Squabbling among siblings frequently erupts right after a parent passes away… when the time comes to divvy up real property shares, investment and liquid assets, as well as cash in an estate. Moreover, this in-fighting often results in lengthy and expensive litigation.
Therefore, to set the estate stage properly, to organize the equitable sale of all assets and valuables, to equally split real property, cash accounts, investments, and liquid assets… plus correctly establish productive, two-way communication among siblings prone to conflict and squabbling over money, with an objective, neutral party or familiar family lawyer to act as a mediator to resolve inheritance conflicts among siblings after a decedent has passed away.
However, when middle class parents pass away, leaving a home to several beneficiaries when there is little else to inherit, this frequently results in a heated conflict between one or more siblings who want to sell their inherited home, and the siblings who insist on keeping their family house along with parents’ low property tax base. As we all know, this can lead to a protracted, bitter battle of wits and words.
An Irrevocable Trust: Working in Conjunction with Proposition 19
The one proven solution to this sort of struggle, to end the squabbling for good, is for one side, generally the beneficiaries looking to keep their inherited home, a loan to a trust to buyout siblings looking to sell their inherited share, buying out sibling property shares, with a sibling to sibling property transfer, avoiding property tax reassessment and keeping a low property tax base.
Generally a high six-figure or low seven-figure loan from a trust lender to an irrevocable trust works in conjunction with Proposition 19, leaving beneficiaries who are keeping the family house with a Proposition 13 protected, low property tax base.
This avoids the need to work with a broker or realtor, therefore avoids a 6% commission, legal fees, transaction charges, etc. – providing a good deal more cash to the beneficiaries trying to sell the home than an outside buyer would tend to offer, or could offer.
Resolving Sibling Conflicts with Trust Based Estate Planning
That is to say, thinking ahead to resolve sibling conflicts. Planning an estate with a concrete will and/or trust, with heirs in mind, prior to death can avoid many of the problems between siblings after a surviving parent passes away.
If a parent leaves concrete instructions in a trust and/or a will as to which sibling receives what in terms of cash accounts, real estate, personal property, investments, antiques, lucrative artwork, liquid assets, valuables, important jewelry; etc.
A wise parent will leave clear instructions how a house is to be inherited, or possibly how it is to be sold, and how the proceeds are to be divided. Some siblings may receive more than others; some or one may be disinherited. All of these decisions may result in bitter conflicts later on.
Planning in Advance to Thwart Mercenary Heirs
Obviously, leaving an even share of assets, valuables, cash, and real property, in black and white, in a will and/or trust, would tend to avoid conflict – however this may not be what the decedent wanted. And even if all inherited assets are split evenly, there are often greedy heirs who want more, and manipulate to get more. And this is where a trust loan buyout can come in handy, with the assistance of a trust lender.
A parent can leave a revocable trust that can be changed at any time up to death, placing property in the joint name of a parent and child so that a bank account, brokerage account, or real estate can pass automatically to children/beneficiaries when the parent dies – to avoid conflict.
Using a cordial executor or trustee for the estate who does not gain anything in any way can also help avoid conflicts, although sometimes they start them! So choosing the right person becomes a critical decision for the parent.
California Prop 19 Rules for Transferring Property Taxes
As an updated review of sorts, we would like to revisit certain Proposition 19 issues governing California property taxes. These issues have become particularly important to beneficiaries and new homeowners in particular throughout the state. The following updates address measures that are especially popular with homeowners…
In terms of basics, it’s important to reiterate that under Proposition 19 an inherited home can be transferred from a parent to their child/heir without triggering property tax reassessment, with the right to keep parents CA property taxes. However it’s essential these days to pay more attention to deadlines and filing stipulations — whereas previously this was not as necessary.
Beneficiaries frequently want to know if a parent died prior to Feb 16, 2021, but the change in ownership forms were not filed with the assessor until after Feb 16, 2021 — if the parent-to-child exclusion (from current property tax rates) is applied under former Proposition 58 measures, or if it is applied under current Proposition 19 tax measures, with the ability to keep parents CA property taxes…. The confirmed answer is that an inherited property transfer is calculated by date-of-death to determine the official date of change of ownership.
A good number of trust beneficiaries inheriting real property from a parent, considering their option to buyout siblings’ inherited property shares, often ask trust lenders if a parent is leaving a family home to three siblings/heirs, will that family home be the primary family home of all three heirs — or just the one heir. And it turns out that only one sibling/heir is expected, under California tax law, to take over that family home as a primary residence. Yet all three siblings still have to be valid heirs.
Beneficiaries and heirs of an active estate, inheriting assets, often ask their attorney about the correct time-frame to establish an inherited family property as their “primary family home”… Estate attorneys typically confirm that beneficiaries inheriting a house from a parent who wish to keep parents CA property taxes on a property tax transfer, when inheriting property taxes, are expected to establish that house as their “principle family residence” within 12-months of the purchase or transfer of that inherited property, if they want to avoid property tax reassessment using their existing ability to transfer parents property taxes, when inheriting property taxes from a parent.
