Inheriting a Home and Keeping the Property Tax Base Low with Proposition 19

Inheriting a Home and Keeping the Property Tax Base

Inheriting a Home and Keeping the Property Tax Base

It looks like we’re back again to a proposed “wealth tax” in California. There is certainly nothing wrong with getting rich, and more power to anyone in that position, or with that ambition. However, Californians that are privileged and fortunate enough to have amassed billions or hundreds or tens of millions, really should not be complaining too mightily with any modest “wealth tax” being proposed… As long as the tax is reasonable and doesn’t go too far.

Indiana University law professor David Gamage, who has helped develop wealth tax proposals, said recently, “All around the world you see increasing awareness of growing wealth and income inequalities, combined with growing awareness that our tax system is not up to dealing with this problem.”

As a Pechter Baking company heir, a New York millionaire himself, once said – “Don’t feel too sorry for these folks. They’ll still be eating in the same restaurants!” Supposedly, the wealthiest 1% pay 46% of all state income taxes in California. With the tax cuts that were delivered to the country’s wealthiest families, this number seems unrealistically high.

Nevertheless – if you were the California State Legislature and you decided you needed more cash reserves to pay off  unfunded state government pensions – it would make a lot more sense to take that extra property tax revenue from households with way more cash than they know what to do with – rather than create and implement a middle class property tax hike.  A tax hike, for example, as California is dealing with right now – with voters often not comprehending what the details are all about.

Fast-forwarding into the near future – as soon as middle class beneficiaries are in the position of inheriting a home from a Mom or a Dad, they’ll begin to  understand certain limitations with the existing property tax breaks now in affect – and at the same time will see, usually after consulting with a trust lender, that it is almost always more profitable to sell an inherited home through an irrevocable trust, as a sibling-to-sibling property transfer, than to sell it directly to an outside buyer – collecting the property sale funds from an irrevocable trust that was opened up by co-beneficiaries through a trust lender.  A process we have discussed elsewhere in this blog.

Moreover, despite certain limitations imposed by existing property tax breaks, California still has property tax relief options that beneficiaries and homeowners in other states can only dream about, thanks to still-healthy property tax relief furnished by Prop 13; and Prop 19 – which  is now functioning as an updated Proposition 58 for all intensive purposes.  

To reiterate, it would make more fiscal sense, as well as more common sense, to extract that extra property tax revenue from billionaires and multi-millionaires, than taking it from working families, middle class beneficiaries and homeowners living on $50,000 or $60,000 per year – grappling with an updated Proposition 58, or Proposition 19. The State Legislature and their friends at the CA Realtors Association attempted a   virulent tax hike with a commercial property  tax hike called Proposition 15… but alas that failed to pass.  In the midst of a Pandemic no less – Proposition 15 would have raised taxes on apt building and office building landlords, commercial shopping center owners and store properties being rented out to hundreds of thousands of commercial tenants all across the state…

As we all know, this would have caused commercial and business property owners to increase rents on their residential and business tenants – which would have, in no time at all, forced store merchants and the like to raise prices on all goods and services, to keep up with their higher rent. Moreover, this would most likely have been the beginning of the final unraveling of the 1978 Proposition 13 tax relief package. The door to worse things to come, so to speak, would have been opened, had it passed… and the keepers of the anti property tax relief community would have marched through.  However, it did not pass.

However, property owners should first study up on the property tax breaks protected by Prop 13 and Proposition 58.  Every property owner and heir or beneficiary inheriting property from parents should be fully aware what is involved with the process that trust beneficiaries and probate heirs have access to, working with a trust lender, through a trust loan working in tandem with Proposition 19, to buyout shares of property inherited by co-beneficiaries; plus establishing a low property tax base, in line with Proposition 13 tax breaks – frequently referred to as a beneficiary buyout of sibling property shares, or as realtors call it, “the transfer of property between siblings”, and “sibling-to-sibling property transfer”.

