Inheriting Your Parents’ California Home with a Low Property Tax Base

Inheriting Your Parents' California Home with a Low Property Tax Base

Inheriting Your Parents’ California Home with a Low Property Tax Base

Let’s face it – Proposition 19 isn’t Proposition 58… However, we can still make use of favorable property tax relief benefits under Prop 19, such as inheriting CA property taxes; as long as we abide by the new rules & regs.  Under California’s Prop 13, the County Assessor’s office is not allowed to increase the appraised value of property except by 2% max. Unless there is a “change in ownership”. Even if the valuation of your home goes up.

Maintaining a Watchful Eye on Your Local County Tax Assessor

As the Albertson & Davidson law firm blog illustrates in an example – “If you bought a house in 1995 for $100,000, but that home is now worth $2,000,000; the county tax assessor is not allowed to value your home at $2 million for real property tax purposes. Instead, the value is limited to $100,000, plus a small percentage equal to the consumer price index or 2%, whichever is less…

….as such, the real property probably has an appraised value of around $125,000. The real property tax is approximately 1% of the property’s appraised value. In this example, the real property tax on a house valued at $125,000 is $1,250. Whereas, the real property tax on a house valued at $2 million is $20,000. Proposition 13 effectively saves the real property owner around $18,750 in tax ($20,000 – $1,250). That’s a huge savings… etc.”

Protecting Your Family From Property Tax Reassessment 

In fact, if the original purchase of your inherited home goes back three or four generations, back to your grandparents, or even great grandparents – the tax hike could crippling. Even for an affluent family with higher than average cash flow.  Sure, if you’re on the 1% list, you can absorb this kind of tax hike… But how many people do you know on that list? Are you on that list?

Probably not, as we’re talking about roughly 1% of the public… maybe 2% to 3% of all homeowners in California. And of course this depends on geographical locale – what neighborhood your home is in. If you’re in Santa Barbara, or Santa Cruz, or San Jose, or in the Hollywood Hills, or in Santa Monica or Beverly Hills… you’re likely to be able to weather that type of tax hit.

It sounds complicated, but in fact it’s actually pretty simple.  When someone passes away, say your parents, and the property is transferred as an inheritance to their grown child-beneficiary, the home retains a low valuation, as long as you avoid triggering property reassessment at “fair market” or current rates, by a “change in ownership”… with the help of an estate attorney and a trust lender – through a parent-to-child exclusion… inheriting CA property taxes from parents; avoiding CA property tax reassessment… and saving your family tens if not hundreds of thousands of dollars, now and in the coming years ahead!

Proposition 13 and Proposition 19 will still enable you to retain your parent’s low original tax rate with a valuation of the property’s original low valuation. However, if you don’t do this correctly, your local friendly local County Tax Assessor will reassess the property forward to its’ current value, and inheriting CA property taxes from your parents, at their low base rate, will no longer be possible. 

Getting Financing & Guidance from a Reliable CA Trust Lender

No matter where you live or what your particulars are… If you’re set on keeping an inherited home from your parents, you have to file a parent-to-child exclusion document. In fact, the best way to make sure you do not trigger property reassessment and run into this sort of financial pit-hole, is to work with a reliable trust lender, specializing in loans to trusts and estates – like Commercial Loan Corporation in Newport Beach, where you can get all the help you’ll need to make sure everything goes properly and smoothly…

So you can safely and securely buyout your siblings; and retain sole ownership of your inherited family home – if indeed that’s what you want to do.  Either way, at least you’ll know what your options are, to keep yourself and your family informed and secure… keeping your  most valuable asset – your home – protected!  This is precisely why eligible California homeowners are moving quickly on new CA property tax relief opportunities

Plus, your trust lender and estate attorney (for good measure) will make sure Proposition 19 works perfectly in conjunction with an irrevocable trust loan to result in minimizing reassessment and establishing a low property tax base. Likewise, most Californians agree, without reservation, that Time is Ripe to Become Better Acquainted With the Parent to Child Property Tax Transfer

The #1 Win-Win Property Tax Solution for CA Families  

Everyone wins with an irrevocable trust loan beneficiary buyout solution… and that’s not just marketing-talk. Your co-beneficiaries will end up selling out to a beneficiary intent on keeping the family home, and walking off with an extra $14,000 to $15,000 as opposed to using a realtor to accomplish the same type of property sale.