If beneficiaries or heirs are inheriting a family farm, they often look to their estate lawyer, or trust lender, for answers… if they are looking to buyout co-beneficiaries to retain the inherited property for themselves – at their parent’s low property tax base – to find out if the Proposition 19 parent-to-child exclusion (from current tax rates) also applies to family farms.
In other words, does a family farm also have to be a principal or primary residence of the inheriting beneficiaries or heirs… And the answer is no, the family farm does not have to be the principal residence of the inheriting parties in order to qualify for the parent-to-child exclusion. A family farm is viewed as any real property which is under cultivation or which is being used for pasture or grazing, or that is used to produce an agricultural product.
Many Californians want to know if Proposition 19 is retroactive; if property transfers that have already benefited from Proposition 58 parent-to-child exclusion benefits are going to be reassessed… And they are informed that Proposition 58 applies to transfers that were implemented on or prior to Feb 15, 2021. The current Proposition 19 ability to keep parents CA property taxes applies only to transfers that take place happen after Feb 16, 2021.
An inherited house, when transferred from a parent to their child/heir – is expected to be the “primary family home” of an heir. Beneficiaries or heirs frequently ask their property tax consultant or attorney how long they need to reside in or maintain their inherited property as “a primary family home” to be able to retain the parent-child exclusion. The answer is unequivocally that the Prop 19 exclusion applies only as long as the heir, or beneficiaries, reside in inherited property as their “principle family home”.
In the event that a family home is no longer used as the primary residence of a beneficiary inheriting a home, that property should receive the factored base year that applies, had the family home not qualified for exclusion at the time of purchase or transfer. The new taxable value will be the fair market value of the home on the date of inheritance, adjusted yearly for inflation.
Hence, an updated look at certain new parent-child and grandparent-grandchild property transfer rules and regulations under Proposition 19.
What does the passage of Proposition 19 mean for the general housing market in California, one of the nation’s most expensive states to live in? Although the state will run into an increase in revenue due to a property tax hike, some residents who reside in inherited properties might discover that living in California is becoming more and more difficult and unaffordable.
Nick Solis, a well known real estate professional, and president of One80 Reality said recently in an interview, “California is a state where blue collar working class folks generally pass down their home to their children or other family members.”
Of course this is where trust lenders, for example like Commercial Loan Corp, are going to get busier, helping beneficiaries to get approved for Proposition 58 and California Proposition 19. Naturally, Prop 58, Prop 19 & a trust loan lets us buyout siblings, or co-beneficiaries. Trust lenders are going to become more popular as this type of transaction becomes even more in demand than it already is now. Siblings who are looking to sell out, and often leave the state, will actually walk off with more money from a trust loan than they would if they sold out to a third party that is not a family member.
Mr. Solis explained, “Not everyone who inherits a home form their parents is wealthy. Many blue collar workers and working class families bought property in previous decades when homes were affordable, and are passing them down to their kids…”
It took a quasi civil war to get property taxes to this point. The overzealous, fanatical opponents of property tax relief in California never gave up, despite 42 years of trying and failing to remove property tax relief from the California tax system. They gritted their teeth and attempted to push through proposition after tax measure after tax bill to accomplish that. For 42 years, Proposition 13, which successfully limited property tax increases, helping beneficiaries, homeowners and commercial property owners avoid property tax reassessment. Hence, Prop 13 remained untouchable. A political third rail.
Proposition 13 weathered and rebuffed numerous legislative and legal attacks… Even including one at the Supreme Court. And nothing stuck. Prop 13, and subsequently the 1986 Amendment, Prop 58 & a trust loan lets us buyout siblings, with it’s sacrosanct Parent–to-Child Exclusion (or Parent-to-Child Exemption), this all seemed to be more or less indestructible.
Will CA Prop 58 Trust Loans and Tax Breaks Survive Proposition 19?
California can thank her lucky stars that Proposition 15 was defeated by a thin margin of “No!” votes… But these motivated opponents of property tax relief in California managed to raise and spend, thanks to the CA Realtor’s Association and others, $47,568,642.14 to push through a certain cleverly worded, deceptive little tax measure called Proposition 19; as the state’s first serious property tax in 43 years.
Opponents to the Prop 19 tax measure managed to raise a paltry $238,521. Had they been able to raise equivalent amounts of cash for PR and promotional efforts, to properly inform voters as to what Proposition 19 was actually looking to accomplish — it is unlikely that the tax measure would have passed. As it is, the winning margin was only a few hundred thousand votes.
Proposition 19 was a Christmas present in 2020 for certain special interests in California, supported by the CA Legislature – the CA Association of Realtors PAC, the National Association of Realtors, the California Democratic Party, California Professional Firefighters Ballot Issues Committee, and others… designed to be presented as a pro middle class, pro-senior, pro-firefighter, pro-education property tax relief package – when in fact no one really knows how much all of that anticipated extra property tax revenue is actually going to seniors and the California school system, and firefighters.