Every homeowner in the United States should know how to buy out beneficiaries’ shares of inherited property; and how a sibling-to-sibling property transfer works; how a loan to an irrevocable trust can help co-beneficiaries get more cash and pay lower taxes than if they were selling their shares of an inherited home to an outside buyer. Everyone who is inheriting property should be familiar with sibling-to-sibling property transfer and how to transfer parents property taxes when inheriting a home, while inheriting property taxes…understanding why the ability to keep parents property taxes, and the right to a property tax transfer under all circumstances, is so crucial to property tax relief in California – namely parent to child transfer and the parent to child exclusion tax break in particular, that must be protected and preserved for the overall good of middle class California.

Only then will beneficiaries and new homeowners fully understand how to keep yearly taxes on property they now own at the low base rate their parents paid, saving thousands of dollars every year, decade after decade.  For those who don’t fully believe all this… they can read up on the facts, at the official Website managed by the CA State Board of Equalization, at or research informative blogs and sites that specialize in property tax relief, in property tax breaks for middle class homeowners – as opposed to the usual tax cuts for millionaires and billionaires.

With some in-depth knowledge of these money-saving tax relief solutions, it’s possible to get the best out of a tax attorney or CPA, property tax consultant and/or tax reduction company, as mentioned above.

CA Proposition 58 and Prop 193 Exclusions

Parent to Child Property Tax Transfer in California

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.

How Does the Prop 58’s Parent to Child Exclusion Work?

California Parent to Child Property Tax Exclusion

California Parent to Child Property Tax Exclusion

Importance of Retaining Proposition 58 & Property Tax Relief

Regardless of what critics of Proposition 58 and Prop 13 have to say in Op-Eds and Editorials in California newspapers… No matter how many times opponents of California property tax relief attempt to completely unravel and decimate invaluable property tax breaks protected by Prop 13 and Prop 58, during a Coronavirus pandemic no less – popular support for property tax relief in California holds… For commercial property owners and homeowners alike.

Despite a win here and there by opponents to property tax relief in California… supporters of watering down critical tax breaks such as the “Parent to Child Exclusion” win a battle here or there chiefly as a result of tricky, deceptive marketing; with slippery snake oil tax measures like Proposition 19 in 2020.

We just narrowly missed a statewide disaster, with the proposed property tax measure Proposition 15 almost passing, which would have resulted in egregious property tax hikes, raising taxes on apt building and office building landlords, commercial shopping center owners and store properties being rented out to hundreds of thousands of commercial tenants all across the state.  

This would have forced commercial and business property owners in all 58 counties in California to raise prices on all goods and services – simply to survive.  Moreover, this would have been the beginning of the final unraveling of the 1978 Proposition 13 tax relief package. The door to worse things to come, so to speak, would have been opened.  Fortunately, the door was closed.  At least for now.

The fact is, if Proposition 15 had passed in Nov. of 2020 everything you buy or rent in the state of California, even online, would have gone sky high.  So, clearly, this was a near miss of a total statewide economic melt-down. As it happens, the other deceptive property tax promoted in 2020, sponsored by the CA Legislature and the California Association of Realtors among others, Proposition 19, did in fact pass.  The lesser of two evils, so to speak.

Although not perfect, there is still enough room within the property tax system in California so beneficiaries inheriting property from parents, and homeowners, can still make good use of Prop 13, of Proposition 58 and the “Parent to Child Exclusion”…  Beneficiaries can still take advantage of trust loans and the ability to buyout co-beneficiaries if they wish to sell off their inherited ownership in inherited property… plus lock down a low Proposition 13 property tax base.  So Proposition 13 remains, for the moment, troubled… but intact.

The right to avoid property tax reassessment is crucial for California’s economic well being. It means beneficiaries can still make use of Prop 58 and irrevocable trust loans to buyout co-beneficiaries wanting to sell off inherited property.  It means residents can inherit and keep parents property taxes, and can transfer parents property taxes. Inheriting property taxes from parents at a low base rate is critical for middle class homeowners. Otherwise, selling off inherited property becomes unavoidable and inevitable.

Middle class heirs, new home owners, frequently are not able to pay current market-value property tax rates – in a hyper expensive state… in the midst of an out-of-control pandemic, where nearly 7 million people in this state are out of work or under-employed, or are still working from home at a 50% salary level.  Not to mention the astronomical costs associated with illness and the loss of life, for family members.  Items that healthcare insurance refuses to pay for.