Also, if your parents are deceased, and the family home is transferred from a grandparent to a grandchild, then the grandchild can access the same exclusion as the Proposition 19 parent-child exclusion.

If you’re an average middle class or even upper middle class homeowner, and not a member of the 1% high net worth club – you’re probably going to want to take advantage of an exclusion from reassessment.  Plus, you’re going to want to be able to access your right to keep a low property tax base by avoiding property tax reassessment, to be able to transfer parents property taxes with a property tax transfer — to keep parents property taxes through a parent-child transfer… ultimately inheriting property taxes from parents.

However, there are some pitfalls you need to look out for… The parent-child exclusion has to be filed with the County Tax Assessor inside of three years from your decedent parent’s passing. If you miss this critical deadline you’ll be hit with a “supplemental assessment” that will impose a higher property tax hit on you that includes all the years you did not request a parent-to-child exclusion. Again… it’s always that fine print you need to be aware of!

Whatever happens, if you are set to receive house or other real property from your parent, be sure that your parent-to-child exclusion form gets filed properly and on time. If you miss the deadline, and don’t complete this form correctly, the ramifications can be financially crippling. So be careful!

Property Transfer in California Between Parent and Child

California Parent to Child Property Tax Transfer

California Parent to Child Property Tax Transfer

Ability to Transfer Property Taxes to Children

Let’s say you’re inheriting an aging but beautiful home from your parents, with a terrific pool, and fireplaces everywhere… with a wooden deck the family has conducted so many marvelous surf & turf barbecues on – with that brand new grill, with your favorite smoked hickory-flavored charcoal… And plenty of ice-cold drinks.

Just walking around the backyard near the grill brings back wonderful emotional family memories when you and your siblings inherited the entire property from your parents and – as your lawyers referred to it – the property was “transferred” to a new owner – in this case you…. despite the fact that your siblings are determined to sell out their property shares.  While you are determined to avoid triggering crippling property tax  reassessment!  At all costs.  So you talk to your family lawyer, and call a reliable trust lender to discuss your ability to transfer property taxes to children… Like the well known Commercial Loan Corp in Newport Beach. 

In which case a parent-to-child exclusion is secure, and makes a lot of sense – working with an irrevocable  trust loan, in conjunction with Prop  19, which has basically replaced the Proposition 58 parent-child exclusion. And simply requires a careful, but determined, step-by-step process – to reach the desired outcome – to avoid current property reassessment; while buying out property shares inherited by siblings, and nailing down sole ownership of that wonderful old inherited home with all those lovely old  dreamy family memories!

How to Avoid Triggering Property Tax Reassessment

It’s terribly important to pay attention to good advice from your attorney,   and your trust lender, on mistakes to avoid when transferring a property tax base… In most cases, your inherited property is generally reassessed by your friendly neighborhood CA County Assessors Office; while the new owner pays a higher property tax. The parent-child exclusion was voted into law on Nov 6, 1986… enabling beneficiaries to inherit property from parents, smoothly and quickly – avoiding property tax reassessment and     keeping a low property tax base when inheriting a home.

Thankfully,  new rules for property tax transfers in California  are  still  giving parents the ability to transfer property taxes to children without any issues – and enables a family/parent oriented beneficiary (usually the favorite child!) to  buyout siblings’ share of inherited property and transfer parents’ property taxes through a standard property tax transfer – getting a transfer of property between siblings accomplished without a miserable property tax hike slamming you out of the blue. 

Transferring a Family Home to Beneficiaries

As most of us know by now, given the publicity Proposition 19 has received – at the root  of all this, it’s simply a matter of inheriting property taxes at a profoundly lower rate from parents… with the ability to transfer smoothly from parent to child,  and keep parents property taxes basically forever – for that inherited family home at least. And possibly more, if you have the right lawyer, and the situation  merits it.

In other words, as estate and real property attorneys used to put it, “Avoiding property tax reassessment is why people take advantage of exclusions from tax reassessment under Proposition 58 .” And as they phrase it now, “Avoiding property tax reassessment under Proposition 19 property tax exclusions ”.  C’est la vie.