Certainly, the folks behind Prop 19, the California Legislature will throw a few dollars at the Firefighters’ Union… and make things, at least on the surface, appear to be easier for homeowners over 55, for awhile…. and the schools system will receive some of that revenue no doubt. However, according to well connected real estate lawyers, as well as the folks at the Jarvis Taxpayer’s Association, most of the extra revenue will be used to pay for massive, unfunded government employee pensions and related items. How this unfolds remains to be seen.
What also remains to be seen is the next Proposition 15 type of anti property tax relief tax measure, that will be looking to strip away certain established Proposition 13 tax breaks. And no doubt with a more clever and convincing marketing effort next time around. And having learned a thing or two from their success with Proposition 19, how to sell new property taxes to residential and commercial property owners in California. The Howard Jarvis Taxpayer’s Association and others will simply have to learn how to debunk and expose new property tax hikes, of any kind, more rapidly and more convincingly.
In the meantime, California still has some effective property tax relief options left, thanks to Proposition 13 still being in one piece. If we’re about to inherit property, from a trust or an estate, we can still look at getting a trust loan while establishing a low Proposition 13 property tax base… even without all of the property tax transfer options that heirs and beneficiaries are accustomed to passing on to their children as well… allowing their children to benefit from standard Proposition 13 tax breaks for California trust beneficiaries to avoid property tax reassessment.
Families inheriting real property can still transfer parents property taxes upon inheriting property taxes; plus utilize their ability to safely keep parents property taxes during a parent to child transfer, or Parent to Child Exclusion; as well as during the transfer of property between siblings, during a co-beneficiary buyout of inherited property shares through a loan to an irrevocable trust in conjunction with Proposition 58, and the help of a reliable trust lender who knows how to make full use of the now-revised Parent to Child Exclusion… now restricted to a 12-month time-frame after a parent passes away; as opposed to no restrictive time-frame, such as prior to Proposition 19. If California can’t take advantage of property tax relief one way – they’ll have to go down another avenue to get it done! Inheriting parents property taxes, maintaining the right to avoid property tax reassessment, is still in place; it’s just not as simple as it once was. Thankfully, Proposition 13 still protects our right to avoid property tax reassessment, due to the fact that Proposition 13 is still intact, for the most part. But for how long? That’s the big question… before those tricky folks who gave us Proposition 15 and Prop 19 decide to try again, having learned from their “mistakes”, and come back in the near future with even more deceptive marketing capabilities.
Of course, in the bulk of the states in America, most tax breaks of any kind go the wealthiest residents who actually need tax reduction the least. However, in California the middle class, nor just the one-percenters, continues to enjoy these unique Proposition 13 and Proposition 58 or Prop 193 tax breaks. Even after Proposition 19 imposed limitations on the right to avoid property tax reassessment.
The longer middle class homeowners in California have lived in their house – factoring in their neighborhood, in terms of appreciation in value – the larger the tax break from Proposition 13 still is, as it always has been. And Proposition 58 remains about the same, allowing beneficiaries to get a large six or seven-figure loan to an irrevocable trust… establish a permanent low property tax base, plus buyout co-beneficiaries who have inherited the same property.
Despite Proposition 19, all property owners are protected from property tax increases, regardless of when their buildings were built or whether the owner even lives in them. Unfortunately for renters, rent control in Los Angeles and other urban areas only applies to multi-family apt. buildings that were constructed prior to 1979 — the rest of renters cannot partake, however can usually find reasonable rentals, where say in many other cities in the US this is often not possible. But it is in California.
Now, if we could get other taxation down, and make living easier for Californians in general, and stop companies from leaving the state due to high corporate tax… keeping jobs here in the state – California would be in better shape all around. But that’s something we’ll need to take up with the Legislature!
Post Proposition 19 Californians must face certain changes to the Proposition 58 “Parent to Child Transfer” tax break, the “Parent to Child Exclusion”.
Property owning Californians now have to grapple with specific challenges, where property tax relief is concerned. It has to be said that, with all due respect, that the realtor community in California is straining credibility. They backed Proposition 19, so anything they propose going forward, concerning property taxes or property tax relief, we can assume is only going to benefit the California realtor community. Not the buyers, or renters… or owners. This is fairly obvious.
Frequently being the wealthiest of the wealthy, we find it ironic that many realtors in California bleat and moan about one family – the Bridges family in Los Angeles – using the one often repeated example to advance the shaky case that everyone in California benefiting from Proposition 13 and Proposition 58 are fabulously wealthy, are elderly, and are intent on buying up all the multi-million dollar beachfront properties in the state, simply to rent out to other fabulously wealthy people from other states, vacationing in Malibu or Santa Cruz or Santa Barbara, having a grand old time – while the besotted realtor community suffers terribly from the lack of homes available to them to go to market. These claims basically debunk themselves.
Moreover, as the claim goes, all because of Proposition 13… and all those rich movie stars buying up all those luxury properties so they can make a few extra dollars every month, reportedly $10,0000 to $15,000, renting out an inherited investment property, like the Bridges do, or did. Again, Bridges being the only name ever used as an example, repeatedly in articles and editorials. Or are the Bridges the only family ever to be involved in this peculiar practice?
