Are Benefits from CA Proposition 19 Mainly for “Elites” in 2022 as the Press Tells Us – or for the Middle Class?

Property Tax Transfer in California

Property Tax Transfer in California

California is the only state in America that provides genuine  property tax relief, as opposed to deceptive tax deferment, to residential and commercial property owners and middle class families – specifically in the form of Proposition 13, and now Proposition 19 – for instance a Prop 19 (Prop 58) parent-child exclusion – along with capping yearly property taxes at 2%… when transferring a parent’s low property taxes to an inherited home,  moving into their old family home as a primary residence, with a comfortable 12-months to settle in.  

The problem is, critics of property tax relief in general continue claiming that these tax breaks are mainly helpful to homeowners that are well off… as they out it, “elite homeowners”. With no statistics to back up this often repeated claim.   We hear quotes such as, “Instead of helping the middle class, property tax relief in California allows a wealthier class of citizens to take greater advantage of their predecessors investments.”  This simply is not accurate.

First, as we all know, wealthy folks make up a small percentage of the general public – and the same simple equation applies to homeowners. In microcosm, the majority of families that take advantage of property tax relief in California, that avoid property tax reassessment, are in fact middle class or upper middle class… Not millionaires as the LA Times or San Fran Chronicle would have you believe.

The same 2% to 3% of ‘haves’ versus the 97% to 98% ‘have-nots’ equation – reflecting stark wealth disparity among homeowners all across California holds true when it comes to using property tax breaks to avoid property tax reassessment – to save money… that middle class and upper middle class residential and commercial property owners do not have to throw around on unnecessary tax hikes!

Can you picture genuinely wealthy families that own multi-million dollar homes (that the press continues to inform us are the only property owners gaining genuine benefit from Proposition 13 and Proposition 19) – taking the time to go through property tax break processes, simply to save a few thousand dollars every year? Families with 7 and 8 or 9 figure incomes? 

We can cast serious doubt on that one.  Yet newspapers like the LA Times and San Fran Chronicle still continue to pitch this in Op-Eds as a realistic scenario. 

Yes, there are wealthy investors out there who did take advantage of Proposition 13 tax breaks, for investment properties that would rent out to tourists.. However, this is a fraction of the general home-owning public, and the bulk of folks using these tax break are middle income and even upper middle income residents. They’re not famous, wealthy celebrities like, for instance, the Bridges family…

The Bridges family.  The one and only tale of a rich and famous family “taking advantage” of property tax relief to rent out fancy homes on the beach to upscale vacationers.  Repeated over and over and over again as a cautionary tale, in the press, curiously without any similar stories bring referenced about any other wealthy family in California. It is curious that not one other family  has ever been named or blamed for this type of inheritance / tax break activity, over 3 decades.

To the sheer joy of County Tax Assessors – Californians without proper counsel from a trust lender or a property tax consultant, or estate attorney,  stumble into anticipated property tax mistakes. Generally caused by not filing deadlines properly, or not comprehending complicated legal subtleties; or by not claiming an exclusion or exemption from property reassessment which is staring them right in face.

Without advice from a property tax consultant like Michael Wyatt Consulting in Corona; or life-saving legal counsel from an extremely experienced trust administration / property tax relief attorney like Partner Rachelle Lee-Warner, Esq. — at the Cunningham Legal law firm. Or a reliable lender specializing in loans to trusts and estates,  like Commercial Loan Corp for example, led by inspirational president Kerry Smith, in Newport Beach… Helping heirs inheriting property with a Prop 19 (Prop 58) parent-child exclusion to establish a low property tax base when inheriting a home – also frequently buying out inherited property shares from siblings (co-beneficaries); or helping with the transfer of property between siblings, with a loan to an irrevocable trust… working in conjunction with Prop 19. 

Experts like this specialize in helping beneficiaries and homeowners save on property taxes, avoiding property tax reassessment  with  Proposition 13 and/or Proposition 19; mainly focusing on Property tax transfer, the right to transfer parents property taxes and keep parents property taxes basically in perpetuity, when inheriting property taxes through a parent-child transfer, typically the  popular Prop 19 (Prop 58) parent-child exclusion.

It’s worthwhile contacting a trusted expert, rather than accidentally triggering property reassessment that may increase your property taxes five-fold or ten-fold. A significant tax hike to say the least!

Let’s use the North Bay area in northern California as an isolated microcosmic example of how it is chiefly middle class and upper middle class property owners that have responded to property tax relief measure Proposition 19, for example…

The North Bay Business Journal informs us:  

California’s Proposition 19 has prompted a seven-fold increase in requests to county assessors to transfer property throughout the North Bay.  Barbara Green, the  Change-of-Ownership Supervisor  in the Sonoma County Tax Assessor’s office, tells us,   “It’s crazy! We’re just catching up….”

….[Thanks to Proposition 19] middle class homeowners in Sonoma, Napa and Marin counties flooded County Tax Assessors with a load of filings. Sonoma County has taken in 917 filings through Feb. 5. The usual rate is 193 for the three-month period when compared to the previous year.  Although a smaller jurisdiction, Napa County’s government offices are in the same boat. Residents put in 175 of the forms to pass down their properties within the family. Marin County has received 600 more property transfer applications than its usual 54 parent-to-child transfers of property….

Proposition 19 allows homeowners over age 55 to keep a better tax rate when they sell one house and buy another. It took effect on April 1 and applies to anywhere in the state. It’s about as far reaching as the housing tax revolt of Proposition 13 that passed 1978.  There is a fever pitch of reaction within North Bay counties… for filing the parent-to-child property transfer.