Skipping a generation, if property transfer is managed from a grandparent to a grandchild, as long as the the beneficiary’s parent is not alive, inheriting or transferring property will thankfully not increase property taxes.

For a free benefit analysis on transferring a property tax base from a parent to a child on an inherited home, you can complete the following form, in just a few minutes….

New Property Tax Relief Laws & Belief in the CA Legislature

Property Tax Transfers

Property Tax Transfers

Can California rely on Property Tax Exclusions from Prop 19?

Despite the growing waves of criticism and anxiety from residents in California, regarding Proposition 19, given all the cheer-leading from the California realtor community, more or less led by the CA Realtor’s Association – state sponsored public relations continues to convince us how fabulous Proposition 19 truly is.

We are constantly reminded that, despite certain obvious limitations affecting homeowners and beneficiaries inheriting property from their parents, we do have new property  tax exclusions from Prop 19.   Proposition 19 is providing us with tremendous property tax breaks which did not exist previously, with Proposition 58 tax relief.

Truth?  Publicity?  Or happy talk… 

Supposedly, despite new property tax exclusions from Prop 19,  the state will see an extra yearly revenue of a billion dollars plus, to help schools in towns and cities – although the California State Board of Equalization (BOE) is a little short on concrete specifics and details, in terms of how much revenue is actually expected to come in overall from these new property tax laws; and specifically how much money will go to fire departments, and how much will be allocated to help seniors and the elderly… and homeowners with serious infirmities. 

Moreover, Proposition 19 also seems to be rather fuzzy, with respect to anticipated property tax revenue that is supposedly going towards balancing budgets – possibly with provisions to step up the state’s recovery from Pandemic driven financial losses.

Additionally, beyond property tax exclusions from Prop 19 that we already know about, and hope will be consistent – extra tax revenue from Proposition 19 is supposedly expected to furnish all sorts of other “significant added protections” for CA residents – although proponents of Prop 19 as well as BOE are extremely vague, as far as articulating precisely what these “protections” might be every year.  Again – fact based info dissemination?  Or simply PR happy talk…

Prop19 revenue for city and county fire departments & schools

Proponents of Proposition 19 singled out supporters of Proposition 13 property tax relief as creators of “tax schemes” and “deceptive practices” – “costing local governments and schools up to $1.5 billion every year” – without describing exactly what those “tax schemes” and “deceptive practices” actually are… And what those numbers that  supposedly cost the school system a small fortune really look like – above and beyond vague projections designed to scare tax payers half to death.  

We also frequently hear about “unfair tax loopholes” used by supposed “East Coast investors” and “celebrities” or “wealthy non- California residents” as well as “trust fund heirs” – who are perpetually unnamed, wealthy property owners, who supposedly avoid paying “their fair share of property taxes on vacation homes, income properties, and beachfront rentals they own in California.”

An obvious reference to the Lloyd Bridges family, the only family in 40 years that has been named as property tax perpetrators of the above so-called violations, whose heirs happened to inherit a nice beach home, using Proposition 13 to cap property taxes at 2%… subsequently renting the home out at $16,000 per month to vacationers from out of state. (As opposed to residing in the property as a “primary residence”.)

No other family has ever been named and singled out as using Proposition 13 for such “nefarious purposes”.  It appears that the justification for Proposition 19 limitations were based on this one family… this one inheritance.

Maintaining the spirit of Proposition 13 and Prop 58

Proponents of Proposition 19 insist that their favorite tax measure will “continue to preserve the intent of Proposition 58 and Proposition 193” – keeping family homes affordable when parents and grandparents pass on their family home to children and grandchildren to use  as a  “primary residence”. 

As we all know, this is partly true, and where  limitations are concerned… partly not true. Fortunately, beneficiaries can still     use a parent-to-child exclusion in conjunction with Proposition 19.

When inheriting property while keeping a low property tax base,  smart beneficiaries are still able to buyout property tax shares from siblings, with advice from a Property Tax Consultant, and funding from a Trust Lender such as Commercial Loan Corp.

