As you probably know, a trust in California generally reflects a financial instrument, frequently associated with a family estate, usually created with an estate attorney — and if it’s an irrevocable trust, usually with a trust lender involved — where a “trustor” (the person who created the trust agreement) entitled someone with the authority to manage the trust, called a “trustee”… also able to hold title to property or assets for the benefit of any and all beneficiaries to the trust.
Besides the fact that trusts are known to be a financial instrument good for deferring or lowering income taxes and property taxes… a trust often allows a company or a person to own assets that belong to a group of people that would be called beneficiaries, a family that would officially be known as beneficiaries to the trust… or even just one person, that would be known as “the beneficiary to the trust”.
However, frequently much to the chagrin of the beneficiaries – a trust is always managed and controlled by a trustee, which can be a person or a company. Including the distribution of liquid assets, if there are liquid assets, to the beneficiaries. Often a source of contest or dispute between trustee and beneficiary, or beneficiary vs. beneficiary.
Trust Loans for Sibling Beneficiaries
Trust loans are often utilized by sibling beneficiaries who want to minimize property tax reassessment, buying out an inherited home from siblings who are looking to sell off their inherited property – generally to establish and retain sole ownership of an inherited home.
Here is where an irrevocable trust loan often steps in to resolve these differences in objectives with their inherited property shares. The solution involves a fast trust loan to fund a beneficiary property buyout – plus usually works in conjunction with Proposition 19 to help minimize property tax reassessment or completely negate property reassessment – saving inheritors thousands of dollars in the final analysis. Californians need to keep a close eye on these new rules and regs just as they must keep up with new rules for property tax transfers in California.
Moreover, using this property inheritance solution, the sibling beneficiaries selling out their inherited property shares end up, in seven to ten days usually, with at least an extra $14,000 or $15,000 in their pocket, as opposed to selling off their inherited property through a realtor, given the standard 6% property sales commission and other ancillary fees and charges.
It adds up. There’s no free lunch, working with a realtor. No matter how convincing the sales pitch is. It’s certainly worth exploring other options.
If you are in need of a lost to a trust or irrevocable trust, we highly recommend that you call Commercial Loan Corporation at 877-464-1066. The are California’s #1 Trust & Estate lender and can provide you with a free cost benefit analysis on trust loan and parent to child transfer.
How inherited property is to be shared by siblings, as stated in writing by parents in a Will, is a logical starting point for an estate.
Avoiding reassessment with irrevocable trust liquidity
Sometimes, parents leave a larger share to one or two siblings and divides the balance of the estate among remaining beneficiaries. Whenever more than one sibling is left an inheritance involving property, all heirs and/or beneficiaries have to be in agreement as to how to proceed with that property – regardless how large or modest each beneficiaries’ share of the estate is.
When siblings are involved in an irrevocable trust liquidity solution – when you want to buyout siblings’ inherited property shares – beneficiaries looking to buyout siblings have no choice but to consider the fact that an irrevocable trust loan can furnish liquidity and work in tandem with Proposition 19 to keep property reassessment low. Something you can’t ignore, or simply walk away from.
You still have to get an appraisal for valuation of your inherited home and come to an agreement on an intra-family selling price. Then get final approval for financing… and distribute proceeds to all siblings wanting to sell out.
Knowing your options, and how to navigate the different stages in the process… is the challenging part. Which is why you need an excellent trust lender and estate attorney — to help guide you through critical steps.
Beneficiaries looking to keep their inherited home should always get inherited property inventoried, and valuation finalized… Plus:
• Always try to avoid intra-family conflict from reaching litigation, and mediate your estate situation to the point of reaching a cordial and equitable point of communication with your siblings.
• Try to identify and enlist a reliable, established loan lender as soon as possible – who can project a realistic number with respect to property tax savings, with Proposition 19 working in conjunction with an irrevocable trust loan.
• Consider all inheritance loan and refinancing options, such as an inheritance cash advance; probate cash advance assignment; trust advance; or irrevocable trust loan in concert with Prop 19.