We simply cannot figure out why these rabid critics of property tax relief, practically foaming at the mouth, cannot locate another wealthy show business family to bring up when discussing this supposedly “out of control” practice of renting out inherited beachfront properties to vacationers at fairly egregious prices.
Apparently, according to critics of Prop 13 and Prop 58, it’s all because of the families taking advantage of the “Parent to Child Exclusion” that the real estate market has shrunk a few percentage points over the past few years. Utilized only, they tell us, by wealthy elderly homeowners and their offspring. No one else. No middle class families, no veterans, no retired folks living on a fixed income.
And this argument, involving the Bridges family as the sole example of a family of multi-millionaires using an inherited home as an investment property to make a few extra dollars on the side has literally remained unchanged for going on 35 years now. A lot of people think something is awry with this picture. So let us take a quick look at the history behind all of this…
So what does the realtor community all across the state of California do, after putting up with supposed armies of rich elderly homeowners and their grown children, renting out inherited luxury homes on the beach for decades – along with having the nerve to actually reside in their own home for decades, simply to take advantage of Proposition 13 or Prop 58, so they can avoid property tax reassessment and rent out luxury homes to upscale tourists?
Apparently also further enraging the realtor community AND the Legislature by also taking advantage of a certain Proposition 58 transfer of property – these wealthy homeowners also take terrible advantage of the California tax system by using these Prop 58 tax breaks to buyout property shares inherited by co-beneficiaries as a transfer of property between siblings – combined with the transfer of parents’ property taxes when they are in fact inheriting property taxes from a parent.
Actually “having the gall” as many critics of property tax relief would put it in the Los Angeles Times or San Fran Chronicle, to basically save a small fortune on a property tax transfer, by exercising their right to keep parents property taxes rather than pay full freight with full up-to-date market rates – paying “their fair share” without “taking advantage” of Proposition 58’s Parent to Child Transfer, or Parent to Child Exclusion.
Apparently, the Legislature and the realtor community are so hard-up for cash that all the property owners in California should be expected to pay reassessed property tax rates, adding thousands, often tens of thousands to ones’ tax bill… and not take advantage of Proposition 13 & 58. Eventually, the Legislature and their friends at the California Association of Realtors decided something had to be done about this perpetual injustice!
So the California Association of Realtors and other supporters of a tax measure they called Proposition 19, in 2020, raised $63.8 million ($58.6 million from CAR) and $4.9 million from the National Association of Realtors. Opponents raised less than $50,000 to wage a political-social campaign, and finally these critics of property tax breaks took down the dreaded Parent to Child Transfer tax break – protected by the triple-dreaded Proposition 58 tax measure since 1986. They weren’t actually able to completely remove this tax break… However, they came awfully close.
Yet as residential or commercial property owners found out, after all the hysteria died down across the state, and property owners finally realize that they had in fact been bamboozled into voting for this tax measure that was turned out after all to be a hungry tax wolf disguised as a charming sheep who just wanted to help seniors and school children. BUT – they still had plenty of property tax relief options left… they were just a bit more challenging to access. Yet that really would be a political third rail. Especially after voters in California finally saw they had been deceived.
Therefore, despite all the worrying about this, all these property tax relief options remain intact. If we inherit parents’ property from a trust or an estate we can still take advantage of Proposition 13 & 58 to access a large 6 or 7-figure loan to an irrevocable trust to buyout co-beneficiaries so we can own it solo, and keep parents low tax base… frequently without a credit report, without up-front charges, with low interest, no hidden fees, usually in just a few days, and always with very simple terms – unlike your typical bank or credit union.
And of course there is the often used research Website, with up to date news and information on Proposition 13 at the Howard Jarvis Taxpayers Association or for a formal cutting edge look at updated information exclusively vetted and imparted for California property owners, regarding property tax relief for those impacted by Covid-19, at Andersen.com… Moreover, to take advantage of Proposition 13 & 58 whenever and wherever possible! There is no point in ignoring any property tax assistance you can receive, one way or the other!
Parent to Child Property Tax Transfer in California
Based on their recent efforts, how do the folks running the state of California, in the Legislature, think that adding property taxes will affect all these working families? Do they even consider how further unraveling property tax relief would affect the California economy as a whole? Does it ever occur to the politicos in the Legislature that going further in the direction of eliminating property tax breaks would literally be a social and financial disaster for the state as a whole?
Since Proposition 58 (as well as Proposition 193 concerning the “Grandparent to Grandchild Exclusion”) is such a critical element holding up property tax relief in the state of California, we might as well take a quick, very simple high-level look at how this all works. To take advantage of Prop 58, certain eligibility requirements must be met. For example, eligible children under this proposition include:
a) Children born of the parents in question b) Stepchildren c) Sons-in-law and daughters-in-law d) Children adopted under the age of 18 e) Children of a child of grandparents (regarding Proposition 193)
Propositions 58 and 193 exclude three types of property transfers, avoiding property tax reassessment at current high market rates:
1. Transfer of a primary residence: The assessed value of a primary residence is eligible for reassessment exclusion, or exemption.
