintenance costs and repairs to be considered. Especially when dealing with an inherited homes, age is an issue… hence there are often roof issues, boiler problems, pipes to be replaces, and so on. Before one is able to put an older home on the market to rent or to sell.

Irrevocable trust loans and Proposition 19 property tax exclusion, working in conjunction with each other,  insures that beneficiaries and new homeowners can get these fairly complicated tasks  accomplished in a relatively easy, stress-free and inexpensive manner.