How Do California Families Benefit From an Irrevocable Trust?

Irrevocable Trusts and Parent to Child Property Tax Transfers

Irrevocable Trusts and Parent to Child Property Tax Transfers

Positive Property Tax Relief Changes for California Families

California homeowners over the age of 55 or with severe disabilities (which is still not defined as to what the exact definition of “severe” is) will have the ability to transfer their current property tax assessed value (i.e., “base year value transfer”) of their primary residence to another primary residence anywhere in California.

Therefore, various expanded property tax exclusions have become available to Californians in all 58 counties in the state – to get approved for a base year value transfer. Other new property  tax relief breaks in California include tax relief opportunities  for homeowners badly impacted by wildfire or other natural disasters.

Of course to take advantage of a parent-child exclusion, inheriting property taxes in California through a property tax transfer with the right to keep parents property taxes basically forever… one has to be inheriting a home used as a primary residence by parents, and must move in within a year also as a primary residence. But that’s  hopefully a small price for families to pay to avoid property tax reassessment, to continue inheriting property taxes in California, which otherwise would be financially crippling for most middle class and upper middle class Californians.  

How Do CA Families Take Advantage of an Irrevocable Trust?

Simply stated, an irrevocable trust is a trust that features terms and conditions that can’t be revised. This is quite different than a revocable trust, which permits a grantor to revise a trust, and to take property back whenever one wishes.

However, California families can use an irrevocable trust not only to list beneficiaries for a trustee, but also define assets that are to be inherited, by exactly whom, and what the timeline of each inherited asset is to be… Along with the Proposition 58 originated ability to execute a buyout of inherited property from co-beneficiaries looking to sell – to beneficiaries looking to buy them out…

This usually takes place with the help of an experienced trust & estate lender, such as Commercial Loan Corp in Newport Beach, and most likely a law firm experienced in Proposition 19 and property tax relief matters, such as the well respected and well known firm Cunningham Legal in Pasadena – who can also draft an irrevocable trust, and advise a family in naming an appropriate trustee, who is both honest and committed to the trust agreement and it’s benefit to the family being served.

The family-trustee relationship going forward does not always work out in perfect terms, however these are the noted and generally accepted objectives for both family and trustee.

The Family’s Trustee

As you probably already know, a trustee is required to act in the best interest of the trust beneficiaries and implement inheritance distributions to all trust beneficiaries according to the terms of the trust, whether they get along or not… and they often do not.  But the trustee must understand that he or she is there to serve the beneficiaries and the trust — not themselves.  Many trustees miss that fact, and must be reminded of this repeatedly sometimes, until it sinks in.

All family members work with their trustee to utilize Proposition 19 in concert with an irrevocable trust loan to minimize property reassessment and estate tax, to protect assets from creditors… and to keep under-age or special needs family members far away from legal and/or financial responsibility.

Protecting the Family From Creditors and Tax Hikes

Setting up an irrevocable trust, working with an irrevocable trust lender can help take advantage of the significant estate tax savings this sort of trust provides. An irrevocable trust also furnishes meaningful protection from creditors. As soon as assets and real property transfer to an irrevocable trust, they no longer are property of a grantor – who generally are parents of the grantees, or beneficiaries – and these assets now become legal property of the trustee to hold in safe-keeping to later distribute to the beneficiaries – who are typically family members. 

So future creditors can’t place a lien on assets transferred to the trust because those assets no longer belong to the grantor (often the parent or parents).  Creditors of beneficiaries generally can’t place a lien against trust assets until those assets are distributed to the beneficiaries, often the grown children of the deceased parents. So these trust protections are certainly worth examining carefully and discussing with your attorney, as are all new rules for property tax transfers in California.



California Property Tax Consultants

California Property Tax Consultants

California Property Tax Consultants

As we all know, real estate tax assessments are derived from  the actual value of  the property in question. And the value of assets in total are always a part of the calculation of taxable assets. 