2. Transfer of property through gift, sale, or inheritance: Parent-to-child transfer through a trust will qualify for an exclusion of property tax reassessment.
3. The parent-child exclusion can only be used if the “transferee child” uses the home as the child’s primary residence, and files for the homeowner’s exemption for the property. The parent-child exclusion will not be available if the home is used as a vacation home or is rented out by the children. If the home is transferred to more than one child, they would all have to live together in the home as their primary.
4. A parent can only shelter $1 million of increased value from reassessment. Any appreciation above that will be added to the property tax assessed For instance, if the primary residence is currently assessed at $500,000 but is worth $1,500,000, the child receiving the home and using it as the child’s primary residence will keep the same property tax assessed value of $500,000. However, if the home is worth $3,000,000 and not $1,500,000, the $2,500,000 appreciation will result in an added $1,500,000 assessment; the child’s new property tax assessed value will be $2,000,000 ($500,000 current property tax assessed value + $1,500,000 of “excess appreciation”). This new limitation also applies to a family farm.
Proposition 19 eliminates the second current alternative completely. As of Feb 15, 2021, there will no longer be a Parent to Child exclusion for a transfer of any property other than the parent’s primary residence and a family farm. Although you can still get the benefit of Prop 58 and an irrevocable trust loan if you require that type of financing.
Proposition 58 does not automatically apply to each parent-to-child transfer. To receive the full benefit of Proposition 58, you are required to file within 3-years of the transfer of property ownership.
There are several forms you must file to take advantage of property tax reassessment exclusion. They are Proposition 58 Form BOE-58-AH: Claim for Reassessment Exclusion for Transfer Between Parent and Child; or Proposition 193. Form BOE-58-G: Claim for Reassessment Exclusion for Transfer Between Grandparent and Grandchild.
This completes a very simple, high-level view of what Proposition 58 is all about. Once you understand all that, the next step is to enlist the help of a trust lender to get approved to be able to take advantage of Prop 58 and an irrevocable trust loan for funding to equalize the finances between beneficiaries if some wish to hold on to inherited property while others are looking to sell out to outside buyers.
From that point onward, the next step is to make use of the trust fund loan process, if you wish to equalize financing between you and your siblings or co-beneficiaries, to retain inherited property from your parents and buyout property shares inherited by a sibling, or several co-beneficiaries. You can then own your inherited home without the encumbrances of co-beneficiaries to be concerned with.
There are many ordinary, middle-income families, often referred to as “trust fund heirs” who put their assets into a trust with the help of an experienced trust lender like Commercial Loan Corp. When Mom or Dad passes away, and the property is held in trust, some beneficiaries either sell their inherited property or they keep the property and, through a trust loan and Proposition 58 tax benefits, manage to lock in a low property tax base, and frequently buyout an inherited property from co-beneficiaries, to be able to own an inherited home without difficulties and complications from shared property ownership.
On the other hand, if beneficiaries in that position decide they’d prefer to sell the property directly to an outside buyer, instead of receiving a typically higher payment from a trust loan – then those beneficiaries will get significantly less money due to realtor fees (typically 6%) when the property sells.
Interestingly enough, beneficiaries will generally net, on average, $16,400 or more by not selling the property – and instead having at least one sibling, a co-beneficiary, take advantage of Proposition 58. Moreover, the average family estate will net $45,000+ more than if the property was sold outright to an outside buyer, with the revenue from that sale being divided evenly between the beneficiaries.
Higher taxes imposed on families by Proposition 19 will tend to compel a great deal of beneficiaries to sell their inherited property, even if their preference is to keep the old home and/or land. Naturally, this is often good for realtors, who will tend to bank more commission revenue from increased sales. However It’s not good for a middle class or working class family who is suffering the loss of a generally beloved Mom or Dad.
A trust lender usually enters the picture when enlisted by a beneficiary, or beneficiaries, who wish to keep their inherited property, while buying out owned shares of the same inherited home, mutually inherited by siblings.
Trust lenders who run their practice with integrity generally work with siblings that have lost a parent and are helped a great deal by the California Constitution’s provision that serves to protect beneficiaries from owing thousands of dollars in property taxes, as they settle estate or trust business matters and typically complicated financial issues.
A trust loan introduced into this type of estate or trust equation allows a beneficiary or beneficiaries, often referred to as “trust fund heirs” by realtors and real estate attorneys, to retain the home they have happily inherited from their Mom or Dad – safely and securely, at a nice low property tax base.
Meanwhile, without having to actually sell the property, co-beneficiaries walk off happy as clams, with more cash in their pocket having had a loan to an irrevocable trust used to buyout their shares in their inherited property – than if the property had been sold to an outside buyer, at current market value.
Middle class beneficiaries typically do their own research on how to protect their inheritance from the tax man… On property tax breaks that make real sense, on trust lenders when inheriting property taxes; on property tax transfer and estate planning; and usually on their legal right to keep parents property taxes as well as having the ability to transfer parents property taxes at the same low tax rate that their parents had.