Under Prop 19 property tax relief, siblings need to consider:
1. How well all beneficiaries get along, or do not get along – and what the issues are that must be mediated and ironed out if resolution is to be reached…
2. What is agreed upon, with respect to the disposition of an inherited home…
3. How motivated siblings are to resolve problems – in order to reach final disposition of inherited property in a timely manner…
4. Who is insisting on selling off their inherited property shares, and who is determined to retain the family home…
5. When and if all sibling beneficiaries are in agreement, in terms of selling out or keeping inherited property.
6. And lastly, as most of us know, an irrevocable trust has to be understood as an instrument that is profoundly different than all other trusts.
As we all know, a trust can be revocable, where a trustor can change or terminate the terms & conditions of the trust anytime. When a trustor passes away a revocable trust becomes totally irrevocable – no matter what the issues are. When a trust becomes irrevocable nothing can be revised or changed – real property, beneficiaries and terms & conditions are locked in.
So when a California irrevocable trust requires liquidation, it can be used in numerous ways that can greatly benefit trust estates, beneficiaries and families in general.
A trust loan is a loan offered typically by specialized private lenders directly to an irrevocable trust.
This type of loan utilizes property from the trust as collateral. To take out a trust loan, trust documents must permit trustees to use trust property as collateral for the loan.
Lenders like banks and credit unions have no interest in “providing liquidity” to irrevocable trusts in the state of California. This is mainly due to the complicated nature of this property tax relief solution, the lack of a personal guarantee, plus the various complex challenges involved in financing of this type.
Private lenders, like Commercial Loan Corp, or trust loan property tax consultants, for example, form a bridge for beneficiaries and trustees looking for liquidity in their trust.
As we always see in the final solution, an irrevocable trust can accept a loan for several reasons, the most important being to “furnish liquidity” in conjunction with CA Proposition 19 in order to provide beneficiaries with access to a low property tax base… guaranteeing low property reassessment, most importantly.
If you are in the process of inheriting a home, or recently inherited a home and would like to see if you are able to avoid property tax reassessment, you can reach Commercial Loan Corporation at 877-464-1066. Or use the following web form to learn more on trust loans and parent to child property tax transfers.
Beneficiary Trust Loans in Concert with California Proposition 58
The use of trusts and trust loans by trust attorneys and real estate professionals, other than the process that is popular in the state of California, where Prop 58 enables inherited property buyouts — we see a different yet similarly unique trust loan process described in summary by financial magazine Barrons in the following way: “With interest rates at historic lows—for the time being—wealthy families are turbocharging their estate-planning strategies by pairing intra-family loans with trusts.” It’s a great concept; a great outcome to save on property taxes. And it’s nice to see estates paired with trusts and intra-family loans welcomed into the higher-end oxygen at Barrons. There’s just one problem. Only for “wealthy families”. There is the catch.
It’s not the same as financial visionary Kerry Smith’s brilliant tweak to the trust funding process, at Commercial Loan Corp in California; with the final outcome showing us that California Prop 58 enables inherited property buyouts plus a low Proposition 13 property tax base for ever. Mr. Smith’s visionary trust loans are not simply for the wealthy. This top of the line trust financing process enables inherited property buyouts, largely for middle class beneficiaries, as well as upper middle class heirs, plus wealthy property owners looking to save a great deal of money on property taxes. No one likes to give the Government their precious cash, that was hard to make, and easy to lose.
“The Government had plenty of money – they don’t need our property tax cash to survive!” ge along with locking down a low Proposition 13 driven property tax base, capped at 2% max – and most importantly… for all home owners. For all beneficiaries, for middle class families, for working class families, and for rich folks… Not just for the wealthy – as the lenders featured in Barrons view the trust loan process – only for folks in the 7 or 8 figure class.
So, clearly… States other than California obviously have their own way of tweaking the trust financing process… both wealthy and middle class families are taking advantage of these unique tweaks, not just families that are well off, as gossip and rumors have it.
The ability to avoid property tax reassessment and lock in low parents property tax base forever for permanent property tax relief, for any property transfer, always with low property tax benefits enabled by the use of Proposition 13… working in concert with Proposition 58, enabling inherited property buyouts and lower property transfer tax hits. Always avoiding property tax reassessment – making sure you transfer parents property taxes, even when inheriting business facilities, inheriting property taxes for commercial properties, at the same low Proposition 13 property tax base your parents enjoyed.