We continue to hear about the $1 billion per year in Prop 19 generated revenue that is going to fire departments and unions, school systems and local governments.  We also hear about that revenue somehow being used for emergency services, public hospitals, general healthcare, homeless folks, and housing projects. However… again, no specifics. Just general allusion to a lot of hopeful initiatives. 

At the same time Californians hope that they will be able keep parents property taxes, and take advantage of property tax transfers to retain a low property tax rate from this parent-to-child transfer upon inheriting property from parents, while inheriting property taxes… to avoid property tax reassessment – typically through a parent-child transfer.

Homeowners and beneficiaries are waiting to see what specific applications will be readily available to them:

• to limit property tax increases for victims of wildfires, replacing damaged or destroyed property; limiting damage from wildfires on homes through supposed funding for fire protection and emergency response.

• to cap property tax increases on family homes used as a primary residence by protecting the right of parents and grandparents to pass on their family home to children and grandchildren as a primary residence.

• to take advantage of supposedly “thousands of housing opportunities” by making homes available for first-time homeowners and families in all 58 counties across the state of California.

Ultimately, Californians are taking for granted that there is a cap on property tax increases for primary residences for homeowners over 55 years old, people with severe disabilities, and victims of natural disasters or wildfires by removing county restrictions – apparently allowing these residents to locate a home that “better fits their needs”.

State leadership may be asking residents to stretch their trust a long way; without any iron-clad guarantees. Just a long list of top-down assurances. And residents as well as estate attorneys and tax lawyers, as well as accountants, are wondering, going forward into a murky future, what they can question… and what they can really rely on.

Common Mistakes to Avoid When Transferring a Property Tax Base

Transferring Property Taxes in California

Transferring Property Taxes in California

The Right Advice & Tax Plan from a Trust Lender 

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

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

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

Parent-to-Child Exclusion

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

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

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

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

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

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

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

Transferring Your Base Year Value Under Proposition 19

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

Property Tax Relief for All Californians

Proposition 13 – 34% Against Versus 62.6% For

On June 6, 1978 Proposition 13 passed as a property tax relief measure with 4,280,689 votes for – versus 2,326,167 votes against. In the final analysis, it came down to finally taking a great deal of power away from the County Tax Collectors; and giving it back to taxpayers!

Howard Jarvis and Paul Gann, were the best known Proposition 13 advocates. Officially known as the “People’s Initiative to Limit Property Taxation”,  also referred to as the Jarvis-Gann Amendment,  Proposition 13 was listed for voters through the so-called “California ballot initiative process” – which allows a constitutional amendment to be offered to voters when political advocates assemble a certain number of signatures on  a petition.     

For Once, Tax Relief for the Middle Class in California – Not Special Interests

Many people aren’t aware of the fact that Mr. Jarvis was a hugely successful residential apt. building owner, and Mr. Gann, a political activist who passed away from HIV due to infected blood from a unfortunate transfusion, who ironically devoted the last several years of his life to AIDS treatment advocacy – in direct opposition to his fellow conservatives. California’s “Paul Gann Blood Safety Act” was passed into law in 1990, mandating that doctors discuss the risks of blood transfusion with their patients.

Two non-politicians named Howard Jarvis and Paul Gann courageously soldiered on – without precedence – until they won the day. This rarely occurs in political circles, as we all know.  But for once, some non-politicians actually changed things for the better in California. And virtually overnight, once Howard Jarvis and his so-called “Tax Revolt” passed Proposition 13, property tax rates in California finally became predictable and equitable – from San Jose to San Francisco and beyond, in all 58 counties.

Under this new property tax relief measure, the property tax rate is now set at a uniform 1% throughout the state, and property tax increases are limited to no more than 2% a year as long as the property is not sold.

Previously, the tax rate in California averaged almost 3% of market value, and there were no limits on increases either for the tax rate or property value assessments. Some properties were reassessed 50% to 100% higher in just one year, so property owners’ tax bills skyrocketed, often  way beyond homeowners’ ability to pay their property taxes.

Now, once sold, property is reassessed at 1% of the new market value (usually the sales price) with a 2% cap on annual tax increases. As a result, new buyers are always aware of what their taxes will be and know the maximum amount property taxes can increase each year for as long as they own the property. 