Many beneficiaries will conduct their own research on property tax benefits first (prior to going to a trust lender) on how to avoid property tax reassessment, on Parent to Child Transfer benefits and the complex Parent to Child Exclusion (from current tax evaluation).
Beneficiaries gravitate to info-sites such as the state government BOE site at https://www.boe.ca.gov or to a well known trust lender like the Commercial Loan Corp firm we mentioned here, they can also be reached at 877-464-1066; generally due to their reputation as a firm with a family atmosphere, where clients all seem to get treated like V.I.P.s regardless of their net worth or the value of their inherited property.
How Can I Inherit a Home & Keep the Low Property Tax Base?
Perhaps a lot of regular middle class folks out there waiting for an inheritance aren’t aware of it – but since 2016 many of us in the business of dealing with middle class heirs, waiting for an inheritance in trust or in an estate, involved in an unusually large number of conflicts between heirs or beneficiaries… Frequently turning ugly and downright out of control.
As you can guess, these conflicts typically revolve around the subject of money… Frequently, in an estate scenario, one or more siblings insist on selling the home they have inherited from Mom or Dad, to generate “fast cash” – often in heated opposition to co-beneficiaries inheriting the same home, for example, who insist on retaining that property, as the emotional or sentimental value for them far exceeds the cash value.
Hence, this often fires up a serious conflict within the family group. Or – one or two heirs claim they should be receiving a much larger percentage of the family inheritance, which is frequently based on the sale of inherited property, as cash assets are often very modest in middle class estates these days.
Over the past four or five years, we can clearly see a significant increase in these family squabbles… often, for example, in 17 out of 20 estate or trust situations we often see in-fighting like this, that frequently destroys sibling relationships. Or perhaps conflicts over the issue “to sell or not to sell” inherited family property, or even conflicts over the assessed value of that property… is merely the match that ignites emotional conflicts that were there under the surface to begin with. It’s no surprise that we often see at least one or two inheritors, per estate or trust, that want to keep their inherited home, with one or two, or more, beneficiaries pushing to sell the house as soon as possible.
It’s very common these days to see siblings lock horns almost immediately, when the subject of selling their inherited home is raised. With additional battles flaring up over who should be receiving the larger share of cash assets – or “who” gets “what” percentage of the home the family is inheriting. home left by a beloved parent. We see this pattern repeated over and over again; the same words, similar disputes and similar claims.
A Trust Loan Solution to Family Conflicts
In California, Prop 58 loans to irrevocable trusts often act as a solution to many family conflicts revolving around sibling disagreements over whether or not the family should retain or sell inherited property from parents. With a trust loan working in conjunction with Proposition 58 – a process referred to as Prop 58 loans to irrevocable trusts – you can then buyout beneficiaries and end up owning your inherited property by yourself.
Interestingly enough, siblings who insisted on selling out actually end up receiving more cash then if there had been no trust loan funded and outside buyers had become involved; so those siblings can move forward with their lives, leaving you in peace. Interestingly enough, most families that call a trust lender to get this type of funding started and accomplished, know next to nothing about the process of Prop 58 loans to irrevocable trusts.
Residential and commercial property owners should research and learn all about the benefits provided by trust lenders furnishing loans to irrevocable trusts to enable the buyout of property shares from sibling co-beneficiaries; along with CA Proposition 13 transfer of property, plus locking in a low property tax base rate in conjunction with Proposition 58 – all associated with a transfer of parents’ property and transfer of parents property taxes.
Homeowners in every state should understand what inheriting property taxes is all about, how to keep parents property taxes with property tax transfer of all sorts – and why parent to child transfer, or parent to child exclusion, is so profoundly important at the base root of property tax relief in California… and hopefully in other states as well, if motivated folks begin sending letters and emails to their representatives in Washington, and if, by a miracle, this catches on and actually sprouts results.
Living in a state with low property taxes can provide a major benefit, rather than a liability, to your life. Even if many homes are pricey perhaps to begin with… lowering property taxes on them, to a number you can really feel, can have a profound affect on your lifestyle, and maintain the quality of your life, to where you need it to be.
Goods and services and real estate can be pricey in states like Connecticut, Texas, California, New York, New Jersey, Massachusetts… these are all expensive states, in terms of day to day living… However, getting a “life-toll” such as property taxes down to a manageable level can change your entire outlook on your life, eliminating that particular financial struggle.
Moreover, the concept of paying yearly taxes on something you purchase and then keep for many years, might be flawed to begin with. What other large purchase you may make continues to charge you fees such as taxes, after the initial [large] purchase? A boat? Plane? Car? Motorcycle? None. Only real property. Perhaps the whole concept of taxing real estate after the initial purchase could use some fresh, new examination.
Speaking of trust liquidation, California is still the only state in America where you can avoid property tax reassessment at current rates; capped at 2% taxation basically as long as you own property inherited from parents initially… thanks to the 1978 CA Proposition 13. Plus, the component involving Prop 58 and “trust liquidity” is particularly popular with middle class beneficiaries who want to sell the property shares they have inherited from a parent, and walk off with even more cash than if they had sold out to an outside buyer. Conversely, Proposition 58 trust loans are just as popular with members of families inheriting property from parents, who wish to buyout their siblings, co-beneficiaries, that are looking to sell their inherited shares.