California trust loans are used to resolve numerous inherited property conflicts, between beneficiaries, working alongside CA Proposition 58 – enabling co-beneficiaries to purchase shares of inherited property, a beneficiary buyout of sibling property shares… while avoiding property tax reassessment. Generally buying out a sibling’s share of an inherited house, usually with some land – as realtors call it, “a transfer of property between siblings” or “sibling to sibling property transfer” – lending money to an irrevocable trust – from a reliable trust lender… specializing in trust loans, CA Prop 13, and Proposition 58. That combination of skills and know-how you can’t find just anywhere, even in California.
Think about this… even surfacing in a buttoned-up mainstream publication like Barrons, covering the pairing of trusts and trust loans – they reiterate, “Many wealthy families with taxable estates can benefit from cleverly structured trusts and intra-family loans…” Establishing the fact that non-conventional uses of trusts and loans is an established process in mainstream financial services – if you’re in the 1% bracket! Nice concept, with agreeable lenders, helping folks to save on property taxes… for rich clientele only.
However, if you reside in California, and you’re a middle class beneficiary or new home owner, or moderately well off commercial property owner, you can find a more fair minded, well rounded niche lender who will serve your financial needs if you’re not rich, for example like the Inheritance Funding Co. in San Francisco, CA, if your estate is in probate and you need fast cash from a future inheritance, and you don’t even have to be upper middle class, and certainly not wealthy as you do with the firms and trust loan process Barrons favors…
Or if you’re inheriting real property and need a trust loan to buyout siblings and retain a low Prop 13 property tax base that your parents had, then you want something like the Commercial Loan Corporation, in Newport Beach, CA. You can forget pairing a trust with a loan and beneficiaries for wealthy families only! You don’t need those folks. You can get your estate or trust financial needs met elsewhere!
Many beneficiaries in California who are inheriting property, and seriously considering trust loans with Proposition 58 to nail down a low California Proposition 13 property tax base… working in conjunction with Prop 58 (property transfer from parents) or Proposition 193 (property transfer from grand parents) insures an iron clad property transfer tax shelter. Naturally, this provides a solution to a conflict that many estate heirs and trust beneficiaries often run into… with respect to buying out sibling beneficiary property shares, while locking in a low property tax base rate forever.
This may not sound like much to some folks, but in fact it frequently makes the difference between being able to keep an inherited property, or losing it to the tax man or in a foreclosure due to yearly property taxes that aren’t able to avoid property tax reassessment, and consequently are much too high for a typical middle class property owner to maintain.
Trust loans are used by numerous beneficiaries of trusts, and probate estate heirs, who wish to buyout a co-beneficiary’s interest in a trust-owned home, business property, or land, where certain beneficiary siblings have decided to retain their inherited real property – while other siblings firmly stand their ground, preferring to sell their shares in an inherited property to an outside party. A trust loan often provides a worthwhile solution to this type of family conflict, so one beneficiary, or several, can buyout other beneficiaries that are looking to sell.
This is completely different than the usual inheritance funding process, which uses the entire estate, real property plus cash and investment estate or trust assets, to supply heirs with an inheritance cash advance “assignment”, rather than an actual “loan”. Trust loans that work in conjunction with Proposition 58 serve a very different purpose, and a trustee must approve the trust loan of course, and sign off on the deal.
A different use of trust loans, as we can see — yet still a step away from conventional loans; bringing a trust and loan funding into the family mix… With trust loans and Proposition 58 moving the process into an entirely new arena, without the necessity of the involved family being wealthy, should you be a well-off or middle class property owner or a new beneficiary in the state of California.
California is unique when it comes to utilizing trusts and trust loans, along with taking advantage of incomparable property tax relief measures from as Proposition 13, and exceptional property tax breaks from Proposition 58 (i.e., parental property transfer) and Proposition 193 (i.e., property transfer from grandparents).
So if you reside in California, are inheriting property there, and want to insure you keep your parent’s low Proposition 13 tax base, along with buying out siblings who insist on selling to an outside buyer – you can go to a niche trust lender who will lend directly to an irrevocable trust for you, to accomplish all of the above.
Commercial Loan Corporation in Newport Beach, CA appears to be everyone’s favorite trust lender, as they specialize in taking full advantage of Proposition 58 & 193 property tax benefits, avoiding property tax reassessment, making sure you transfer parents property taxes correctly, when inheriting a business facility, home and/or land; abruptly inheriting property taxes that must remain low if you wish to maintain your favored lifestyle!