Property Tax Consultants Are Not All Equal

Naturally, property taxes are always in compliance with the tax rates that have been established in the jurisdiction where property is located.  Tax assessments of personal property, such as equipment or vehicles of transport, are typically based on the value of these assets.  Property tax consultants focus mainly on management of property taxes and personal property taxes.

There are different types of property tax consultants.   Some are “valuation consultants” who are seasoned in the art of property appraisal; whose expertise includes dolling out invaluable opinions on company property. 

On the other hand, “strategy consultants” provide various ways to  work with a trust lender when buying out siblings’ property shares through Prop 19 (formerly Prop 58) in concert with an irrevocable trust loan, to reduce property taxes… Providing advice to families on how to keep parents property taxes when beneficiaries are inheriting through a CA property tax transfer – in other words inheriting a home and thus inheriting property taxes without triggering crippling property reassessment. Tax breaks under Proposition 19, left over from the wildly popular Proposition 58 & Prop 193, still enable heirs or beneficiaries to keep a low property tax base through a parent-to-child property tax transfer or parent-to-child exclusion.

Certainly, all property tax consultants provide accurate advice on inheriting through a CA property tax transfer; on compliance matters; and on crucial document filings.  They compile research and data; prep document filings for appropriate jurisdictions;  and take care of negotiations and appeals with County Property Tax Assessors,  plus verify and conclude payments for clients. 

Borrowing from a Trust Lender in Conjunction with Prop 19

We let beneficiaries, clients, know that Proposition 19 tax benefit entitles children of parents leaving them property to preserve the low Proposition 13 maximum 2% tax base. A California property tax transfer.  However, a lot of people don’t fully understand that you have to apply for the benefit. It’s not automatic…

A California Property Tax Consultant also explains how his firm directs clients to a reliable trust lender for funding, in conjunction with Proposition 19 [formerly Proposition 58], with which to be able to buyout siblings  who are looking to sell off their property shares:

We basically introduce the trust lender, for example Commercial Loan Corporation, as a private money lender that loans to irrevocable trusts, that applies for and works in tandem with California Proposition 58… for beneficiaries who are looking to sell their real property shares – for the purpose of facilitating “non pro-rata distribution”… So every heir gets an equal share of the entire overall estate – however, not necessarily of every asset.

Trust Lender Solutions VS Institutional Lending

The Property Tax Consultant continues… If there is a family that goes to a conventional, pricey lender like Wells Fargo for instance – they will always require adult children, beneficiaries that want to sell an inherited property, to ‘go off-title’, and that always triggers present-day tax reassessment. And that spells an expensive 66.66% tax hike!  If the family in question uses the Commercial Loan Corp, cLoanc.com, a company we have been using for years… the loan they provide is to a trust, and not to beneficiaries; so there is no title, and no crippling 66.66% property tax reassessment…

For example, there might be three siblings… beneficiaries – and a house to inherit.  And this is always important to remember.  If you’re one out of the three siblings that wants to keep the inherited house,  you are definitely  looking at a 66.66% property value tax reassessment – if you’re operating without a loan to a trust, or you’re using your own cash; or getting money from a  very pricey institutional lender – typically with multiple restrictions and extremely strict terms…

Using Commercial Loan Corporation…  Their loans to trusts give my clients several invaluable benefits. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America.  Also, Commercial Loan Corp is self funded, and that’s basically why they can extend easier terms to clients.

Compliance Issues With Trust Loans Under Prop 19

Compliance for both commercial and residential property owners is far less strict.  Commercial Loan Corp doesn’t charge any fees up-front, that’s another great benefit. Plus, they don’t require paying interest on their trust loan in advance…

…Not only that, there is never a “due-on-sale” clause… that requires the mortgage to be repaid in full when sold; or that all or some of the interest owed must be paid up-front to secure the mortgage. No “alienation clause”… in the event of a property transfer, stating that the borrower has to pay back the mortgage in full before the borrower can transfer the property to another person. There is none of that.

Nothing is simple… However property tax consultants tend to make it look simple; And deliver ahead of schedule, typically under projecting results while in reality usually exceeding expectations.