California business and residential property owners, in addition to having the right to keep parents property taxes, and transfer parents property taxes upon inheriting property, and then inheriting property taxes at the low Prop 13 two-percent tax rate maximum – can maintain a parental property tax transfer basically forever, as a Parent-to-Child Transfer, or Parent-to-Child Exclusion, as long as all requirements for Proposition 58 have been met. Californians can even apply for the same tax break on a secondary property inherited from parents.
If you’re a California property owner who is looking to buyout siblings who insist on selling their inherited property, while retaining the same inherited property from parents with a trust loan, avoiding property tax reassessment from that point on – you can find content that covers this in-depth, along with information on how to get approved for Proposition 58, on a state government Website like the California State Board of Equalization, which is found at https://www.boe.ca.gov/proptaxes/faqs/propositions58.htm
A lot of folks research these issues and delve more deeply into California property tax relief, on multiple levels, at established niche Websites such as Commercial Loan Corp… or a free resource blog like this one, Property Tax Transfer. Trust loans working in accord with Proposition 58 or Prop 193 make it possible for heirs and beneficiaries to sell shares of inherited property, a beneficiary buyout of sibling property shares, or as realtors put it, “the transfer of property between siblings”, and “lending money to an irrevocable trust“ – typically from an irrevocable trust loan lender.
The fact is, we need to understand all about our rights, with respect to using a 6-figure loan to an irrevocable trust — not only as a way to buyout co-beneficiaries, but also as a tax break that locks in a low property tax base in line with CA Proposition 13 parental property tax transfer.
Every property owner in every state in America should be more familiar with current changes to property tax relief laws in California; including the pesky little details that support the invaluable system that allows homeowners and commercial property owners to buy out co-beneficiaries’ mutually inherited property — focusing on the tax laws that makes sibling-to-sibling property transfers work in California. Someday, perhaps in every state in America, if we want to make property taxes fair and equal to all property owners in this country.
It has been an interesting piece of California history, concerning people who have been involved in the struggle for, or against, Proposition 19 in 2009–2010 which was not voted into law… as well as the next version of Proposition 19 in 2020, which was voted into law, just barely.
Moreover, Proposition 19, 2020 was promoted in a rather deceptive and confusing manner, along with a measure called Proposition 15, which did not pass or, as you know – commercial property owners in California would no longer be able to avoid property tax reassessment.
As you also probably know, Proposition 19, 2020 managed to revise certain property tax breaks within Proposition 58, such as the “Parent to Child Exclusion, or, as tax attorneys like to call it, the “Parent to Child Exemption”.
At any rate, there was far too much focus on the recreational use of marijuana surfacing during the 2009–2010 version of CA Proposition 19. This battle descended into a petty conflict involving decade-old personal bias and social prejudice characterizing marijuana as a “socially destructive, addictive drug” (which it apparently is not, according to pharmacological experts) and placed in the same class as crack cocaine or meth-amphetamine, which are indeed socially and personally destructive drugs.
It does seem that the real purpose of Proposition 19 in the 2010 version, away from the grey area of “recreational use of marijuana” which the debate became mired in – was to try to generate $1.5 billion or more for state violent crime fighting needs. Due to a great deal of personal bias, this never happened. Which is unfortunate, as the state could have used the extra money for legitimately battling violent crime associated with genuinely harmful drugs; as opposed to rather benign couch-potato pot smoking.
Everyone who owns property in California regarded Proposition 58, voted into law Nov 4 of 1986, as untouchable, sacrosanct, a political third rail not to be touched. It has served to protect homeowners whose debt is at or exceeds $8,500 in additional property taxes, while settling financial affairs after a parent, who has left property to heirs, has passed away. Proposition 58 also protects a property tax benefit called a “Parent to Child Exclusion” or Exemption, as we have mentioned… allowing beneficiaries inheriting property to avoid property tax reassessment at current market rates.
Moreover, Proposition 58 allows beneficiaries who wish to keep inherited property in their family to buyout co-beneficiaries’ property shares, through a trust loan, and helps those looking to keep their inherited home also retain a Proposition 13 protected low property tax base that their parents paid.
With the advent of Proposition 19, after a long rather disingenuous marketing campaign, middle class families woke up to realize that some of the benefits they thought were fully protected have been watered down; that you will need to move into the house you inherit from parents within a year, as a primary residence, or lose your Parent-to-Child Exclusion. So it’s still there… but you have to keep an eye on the calendar to avoid losing the tax break altogether.
So all of a sudden, after both Prop 15 and Prop 19 were proposed… California property owners began to worry, for the first time in decades, about possibly losing the right to keep parents property taxes for themselves, at a nice low rate…It is unthinkable, as expensive as California is, with income tax and other taxes as high as they are – to even consider that we might ever lose our right to a property tax transfer from parents, at low Prop 13 rates; or transfer of property between siblings. Fortunately for California, this did not occur.