The folks supporting the realtor community, CA Association of Realtors, politicians running the State Legislature, and organizations such as the California NAACP State Conference, California Senior Advocates League, California Statewide Law Enforcement Association, Californians for Disability Rights, and the Congress of California Seniors simply must begin to look at middle class families and working family life more realistically.  You’d think they would be,  however they apparently did not read the fine print, and were hoodwinked into voting for Prop 19 in Nov of 2020.

By simple good luck homeowners and beneficiaries can still make use of Prop 58 and a trust loan process to buyout inherited property from siblings while locking down a low Proposition 13 protected property tax base.  Had those organizations read the fine print, they would have noticed that certain tax relief protections they took for granted were under direct attack – such as the ability for eligible homeowners to transfer their tax assessments within counties and to homes of equal or lesser market value;  To retain the right for folks age 55 and older, or people with disabilities, to keep the same number of times they are able to transfer their tax assessments;  To be able to transfer tax assessments on inherited homes, including inherited properties not used as primary residences, to be transferred from parent-to-child or grandparent-to-grandchild – without any issues or problems.

California still retains Proposition 13 property tax breaks, and  beneficiaries can still make use of Prop 58 and trust loan funding.  However, had Proposition 15 been successful, and had the Proposition 19 people gotten everything they had wanted – loading all these new proposed property taxes on top of regular working people would have had an extremely negative affect on the majority of the population of California.

Based on their recent efforts, how do the folks running the state of California, in the Legislature, think that adding the property taxes they had wanted to add would 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, as they would like to do, would literally be a social and financial disaster for the state as a whole?

The Governor and his friends need to give this some serious thought.

 

Proposition 58’s Parent to Child Exclusion in 2021

Proposition 58's Parent to Child Exclusion in 2021

Proposition 58’s Parent to Child Exclusion in 2021

It is both crucial and about time for homeowners and commercial property owners in California to step back and take little time to read up on property tax breaks available in all 58 counties in the state – to fully understand exactly how property tax relief works now; how it’s still possible to transfer your current tax-basis to children or grandchildren. With the Proposition 19 property tax measure having revised crucial Proposition 58 property tax relief protections; in place since 1986.

It’s critical for property owners, no matter what their total property value or net worth is, to:

a) take full advantage of property tax relief as it is in 2021 going forward;

b) make sure the changes to Prop 58 “Parent to Child Exclusion” are well understood… that property inherited from a parent is either moved into as a primary residence, within 12-months after the remaining parent passes;

c) make sure they plan on selling their inherited property at a  break-even price or at a profit, if they are not able to move in as a primary residence within 12-months;

d)  insure that, if selling out to an outside buyer is not a preferred option, they understand how to enlist the help of a seasoned trust lender, such as the Commercial Loan Corp in Newport Beach… to get approved for Proposition 58, and to be able to take full advantage of loan funding to an irrevocable trust – used in conjunction with Prop 58 – in order to buyout property ownership from a co-beneficiary, or several siblings, waiting to inherit the same inherited home.

All of this entails learning how to operate successfully under the auspices of CA Proposition 19, passed in Nov of 2020; affecting property tax relief benefits that have been taken for granted by Californians since 1986, and if you factor in key property tax breaks from Proposition 13, having the right to property tax transfer, to avoid property tax reassessment to attain and keep a low property tax  base – since 1978.

It is also important to acknowledge that the majority of “Parent to Child Property Transfers” occur after both parents are gone; and to fully understand how Proposition 58 helps regular middle class homeowners and business property owners in the state of California, and not fall prey to conspiracy theories that claim property tax relief is only for the wealthy. 

The date of passing of the last (surviving) parent is used as the date of transfer for beneficiaries (offspring, or “children”, typically grown children of decedents leaving property to their heirs or beneficiaries).

The average trust beneficiary takes roughly a year and a half to settle an estate after a lone surviving parent passes away, leaving liquid assets and/or real property to heirs or beneficiaries. It is also important to remember that during this time the children of decedents are responsible for continuing to pay the property taxes on their parent’s home and any other property in question. 