You certainly want to work with a lender that has a great deal of experience making sure that beneficiaries and property owners nail down the right to keep parents property taxes, with a low Proposition 13 tax base… for all property tax transfer scenarios, including parent to child transfer, what your attorney probably refers to as “parent to child exclusion”… In other words, exclusion from current property tax reassessment rates. And that typically adds up to saving over $6,000 every year in savings on property taxes.
The process sounds complicated, but it really just boils down to having a lending firm you can rely on to provide enough liquidity to equalize everything between beneficiaries – providing enough cash to buyout siblings who insist on selling your inherited property; while enabling you to keep that property at a low Proposition 13 tax base. At the end of the day, it should always be a win-win scenario for everyone involved.
Beneficiaries especially like Commercial Loan Corp’s same-day approval & 7-day funding turnaround – with no hidden fees, a simple application form and flexible underwriting.
By taking advantage of the Proposition 58 and Prop 193 exclusion; in tandem with a trust loan, if you happen to be a sibling keeping inherited property – you get to retain that property and at the same time get to keep parents property taxes, which ends up being a low Proposition 13 base, capped at a 2% maximum rate. You also get to buyout siblings who insist on selling the inherited home and/or land in question; and ultimately walk off with more money than if they had sold their property shares to an outside buyer. So what frequently begins as sibling conflict, ends with a win-win resolution for all concerned.
In many cases, a trust loan is necessary, as otherwise the California State Board of Equalization sees this transaction as a sibling buying out another sibling, or child of the parent. Instead of a parent to child transfer, or parent to child exclusion. The exclusion from present day property tax rate reassessment simply calls for a transfer of property from parent to child.
So the trust loan acts as the bridge, so to speak. You can refer to it any number of different ways, such as “buying my brother’s share of our house” or “buying out my sister’s property shares”… Or you can call it a transfer of property between siblings, a buy out of siblings share of house, buying out siblings’ property shares, or a sibling to sibling property transfer. It amounts to the same thing.
Moreover, regardless of the size of the trust loan, everyone involved is treated like a V.I.P. client, with first-class cordiality. Which is the main reason we like to refer this firm.
You can call Commercial Loan Corporation for a free Proposition 58 Trust Loan Evaluation at 877-464-1066 or visit their website at: https://cloanc.com/
Kenneth McNabb is an Account Representative at the Commercial Loan Corporation in Newport Beach, California. We began the interview by asking Ken to address a central issue in this field, namely communicating a rather complex process in very simple terms:
Property Tax Transfer: Hello Ken, how do you disseminate the information you want to get across to prospects and new clients? In order to address financial issues that beneficiaries need to know, to resolve what are often complex financial concerns?
Kenneth McNabb: I tend to give general information at first, to give potential clients a solid overview… And try to determine exactly how urgent the the financial issues are, that are driving the folks I’m talking to.
Property Tax Transfer: What do you do with a family that appears to be at an impasse, for example cannot agree on the value of an inherited home?
Kenneth McNabb: When no one in a group of siblings can agree on what the value of a home should be I typically suggest we create a Cost Benefit Analysis and have an appraisal conducted. Plus I make sure I know who wants to sell an inherited property, and who wants to keep the property… and nail down their low Proposition 13 tax base. Everyone wants that low property tax base to be intact forever, of course. Most people do not realize that they can actually save a considerable amount of money by taking out a trust loan to keep a home as opposed to having to pay realtor fees, closing costs and repair costs involved with selling a home. In fact we save our clients on average more than $40,000.00 when compared to selling a home. That does not include the annual tax savings of over $6,200 by taking advantage of California Proposition 58!
Property Tax Transfer: When in the estate or inheritance timeline do these siblings tend to contact you, contact the firm you work for?
Kenneth McNabb: Some are urgent to get the money right away to buyout siblings…. Some even call us before anyone even passes away! Sometimes it’s a week after the death of a parent… Sometimes it’s a year after someone passes away.
Property Tax Transfer: What is the most important thing in an estate situation like that, that comes to you all mixed up and in conflict?
Property Tax Transfer: And the next most important thing?
Kenneth McNabb: Well, I suppose that would be – what it means to inherit property from a parent. As maybe a once-in-a-lifetime, singular event.
Property Tax Transfer: Yes, it’s definitely a profound event. Tell me, who do you primarily deal with in your average family group? Typically.