After Proposition 19 was passed, Californians were extremely relieved to see that they would be still have the right to get a loan to an irrevocable trust, in conjunction with Proposition 58; to be able to buyout property shares from co-beneficiaries, as the same simple transfer of property between siblings – known as “buying out siblings’ property shares” or a “sibling to sibling property transfer”, when co-beneficiaries decide to sell their inherited property to an outside buyer.
It was most likely due to notable professionals who supported property tax relief and Prop 58, that Proposition 19 was prevented from going too far. This can be verified at fact-based property tax blogs like this one, Property Tax Transfer, and the new Op-Ed oriented micro-site, Loan To A Trust, specifically addressing issues, opinions and fact-based information on Proposition 13 and Prop 58 at Websites belonging to real estate attorneys supporting CA property tax relief, such as property tax specialists. And certainly thanks to Prop 58 experts and trust lenders with applications for a trust loan, for transfer of property between siblings… that look something like this: https://cloanc.com/apply-online
It goes to show us that with some stiff opposition to unreasonable tax measures looking to squash property tax relief in California – even with millions of dollars from the California Legislature and organizations supporting special interests like realtors, such as the CA Association of Realtors (C.A.R.), conspiring tax measure that attempt to unravel Proposition 58 and/or Proposition 13 can be stopped. Perhaps not completely; yet at least to a good degree.
California Parent to Child Exclusion From Property Tax Reassessment
And yet, until these changes to property tax relief are repealed, let’s be thankful at least that, going forward, beneficiaries inheriting property directly from parents will still be able to retain Proposition 58’s parent to child exclusion from property tax reassessment (at full or current market value), as long as those direct beneficiaries move into an inherited property as a primary residence, within 12-moinths after the passing of the parent leaving that property as a gift, a sale, or an inheritance.
This is a difficult matter to overcome without some careful planning… and this is certainly one component of Prop 19 that was, shall we say, “under-played”, or actually hidden from voters, prior to Nov. 2020. The prevailing thought is that this will perhaps be repealed in the near future once voters actually experience the reality of these changes to Proposition 58, whether they voted for change or not.
Yet, whether we like it or not, all of these revisions do unravel long-standing tax benefits protected by Proposition 58 concerning the parent to child exclusion as well as trust loan enabled sibling to sibling property transfer, buying out property inherited by siblings; or Proposition 193, with regards to the grandparent to grandchild exemption; passed overwhelmingly by voters in California in Nov. of 1986 and March 1996, respectively, allowing parents to transfer their property tax basis of a primary residence ) to their children; plus up to $1 million of assessed value of other property – namely $1million of the Proposition 13 values on rental properties or other investment properties passed to heirs, not based on fair market value; and effectively allowing far more than $1million of property value to transfer while retaining the lower tax bill.
Even though the California Legislature and California Association of Realtors may be more interested in funding unfunded local government pensions, footing the bill for a few school programs, and getting some more homes into the market for sale – it’s not in question to any reasonable person, without a financial or political axe to grind, that Proposition 13, Proposition 58 and Prop 193 have saved heirs thousands upon thousands of dollars every year, that they would have otherwise been spending needlessly on vastly over-priced property taxes.
Not to mention the truly excellent sibling to sibling property transfer benefit, buying out inherited sibling property – which is always Proposition 58 & trust loan enabled, to buyout property inherited by co-beneficiaries. Noted attorney Devin Lucas, one of the most knowledgeable proponents of Prop 13, Prop 58 and 193, and California property tax relief in general, which he summed up brilliantly in Oct. of 2020. Mr. Lucas offered some real-world examples to illustrate the practical importance of these tax breaks for families, as follows:
“Due to the tremendous benefits of Proposition 13, many long term owners continue to pay property taxes based upon their original purchase price (or price as determined when the proposition was enacted), with annual increases not to exceed two percent, regardless of current value. This can be especially beneficial in areas such as Newport Beach, Laguna Beach, Costa Mesa, Orange County and other coastal communities that have seen incredible growth in property values.
For example, assume a parent’s home in Newport Beach is currently worth $2,500,000. They purchased the home long ago for low a low six-figure amount and due to the enormous benefits of Proposition 13 are paying about $3,500 a year in property taxes. If the child were to purchase a home for $2,500,000 today, that would equate to a $25,000 annual property tax bill (assuming one percent, not including various municipal bonds and other taxes commonly found on property tax bills). Transferring the property tax basis of the parent’s home, and therefore that $3,500 a year bill, just saved this hypothetical child $21,500 a year in property taxes. $21,500 a year, for as long as they own the home.
Principal residences have no cap in value, all other property, such as investment properties or second homes, have a benefit cap of $1 million, in which case a mother / grandmother and father / grandfather can combine their exclusions for a limit of $2 million. If the property is worth more than said caps, then a new blended property tax basis will be configured by the county…”
Fortunately, Proposition 193 is also intact, allowing grandparents to transfer their current tax-basis to grandchildren. The wonderful thing, still, is that these property tax benefits can always apply to a gift, sale or hybrid of the two and can amount to enormous property tax savings. And that is truly what this is all about.
