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.

Beneficiary Property Disputes Resolved by Loans to Irrevocable Trusts

Loans to Irrevocable Trusts

Loans to Irrevocable Trusts

Over the past several years, since 2016, we have seen a fair amount of estates, or inheritances in trust, that are embroiled in a dispute or infra-family trust battle over who should be receiving the larger share of cash assets or the largest percentage of an old home left a Mom or a Dad. And we see this pattern repeated over and over again; the same words, the same playbook, similar arguments and similar claims.

Several US firms that provide inheritance loans and cash advance assignments for estate heirs and trust beneficiaries receiving inheritance assets and property have all confirmed, when asked, that up to 75% of the families they have provided advance funds to were mired in infra-family squabbles and disputes over inheritance funds or inherited real estate. 

In California a simple trust loan solution involving Proposition 58, as well as specific tax breaks within Proposition 13, resolve certain beneficiary property disputes.  Only in California is it possible for family members to buyout a co-beneficiary, usually a sibling or several siblings, with the help of established property tax breaks…

Therefore, family disputes caused by sibling disagreements over whether or not they should sell or retain shared inherited property; or what that inherited property value should be, if the assigned tax assessor value is mistrusted, can easily be minimized… Generally, these conflicts are resolved rapidly and satisfactorily if a large loan to an irrevocable trust (working in tandem with CA Proposition 58) is implemented effectively through an experienced trust lender.

If this trust loan process is not implemented properly, the wheels trend to come off the estate wagon, so to speak, and these particular estates typically do not end well.  Whereas, if this trust loan & Prop 58 process is executed correctly beneficiaries end up owning their  inherited property securely, while siblings who insist on selling their inherited property shares end up receiving more money through the trust loan process than if they had received a direct non-trust cash payment from an outside buyer.

Residential and commercial property owners in every single state in America need to research benefits provided by trust lenders furnishing loans to trusts, specifically loans to irrevocable trusts and CA Proposition 13 transfer of property establishing a fixed low base rate in conjunction with a Proposition 58 transfer of parents’ property and transfer of parents property taxes. 

All property owners, for their own good, will eventually have to understand what inheriting parents property, inheriting property taxes, property tax transfer and what the ability to  transfer parents property taxes is really all about.  Plus how to keep parents property taxes at the lowest base rate possible.  Moreover, they must understand why a parent to child transfer, or parent to child exclusion, is so profoundly important and creates the core of property tax relief in California… And we can only hope in other states as well.  If homeowners in other states begin calling and sending emails to their often invisible representatives in Washington DC, this might actually become a reality in the near future – and should, given the economic challenges middle class families are facing, and will continue to face for some time to come.

Goods and services as well as real estate can be incredibly 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, decreasing property taxes down to a more manageable level can change people’s entire outlook on their life, helping middle class families to function more effectively with financial struggles, at least to some degree.

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 for ownership, for the rest of the time that you own that item?  Other than insurance, do you continue to pay taxes on a boat you own? An airplane? A car? A motorcycle? None. Only real property.  Perhaps the whole concept of taxing real estate after the initial purchase could use some fresh, new examination.

At any rate, California is still the only state in America where you can avoid property tax reassessment at current market rates; capped at 2% taxation,  as long as you own property inherited from parents… thanks to 1978 CA Proposition 13 enabling the ability to  transfer parents property taxes.  These issues are covered in detail on the California State Board of Equalization, that covers Proposition 58 at great length.  Or you can look at business oriented sites that focus on property tax relief,  such as trust loans and Proposition 58 at sites like Commercial Loan Corp;  or go take a look at resource info blogs such as Loan to a Trust, or even a blog like this one,  Property Tax News for information on Proposition 19, Proposition 13, and support or opposition to property tax relief in California, in the present as well as in years past for an accurate historical perspective.

PART TWO: California Beneficiaries Learn How to Make Prop 19 Work For Them

How California Prop 19 Works

How California Prop 19 Works

Interestingly enough, even though certain members of the press now oppose Proposition 19 as if they had been defending this position all this time – when in actual fact they had been trying to convince Californians that their Prop 58 parent to child transfer, to avoid property tax reassessment, their parent to child exclusion from being taxed at current rates, or their right to buyout a sibling’s share of their inherited property, was a negative.

When in fact they now admit that for property owners, heirs and beneficiaries inheriting property from parents – all these tax breaks are clearly a positive benefit for California residents. And in the real world, away from ideology, there is no disputing it.

So like many residents, after Proposition 19 was voted into law, the California press also found themselves experiencing “buyer’s remorse” once the dust had settled a bit and Prop 19 actually became a reality, for better or for worse.

Confusing things even more, investigative reporters at the Los Angeles Times created the “Lebowski Loophole” in 2018, named after actor Jeff Bridges. The Times reported that “Jeff Bridges, together with his brother Beau and their sister were paying only $5,700 a year in property taxes on a 4-bedroom Malibu home with access to a semi-private beach and panoramic views of the Pacific Ocean; inherited from their parents, who bought it in the 1950’s; but none of the Bridges siblings lived there.

Apparently, the Bridges family was renting out their beachfront property for $15,000 a month. This urban legend is still the only example used by the press, year after year, to support anti property tax relief arguments. They use this one example to represent a supposed army of folks doing the same thing… and yet, surprisingly, have not come up with the name of another family investing in high-end property under Proposition 13, getting off easy on taxes, and renting out their property out for huge financial gain.

In all these years, for whatever reason, the press has never come up with the name of another family as even a second example of this type of supposed “property tax abuse” showing how Proposition 13 is abused by California inheritors.

The truth is, by and large, most middle class families inheriting property are taking advantage of the parent-to-child exclusion tax break merely to survive and to be able to afford to inherit property without getting killed on the tax hit. Middle class folks that are merely trying to live with a degree of comfort and class in a hyper expensive state, where all the good things have been established with the wealthy in mind – the flashy cars, the beachfront properties, the large homes with beautiful lawns and pools, the fancy restaurants, and the red carpets… The fame and success, that everyone stops and stares at, and admires.

Still held over from Prop 58, we now have similar, albeit more limited, Proposition 19 parent-to-child exclusion benefits, for beneficiaries who want to avoid property tax reassessment; who want to keep inherited property from parents and keep parents property taxes.  They support the  transfer of property taxes when inheriting property taxes from a parent.
Property tax transfer, the ability to transfer parents property taxes, keeping property at a low base rate is top of mind for every homeowner and property inheritor in California.

Parent to child transfer – their parent to child exclusion from property reassessment is the only benefit that makes it possible to be able to establish a low Prop 13 property tax base, the same as their parents had… Plus the transfer of property between siblings, to be able to buyout co-beneficiaries who are looking to sell their inherited property shares.

In reality, this type of property tax relief, by being able to transfer parents property taxes, accomplishes exactly what is was set out to do – protect residents’ property tax rates, and give the middle class some sense of property tax stability; to have a sense of pride and security over the years.

Were it not for Prop 13, you can rest assured property taxes would be sky high by now, practically unaffordable for many; and certainly a struggle for most.