Kenneth McNabb: Not counting the exceptions… Typically, I’m generally dealing with “the captain of the team”. The trust administrator, the person who wants to retain the parents home or oldest sibling. On occasion one of the siblings in an attorney and I will deal with them.
Property Tax Transfer: What does that person, that spokesperson, typically want, most of all?
Kenneth McNabb: I’d have to say that they want to keep the low CA Proposition 13 property tax base. Plus be able to buyout the sibling or siblings who want to sell their shares in that property.
Property Tax Transfer: What about Proposition 58, getting approved, and how it all works in conjunction with a trust loan, besides securing a low CA Proposition 13 property tax base… How do you explain all that? As I see it, this is the key to success in this business. If they don’t “get it” the first time around, they usually just walk away, don’t they? People often push away what they think they can’t understand.
Kenneth McNabb: My job is to make sure they understand this process within the first 30 seconds of the conversation! As usual, I keep everything as simple as possible. I explain Proposition 58 and securing a low CA Proposition 13 property tax base in very, very simple terms… Letting them know, in plain English, without a lot of confusing technical jargon, how an exclusion functions for the property – from parent to child… I always ask them, in simple language, “Would you rather pay property taxes based on the day their parents’ bought the property… Or get hit with a super high current tax base, and pay what would be reassessed now, today…” I suppose you can guess what their choice generally is!
Property Tax Transfer: Right. Doesn’t take a genius to figure that one out! Everyone wants that low CA Proposition 13 property tax base. Now, although you’re dealing with more or less non-conventional lending issues… How do you deal with non-conventional loan requirements? Where approval is concerned – along the pathway towards final approval for these folks.
Kenneth McNabb: Since we are lending to the trust and not to an individual in most situations, the loan process is very fast and easy. In fact, we can often close a loan in as little as a week; providing we have received all of the required paperwork.
Property Tax Transfer: What is the Continuing Legal Education all about? Is that for Trust & Estate attorneys only?
Kenneth McNabb: Commercial Loan Corporation specializes in loans to trusts to help our clients utilize Proposition 58 to keep a parents low Prop 13 property tax base. After doing this for so long, we have become very knowledgeable on California Proposition 58 matters. We partnered with Michael Wyatt, a California Property Tax Consultant that worked in a California Assessors office for over 15 years. Together, we created an authorized Continuing Legal Education course that Attorney’s may take to meet their California continuing legal education requirements.
Property Tax Transfer: Thank you for taking the time to speak with us Ken. If one of our readers needs assistance with California Proposition 58 or has questions about a loan to an irrevocable trust, how may they reach you?
Kenneth McNabb: They can either call us at 877-464-1066 or inquire right on our website. We are always happy to answer any questions that they are their Attorney may have on the trust or estate loan process. We can also provide a Free benefit analysis which shows how much each beneficiary will save by using a trust loan to keep a home as opposed to selling it.
So let’s wrap this discussion up with a brief recap… and summary. It is completely obvious to any reasonable person that even though the new, proposed Proposition 15 commercial & industrial property tax on landlords and business property owners is not aimed at consumers per se – at the end of the day, it is consumers who will pay for this new property tax; paying significantly higher prices for normal everyday goods and services.
Consumers that have for some time already been struggling with the high cost of living in the state of California… as have residents in, for example, other states at the top of the list of “most expensive states” list… most expensive American states – such as Hawaii, New York, Washington DC, and Oregon. States that are this costly to live in do not, and we should repeat do not, need property tax hikes, especially at a time like this when state economies are literally crumbling under the weight of a Coronavirus Pandemic, a tsunami of unemployment, now surpassing 51 million jobless claims nationwide and over 13 million looming evictions; plus a host of other related problematic issues.
These costs, in California, encompass some of the steepest taxes in the country, including some of the highest gas, income, and sales taxes. In fact, the California Legislature just passed policies that have resulted in residents paying 48% more for electricity than the rest of the nation. Fact, not opinion.
Adding a new property tax on top of these existing costs will only exacerbate the affordability issue for many Californians. The downside (ironically, there is no upside) of the Proposition 15 business property & industrial facility property tax that Secretary of State Padilla and other powerful political critics of property tax relief in California are not looking at.