Then, in 1986, Amendment Proposition 58 was passed; and  homeowners as well as beneficiaries inheriting property from parents could happily take advantage of a transfer of property between siblings or sibling-to-sibling property transfer in conjunction with an irrevocable trust loan, typically for buying out inherited property shares from siblings, while keeping a low property tax base (now used with California Proposition 19 which has replaced Proposition 58). 

Overnight, beneficiaries  could transfer parents property taxes when inheriting property taxes; and could keep parents property taxes after a property tax transfer made possible by a parent-child transfer, officially a parent-to-child exclusion which, exactly like buying out inherited property shares, is also now governed by Proposition 19.  

Benefits for Non Property Owners

While Proposition 13 is mainly famous for capping property taxes in California, it also stops arbitrary tax hikes at the state and local level. It makes sure that any state tax increase had to be approved by a 2/3 majority in the Legislature, and any new or increased local taxation must be approved by voters, not just a collection of special interest politicians.

Supplemented by Howard Jarvis Taxpayers Association – a co-sponsored tax measure entitled Proposition 218 (the Right to Vote on Taxes Act) makes sure that voter approval of all new local taxes is required, no matter what. So not just property owners, but also renters, benefit – as Proposition 13 stabilizes property taxes, making them predictable and reasonably controlled; reducing any uncontrolled or unexpected rent increases throughout the state of California.

Leaving Heirs Property & Assets in a Trust to Avoid Sibling Conflict

Conflict Among Heirs Inheriting Assets

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.

Repealing California’s Death Tax

Repealing California's Death Tax

Since the passage of California Proposition 19, more and more families are receiving notices that the death of a parent has triggered reassessment of a family property and sharply increased their property tax bill. In an attempt to stem this, the Howard Jarvis Taxpayers Association has filed a ballot initiative with the Attorney General’s office to repeal California’s Death Tax.

In November of 2020, many voters were unaware that California Proposition 19 included a provision that affected inter-generational transfers of homes. Prior to California Proposition 19’s passage, a parent could transfer a home of any value plus up to $1 million of assessed value of other property to their children, without reassessment to market value. However, effective February 16, 2021, this is no longer the case.

The Howard Jarvis Taxpayers Association is fighting to modify Prop 19 and restore the ability of parents to pass property to their children without any change to their tax bill. Commercial Loan Corporation is working with them to gather the signatures required to get it on the ballot. The new initiative is titled the Repeal the Death Tax Act. It would reverse the Proposition 19 changes to the rules affecting inter-generational transfers. To further protect California families, the measure includes an inflation adjustment for properties in addition to the primary residence. Up to $2.4 million of assessed value would be excluded from reassessment upon transfer, offering significant tax benefits to families that own small business properties or rental units for income. A primary residence of any value would be excluded from reassessment.

If you are interested in helping collect signatures and think that you can collect several, you can have a petition mailed to you along with complete instructions on how to do so. The deadline to collect the necessary signatures is April 29, 2022 so the time to act is now to repeal California’s Death Tax!

You can request a petition online here, or call Commercial Loan Corporation at 877-464-1066 for more details.

Does a Change in Ownership Affect CA Property Taxes?

California Change in Property Ownership

California Change in Property Ownership

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

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

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

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

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

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

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

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

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

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

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

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

Understanding New Property Tax Relief Law in California

California Property Tax Transfer Law

California Property Tax Transfer Law

Using Reassessment to Your Advantage

Have you considered that property reassessment can sometimes work in your favor? For example, if property values drop. While we would prefer to see the value of our house increase, at least in a down market as our property value goes down – and so do property taxes. 

We’ll always take the point of view that property taxes should be lower. So if our property value drops, future increases would not be limited to Proposition 13’s popular 2% maximum increase every year. Yet if we transfer the property to someone else and regrettably trigger property reassessment, we can reset the property tax basis and future increases to the lower value.

If we find ourselves in that position with a taxable estate, we can think about transferring our property out of the estate. This will reset the property tax basis to a lower value – potentially reducing estate taxes. It’s certainly worth thinking about. Owning our own home is the classic California dream… The classic American dream. So being able to pass along that investment usually makes a great deal of sense to most of us.