Under California law, Proposition 58, Proposition 193 and Proposition 13 (which may also be combined with Proposition 60 and Proposition 90) allows  a parent or grandparent to transfer their current tax-basis to their children or grandchildren. You can still transfer your current tax-basis to heirs in California, it’s just not as ‘free and easy’ as it has been. These benefits can still apply to a gift, a sale, an inheritance, or a hybrid of these property transfers.

More specifically, Proposition 58 and Proposition 193 allow a parent or grandparent to gift or sell their real property during their lifetime, or gift their property at death, to their child or grandchild, and concurrently transfer their Proposition 13 tax basis, and other Proposition 13 benefits, along with the property, thus saving the child or grandchild potentially thousands of dollars per year for as long as they own the property. So not only can you transfer your current tax-basis to beneficiaries,  your beneficiaries who are inheriting property  are also allowed to combine benefits provided by Proposition 58 with a loan to an irrevocable trust, to buyout inherited property shares from siblings who are co-beneficiaries.

Prop 19 was promoted as a way to: “Increase funds for firefighters and wildfire containment programs; to eliminate unfair tax loopholes used by East Coast investors, celebrities, wealthy non-California residents, and trust fund heirs…” again, citing conspiracy theories publicized by critics of property tax relief in California. 

Looking at this legislation in-depth reveals that it also eliminates property tax increase protections for many more California property owners. “East Coast Investors” is a thinly disguised euphemism suggesting that it’s not really about your right to transfer your current tax-basis — it’s about thousands of voracious outside investors “gobbling up properties” on the beach or wherever, and renting them out at egregious prices to rich visitors and vacationers.

Not so. In fact, these property tax measures would affect mostly local residents inheriting property from their parents, not families from nearby states – as critics of property tax relief are claiming – with no evidence whatsoever to back up their claims. No evidence and no proof… simply free-floating conjecture.

California Proposition 58 & Proposition 19 Lenders

California Proposition 58 and Proposition 19 Lenders

California Proposition 58 and Proposition 19 Lenders

A Period of Uncertainty and Stress in America

We all know it’s a period of time right now in America of great uncertainty, insecurity and stress… affecting many families, creating enormous tensions, frequently financial…  Even affecting family estates, when a parent passes away; and where ‘will contests’ can be a real problem for families – for example, sibling-A believing she/he should be getting more than sibling-B;  so on and so forth.  We see a lot more of this sort of family conflict lately, over the past few  years, than ever before.

Although we do, thankfully, have solutions in California to prevent such conflicts from descending into disaster. Some of these solutions are tied into getting approved for CA Proposition 58 so heirs can avoid property tax reassessment; as well as classic CA Proposition 13 property tax breaks, for California property owners looking to work around new Proposition 19 property tax obstacles that force homeowners to move into inherited property within one year or lose their “Parent to Child Exclusion”. This can be a stunning loss of property tax relief; unless we meet it head on, and are able to  successfully work around it. 

It seems it’s still possible to take advantage of the property tax transfer benefit from parents, with the ability to keep parents property taxes while avoiding property tax reassessment of course. Despite newly passed obstacles, we can still transfer parents property taxes when inheriting property – bottom line, inheriting parents property taxes at a low base rate the way Proposition 13 was intended!  

Sibling-to-Sibling CA Property Transfer

Firms like Commercial Loan Corp can help solve estate conflicts between beneficiaries; making it possible for us to buyout siblings with a “sibling to sibling property transfer”, siblings who want to sell their inherited property shares, while allowing us to keep the same mutually inherited property from parents – with a trust loan, at that low base rate.  As long as we get approved for Proposition  58, heirs can avoid property tax reassessment, as the California State Board of Equalization explains.  Or possibly at a niche property tax info blog like this one, Property Tax Transfer

As long as everyone gets the cash they were expecting with a trust loan, and/or end up with a nice low property tax base… everyone ends up in a win-win happy sibling scenario. As long as the ‘will contest’ can be resolved to some degree, and direct communications between siblings doesn’t completely fall part.