We suggest they had better remember we are in the throes of a national Pandemic, with California running particularly high infection rates, and they would do well to start looking at a potentially massive downswing of middle class and working class personal income descent if landlords, business and commercial property owners abruptly lose their ability to use Proposition 13 to avoid property tax reassessment. At the same time, if business properties have been passed down through family members, countless businesses will be impacted in this fashion, losing their ability to keep parents property taxes and parent to child exclusion in California, when taking advantage of Proposition 13 and Proposition 58, working through a loan to an irrevocable trust… a Prop 58 transfer of property.
The great fear is that the next step politicians who oppose Proposition 13 and Prop 58 will take, after opening the door to unraveling property tax relief for businesses, will be to go after property owners’ ability to take advantage of property tax transfer, or the transfer of parents property taxes upon inheriting property taxes in general. The anxiety running through the state concerns fear that critics of 1978 Proposition 13 now pushing a property tax measure called Proposition 15 (formerly entitled Proposition 13 “Split-Roll” tax) will feel free to go after the right to avoid property tax reassessment, or parent to child transfer and parent to child exclusion in California, if Proposition 15 actually passes in November, 2020.
Obviously, this will impact all Californians, raising rents, throwing prices of goods and services throughout the state completely off the map of normalcy. If these folks do not begin looking at this issue more realistically, they are going to step into a deep statewide quagmire of economic quicksand, if this property tax passes in November.
Although politicians on the state level claim that their revised version of the true Proposition 13 property tax relief system, they’re calling “The Split-Roll Proposition 15” property tax, includes a “small business exemption” that will supposedly fix everything. Don’t believe it. We suggest you don’t drink the Cool-Aid! This new property tax on commercial property owners in California will be crippling, to most businesses and commercial entities, including landlords, in California. The revised measure supposedly expands the “reassessment exemption” to small business owners with property valued at $3 million or less, up from the initial $2 million threshold. Sounds like double-talk to most of us.
One of “us” being the talented, courageous Rob Gutierrez, President of California Taxpayers Association. Mr. Gutierrez says that these supposed “protections” for small businesses aren’t even close to being strong enough to allow these folks to survive – with thousands of jobs for Californians not able to survive in the bargain! More people on the Unemployment Line.
“Because so many small businesses rent as opposed to own their commercial space… higher property taxes on the buildings they rent space in will of course result in more expensive rent for them”, says Mr. Gutierrez… “What that translates into is higher prices for consumers and brick-and-mortar stores. Dry cleaners, grocers, companies that cannot move, will have to find a way to pass these costs on.”
And as usual, who does this get passed on to? That’s right. Us. The consumers.
Faced with higher property taxes, commercial property owners with leases will assuredly be motivated to pass these increased costs on to their tenants. They’ll have no choice. For example, the owners of shopping centers or strip-malls, with numerous commercial tenants, if unable to avoid property tax reassessment or parent to child exclusion in California, will without question be compelled to increase rents on their commercial and industrial tenants. Next step, prices on goods and services go up literally overnight.
So we can only further assume that adding a new property tax to the already heavy burden carried by residents of this great state will only serve to make current economic challenges only more challenging for regular middle class Californians. There’s no doubt about it. Hence the need for California to keep the property tax system as is… Leaving the status quo alone.
The infamous Proposition 15 Split-Roll property tax is naturally unpopular with most Californians… Of course, when did popular preference ever convince politicians of a certain stripe to do anything! They typically do what will benefit them.
The fact that (as Jon Coupal, President of the Howard Jarvis Taxpayers Association, says) “tax-hungry public sector labor interests” are determine to strip away genuine Proposition 13 property tax relief protection from business properties and industrial facilities, to bank what they believe will be something in the neighborhood of six to twelve billion dollars per year from property taxes.
Interestingly enough, even their gross property tax intake projection is tremendously inaccurate and uneven! If their math is that volatile at merely the initial projection stage, at this point – what will it look like when taxation revenue wheels are turning for real? Their Proposition 15 measure on the November ballot would apparently need constant reassessment of business properties, revising the 2% cap in yearly increases; exactly to what degree no one really knows.
Fortunately, most of the public is either old enough to remember, or has older relatives that do remember, what life was like in California before the 1978 Proposition 13 property tax relief measure was passed… Ending up saving property owners and beneficiaries or heirs of estates thousands of dollars in property taxes every year, simply by being able to avoid property tax reassessment in CA.