Proposition 19 Replacing Previous Property Tax Benefits

As most Californians know by now, on Nov 3, 2020, CA voters approved Proposition 19 – a constitutional amendment verbosely titled the “Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act.”

The benefits are relatively simple and straight forward… With Prop 19 more or less replacing and continuing the Proposition 58 parent-to-child exclusion from paying current property tax rates; voted into law in 1986. With the right to keep parents property taxes on a property tax transfer, when inheriting property taxes… taking advantage of an inexpensive property tax transfer, in other words a parent-to-child property tax transfer measure called a parent-child exclusion.  Along with Proposition 193, an amendment passed by voters in 1996, allowing grandparent-to-grandchild transfer exclusions from current property tax reassessment.

Proposition 19 also replaced and continues tax breaks from Proposition 60 (passed in 1986) and Proposition 90 (voted into law in 1988) – both property tax measures enabling home transfers by seniors over age 55 – as well as replacing and continuing Proposition 110 (voted into law in 1990), as a tax measure enabling an exclusion from property reassessment for severely disabled residents.

To be clear, Proposition 19 enables residents to an inexpensive property tax transfer – to inherit family properties and keep a low property tax base on their parent’s home that they are able to move into as their primary residence. This new property tax relief also lets homeowners who are over age 55, extremely disabled, or victims of a wildfire or governor confirmed natural disaster to transfer the assessed value of their primary home to a newly purchased or newly constructed replacement primary residence up to three times in a lifetime.

With Proposition 19 taking over property tax breaks from the wildly popular CA Proposition 58, it bears repeating that the parent-child exclusion and inexpensive property tax transfer can be taken advantage of only when an heir inherits a home from a parent that was using that same property as a primary residence, not a vacation home – with an entire year to comfortably move into that parental home, as a primary residence.

New Property Tax Relief Benefits for Californians

However, homeowners also have the ability to file for a “homeowner’s exemption” as long as the home in question has been the principal residence of the owner as of Jan 1 of that tax year. A new owner will automatically receive an exemption claim form in the mail and there is no cost to file. To receive 100% of this $7,000 exemption a new property owner has to file with the local County Tax Assessor by Feb 15 of that year.

As most Californians know by now, we can’t take advantage of the parent-to-child exclusion if our inherited house is going to be used as a vacation home, rented out to tourists, rather than a primary residence. Fortunately, if the home is inherited by numerous children of a parent, only one heir needs to reside there to take advantage of an – the exclusion.

Moreover, a parent can shelter $1,000,000 of increased value from reassessment. Any appreciation above that will be added to the property tax assessed. In other words, if a primary residence is assessed today at $500,000 however is valued at $1,500,000, an heir inheriting the residence as a primary residence will keep the same property tax assessed value of $500,000. Fortunately for families in the agriculture business, this new limitation also impacts family farms.

These new property tax breaks applied to any transfer of California real estate after Feb 15, 2021, as a gift or an inheritance at death. They also apply to an irrevocable trust (such as a Qualified Personal Residence Trust or a trust created for your benefit by a predeceased spouse) that owns California real property and that will pass to children in the future.

Moreover, it’s fortunate mainly for middle class, upper middle class, and working families that a large loan to an irrevocable trust can still also be used by beneficiaries who wish to keep a parental home they’re inheriting at their parents’ low property tax base, when taking advantage of Proposition 19 (formerly the popular Proposition 58 tax break) to buyout co-beneficiaries, also referred to as buying out sibling property shares – looking to sell their inherited share of the same property, a – typically at a much higher sale price than an outside buyer would offer. The 6% realtor commission, attorney fees, closing costs, cosmetic improvements to please buyers, and other ancillary charges – all disappear when a trust loan from a trust lender furnishes the funding for a sibling buyout.

When you have a reliable trust lender at your side to make buying out sibling co-beneficiaries possible – it pays to keep it in the family.

Popular Reasons Why California Beneficiaries Get a Trust Loan

California Trust Loans

California Trust Loans

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

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

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

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

Buying Out Property Shares Inherited By Co-Beneficiaries

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

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

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

Avoiding Property Tax Reassessment

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

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

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

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

Paying Trust Expenses

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

Renting or Selling Inherited Property

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

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