These conflicts have often dominated family structures, so much so that some family groups actually splinter apart… with some family members literally leaving California for ever.  Additionally, Southern California home prices are currently at record levels, which doesn’t help. 

Rising Cost of Real Estate, Property Taxes & Day to Day Living Causing Many Homeowners to Leave California 

Because of hyper expensive home pricing many people are moving from California to nearby states where cheaper real estate can be found, in decent middle class or lower middle class neighborhoods; including Texas, Nevada, Arizona, and in some cases Oregon and Washington, according to Jordan Levine, an economist at the CA Association of Realtors (C.A.R.), who says California residents leave to get out from under general California inflation and an increasingly expensive overall lifestyle that many middle class families simply cannot afford to sustain – in terms of buying a home, feeding a family, maintaining numerous cars and insurance plans, health coverage expenses; schools; you name it. 

It is ironic that C.A.R. (California Association of Realtors) produces a report describing elevated living expenses in the state of California, while they are in fact the chief sponsor supporting the recent Proposition 19 property tax measure, watering down  property tax relief for California home owners… contributing to the higher cost of living in the state… Obstructing the way heirs can avoid property tax reassessment by unraveling the “Parent to Child Exclusion” or Parent-to-Child Exemption, as realtors like to call it.

As a matter of fact, this past August, the median home price in California was up more than 12% from a year earlier, according to CoreLogic/DQNews. Experts say the median home price is being impacted by an increase in luxury homes along with the flexibility of remote working options, which also allows people to move away from places like Los Angeles or San Francisco, to nearby states, in rural areas where families can get more space and amenities for far less cost than in many populated areas in California.

California real estate is often significantly more expensive than other, nearby, states. But then again, so is property in states like New York, or Chicago, in Oregon,  Maryland or Massachusetts. However. At least in California, homeowners and beneficiaries inheriting property have been fortunate enough to have property tax breaks at their disposal since 1978 such as Proposition 13, maintaining a low property tax cap of 1% to 2 % max.

Proposition 19, Trust Loans & Parent to Child Exclusion

Since 1986, Proposition 58 (now Proposition 19) has positively impacted property transfers and naturally property tax transfer, avoiding property tax reassessment on inherited property while inheriting property taxes from parents.  This  has actually saved homeowners in California tens of thousands of dollars over the years.  Hundreds of thousands, literally, over decades.

In fact, thanks to Proposition 19, trust loan based estate funding transactions save beneficiaries $6,000 to $8,000 or more on average, per family, every year.  No, it’s not millions… But for a regular middle class family it is definitely significant.   And if homeowners can’t access this type of benefit, it will hurt them financially year after year.

So even if we can buy a house more cheaply in a relatively inexpensive state like Ohio, or Idaho, South Dakota, North Carolina, or Wisconsin, for example… All comparatively less pricey than average property in many areas in California — we end up spending more anyway every year in property taxes in those other states. So we end up spending more every year anyway.

Property tax transfer, known as a parent to child transfer or parent to child exclusion, will always be low, at 2% or less – if we continue to be able to avoid property tax reassessment.  With new property tax laws in place, if we miss that 12-month deadline to move into inherited property – then we’re right back in the financial vice known as “current market value”…

And, thanks to California politicos who negotiated for us against the Legislature to at least retain enough of Proposition 58 so as long as we do get in under the wire, within that first 12-months after our decedent passes away… with 6-figure trust loan approval, we can, as beneficiaries, buy out co-beneficiaries’ shares of inherited property, which realtors call “sibling to sibling property transfer”, or ”transfer of property between siblings” and end up owning our own property anyway, without the problem of sharing real estate with siblings we’d rather not own property with.

Thankfully, although the timeline has now become more challenging, we can, as California inheritors and homeowners, still take advantage of tax breaks made possible by Proposition 19 and Proposition 13, in concert with an irrevocable trust — and buyout siblings,  so we can take over our own home at a nice low property tax base, more or less equivalent to the tax base enjoyed by our parents. Property tax relief in California may be a bit rocky right now… but it’s still there, if we use it carefully and judiciously.  And keep both eyes on that calendar!