It’s fairly obvious to most of us that the new property tax entitled Proposition 15 is guaranteed to not accomplish what critics of property tax relief insist it will accomplish. The outcome is rather clear. It will merely end up increasing consumer rents; severely raising commercial and industrial rents; raising the cost of countless goods and services favored by consumers; and force who knows how many mid level companies to go out of business… all across the great Sunshine State. A colossal disaster, with numerous tentacles, just waiting to happen.
Starting with the ability to avoid property tax reassessment in CA… and moving into the legal right, for the very first time, for beneficiaries and property owners in California to be able to transfer parents property taxes upon inheriting property taxes from inherited property; with the ability to keep parents property taxes, and to keep it at the usual Proposition 13 low 2% capped property tax base… For any property tax transfer from parent to offspring, or as they say “parent to child transfer” or “parent to child exclusion”.
Exclusion, that is, from current property tax reassessment. The right to avoid property tax reassessment in CA is indeed unique, as no other state even comes close to providing this type of middle class property tax relief. And anyone who attempts to come up with unrealistic reasons to destroy these tax breaks – claiming it’s only for wealthy Californians, or that it’s really all about seniors intentionally keeping their property off the market for this reason or for that reason – is, frankly, delving into fiction. These claims are either exaggerated, or just simply untrue.
Faced with higher property taxes, commercial property owners with leases will most likely be motivated to pass these increased costs on to their tenants. For example, the owners of shopping centers or strip-malls, with numerous commercial tenants, would be faced with increased property taxes if the Proposition 15 / Split-Roll tax passes… and will, without question, increase the rent of every concern you go into every week to purchase new goods, as well as products you pretty much cannot do without.
As we’ve already indicated here, when faced with more expensive rents, business tenants will be forced to increase the pricing of their products or services, obviously to offset significantly higher rents… The long and the short of it? This supposedly “revised” Proposition 15 Split-Roll commercial & industrial property tax (cleverly devised reassessment exemption or no reassessment exemption!) will increase the cost of living across the board for all Californians, right down the line – as sure as we breathe oxygen and need clean air.
California, unlike most other states in America, still provides citizens with property tax relief benefits from Proposition 13 and Proposition 58 with loans to trusts (or loans to irrevocable trusts), the legal right to transfer parents property taxes when inheriting property and inheriting property taxes.
With Proposition 13 and Proposition 58, California gives beneficiaries and property owners the ability to keep parents property taxes no matter how low the base rate is — upon property tax transfer…. with parent to child transfer or, as estate lawyers refer to it, “parent to child exclusion”. No other state gives citizens property tax breaks anywhere near this type of property tax relief. So no matter how challenging things get as a result of the current health crisis, Californians can always turn to these property tax benefits for positive options when dealing with inheritance assets such as real property, trust loans, sibling property buyouts and related matters.
Aside from that, there are a series of objective, updated conclusions and assumptions that the California Association of Realtors has recently provided; that they want residential and commercial as well as industrial property owners, and beneficiaries, to be aware of:
(a) Mortgage rates are expected to remain low, or even go lower, as Coronavirus outbreaks continue nationally, as well as in California. Therefore, economists anticipate that this will most likely help lower the cost of borrowing money and this is expected to make housing more affordable over the short term, which, if this projection is accurate, will help mitigate some of the uncertainty and negative impact on housing demands in California.
(b) Potential home buyers might be discouraged by increasing uncertainty and fear of oncoming recession. However mortgage rates recently fell to an all-time low of 3.13%. Down from 3.80% at the beginning of the year, representing cost savings over the life of a 30-year loan. These anticipated short-term economic risks are genuine, however they may be offset by the long-term benefits of lower rates for individual borrowers.
(c) Economic volatility in California may lower demand for luxury housing, as overall household wealth declines; however this volatility may also create unique opportunities for luxury home buyers. With less luxury buyers in the market, there could be opportunities for price discounts for buyers who remain in the high-end market.
(d) Demand from foreign home buyers could be vastly reduced. As domestic buyers generally finance homes in much larger proportions to their foreign counterparts, low rates could be stimulating more domestic demand in California – offsetting the negative impact that typically goes hand-in-hand with foreign buyer demand.
(e) Much of California’s Building Industry materials are purchased from Asian countries such as Japan and China or Malasia. As the Coronavirus crisis disrupts these supply chains, the cost of these materials may increase over the short-term and become limited, thereby increasing cost of construction and reducing the pace of already tightening residential development in 2020 – 2021.
(f) Improved affordability may emerge from lower rates plus fewer new homes being constructed – as the material supply chain is impacted. This may lead to an upward pressure on home prices in California. Unsold inventory is already at low levels, so reduced construction means that is likely to continue – especially if buyers respond to lower rates.
(g) The situation in California remains fluid, and conditions could deteriorate beyond the current severity of the virus outbreak. Yet if current economic forecasts of modest declines in GDP growth are realized, the effects of lower rates should help offset the effects of a slow economy with increased economic uncertainty so California could still experience improved home sales and prices this year.
It’s clear that the Coronavirus is having, and will continue to have, a material impact on the California economy, and in particular the housing market through 2020 on into 2021… However, it is also safe to say that this is not necessarily the right time to panic.
The effect of lower rates will help to offset some of these movements in the housing market, and forecasts of economic growth by the California Association of Realtors and other organizations have been revised in a downward direction, but only by tens of basis points – not hundreds.
The situation in California remains fluid; therefore C.A.R. along with attentive and realistic economists at the Public Policy Institute of California or Howard Jarvis Taxpayers Association, and other responsible organizations, will certainly be closely monitoring all of these property matters and financial issues… and will be providing all of us with accurate data, as updated information continues to develop and surface.
The California Legislative Analyst’s Office has repeatedly warned state and local politicians that if this new property tax ballot initiative passes the entire state will most likely experience increases with respect to business operating costs all across California… and that this is also likely to influence business owners in terms of deciding whether or not to spend good money after bad in this state, or to simply pack it up and call it a day… and relocate to another state. This is, one might say, not an attractive picture to envision for such an important state as California.
This Split-Roll tax that California politicians want does not include any form of accountability or watchdog measures to protect California taxpayers… There are no cost controls, no fixed requirements to produce transparency in order to avoid corruption or illicit over-spending while no one is minding the store!
These Split-Roll property tax supporters, typically critics of property tax relief at all costs, even removed a stop-gap on administrative expenses — so government management staffers can waste this new tax cash on overhead such as salary increases, lavish benefits and vacations, and such… with no limits or checks and balances whatsoever. Let’s face it, something is entirely wrong with this picture.
Moreover, this property tax initiative will change the official tax assessor’s process of review for all types of properties — from a solid objective system to an arbitrary up and down mess, as we had prior to 1978 in California. That sort of arbitrary, unpredictable tax system will lead to subjective, unpredictable property assessments. Endless, expensive legal appeals; and a rising tide of overspending on the bureaucratic side.
Let’s face it, additional property tax revenue at this level is not even needed… California taxpayers have payed into and built a Mount Everest high mountain of state and local tax cash since Proposition 13 began. More than $240 billion just this year alone! Next year, our competent Governor Newsom predicts a budget surplus of $21 billion!
Since Proposition 13 passed in 1978, local tax revenue (adjusted for inflation) has gone up by nearly 55%. That equals approximately $90 Billion in new spending requirements, even after another 17 million residents are added to the mix, along with accelerated cost of living in California.
These property tax revenues are not needed to accomplish what must be accomplished in this state. California has all-time high revenues coming in, plus a significant surplus. The type of surplus, for example, Bill Clinton would have solidified, were it not spent by the spendthrift administration that followed him. A similar surplus formula is in motion in California as well, since the state’s local inbound government revenue is at a record high level.
In fact, when Proposition 13 was passed into law in 1978, allowing heirs of estates and trust beneficiaries to transfer parents property taxes, with a parent to child transfer, upon inheriting property from parents, hence inheriting property taxes at a low base rate – local property tax assessments were over $6 Billion! In fact, California state economists now confirm that local property tax has increased by over $19 Billion over the past ten years; starting at $50 billion in 2008–2009 during the recession, to nearly $69 billion by 2019.
Point being — an egregious property tax increase in California in Nov. 2020 from a Split-Roll tax, through the decidedly deceptive stripping down of the 1978 Proposition 13 tax cap protection for commercial property owners — avoiding property tax reassessment for business and commercial as well as manufacturing facilities, office buildings, malls, multi-rental properties, so on and so forth.
Basically, this type of property tax relief unraveling is just simply not needed by local California government revenue collectors, in order to maintain a sound economy going forward, for the state of California.