North Bay banking, accounting & law firms have all been experiencing a huge increase of calls over the past few months from prospects and clients. And we’re not talking about millionaires calling in or strolling into those offices.

A Solution For Common Inheritance Disagreements

A Solution For Common Inheritance Disagreements

A Solution For Common Inheritance Disagreements

Many of us who work with estates, heirs and beneficiaries; supplying members of estates with various financial services, loans or cash advance services mainly — frequently see a large number of estates with family problems, typically surfacing in the form of one or more heirs attempting to get more than their fair share of inherited assets, in any number of various illicit or unethical ways.

We see co-heirs insisting they should be receiving a higher percentage of inherited property, or more from a cash account than was apparently written into the will.  We frequently identify conspiracies within estates experiencing problem like this; often between brothers, to illicitly remove inherited assets from another heir, often a vulnerable, formerly trusting sister, more often than we’d like to see.

We often see siblings hiring their own lawyers to ward off siblings that are attempting to receive a larger amount of inherited assets than their fair share.  A pricey but necessary expense. In short, this is a rarely reported problem of inheritance pilfering that, if successful, can cost victimized beneficiaries or heirs a great deal.

We can assume these situations reflect families that tend to not get along very well, and yet you hear time and time again that these siblings got along very well until a parent passes away and inheritance cash became an issue. 

Beneficiaries waiting for an inheritance often claim they got along well with their siblings until a cash inheritance materialized, and then squabbling began and grew into a genuinely heated conflict; with heirs blatantly attempting to help themselves to inherited assets reportedly belonging to other heirs.

This is where a popular solution to estate problems between siblings is introduced — to simply buyout problematic siblings, for  far more than an ordinary buyer would be likely to offer.  As most of us know by now, this involves a loan to an irrevocable trust from a trust lender; used in concert with Proposition 19, formerly with Proposition 58. 

This often initiated by one heir who wishes to keep their parent’s home in the family, while buying out property shares being inherited by frequently unwanted co-beneficiaries with a large  loan to an irrevocable trust… Heirs looking to keep their parents property generally try to get in under the wire, or seek legal counsel, to take advantage of property tax transfer, their right to transfer parents property taxes, and keep parents property taxes.  Inheriting property taxes through a parent to child property tax transfer child transfer and parent-child exclusion, to avoid property tax reassessment.

This process generally involves a fairly large 6-figure to 7-figure loan to an irrevocable trust, in conjunction with a parent-to-child exclusion (from property tax reassessment at current or fair market rates) – providing enough cash to create an equal trust distribution to all beneficiaries being bought out.

CA Property Transfer Benefits Expanded by Proposition 19

Prop 19 Property Tax Breaks

Prop 19 Property Tax Breaks

As most of us know by now, yet it does merit repeating – a parent-child exclusion is not the only key tax break offered by Proposition 19.  California homeowners age 55 plus, or  who are victims of a validated natural disaster such as an earthquake or heavy flooding, or who are extremely disabled – who are looking to transfer their property taxes to a new home now have direct access to additional tax relief options. 

Proposition 19 Popular Property Tax Relief Expansion

Some previous tax benefits are now expanded. A transfer by homeowners when purchasing a new, higher priced primary residence, with adjusted numbers to update values, no longer has to be a home of equal or lower value; and a property transfer like this can be implemented up to three times, not merely once as with previous limitations.

Victims of natural disasters verified by the Governor of California no longer have any limits, as far as counties are concerned. There tax breaks can now be used in any of California’s 58 counties, no longer limited to ordinance approved counties as before – and may be utilized between any two counties, from original home to new property.

New Proposition 19 Property Tax Relief Opportunities 

As long as Californians qualify for, and file, their Homeowner’s Exemption or Disabled Veterans’ Exemption inside 12 months of transfer of ownership; plus make an inherited home their principal residence, as opposed to an investment property – they can avoid property tax reassessment.

Moreover, they have plenty of time – 12 months, to move in. Also, family farm transfers are permissible under this exclusion – without having to move in as a primary residence.

However, due to the possibility of triggering reassessment and being hit with current tax rates, it’s critical to enlist the assistance of a trust lender like the Commercial Loan Corp in Newport Beach for instance, to determine if a loan to an irrevocable trust, in conjunction with Proposition 19 tax breaks, will serve as a reliable means to keep an inherited home from parents with a low Proposition 13 protected property tax base. 

There is also a superior financing solution available to buyout siblings who wish to sell their inherited property shares… at a much higher price than an outside buyer would offer, thanks to the elimination of a realtor managing the process, and their 6% fee, plus pricey legal costs; etc.

Keeping a Low Property Tax Base With an Irrevocable Trust

It’s crucial to enlist the help of a tax attorney, or a property tax consultant, or a trust lender, to find an alternative tax avenue –     to avoid egregious tax hikes at current reassessed rates.  For example, a CA family home assessed today at $50,000 – with a yearly property tax of $600 – could actually be re-assessed today at $750,000 – with an annual tax burden of $9,000!

An experienced trust lender can help middle class families with an irrevocable trust, working in conjunction with Proposition 19 and Prop 13, to establish a low property tax base, and even buyout property shares from co-beneficiaries.  We’re talking about homeowners that have on average less than $700 in the bank at any given time; who don’t  have deep pockets… who need to avoid severe property tax increases, with the danger of possibly losing a beloved house due to an inability to pay for such yearly taxes.

Even a regular trust, like a Qualified Personal Residence Trust,  permits  a parent to transfer a primary residence to a trust that allows that residence to be occupied by that parent for a set amount of years. At the close of that set number of years, the residence transfers back to the heir and when that heir becomes the sole owner, they qualify for a parent-to-child exclusion, as a primary home owner.

CA Property Tax Relief Options With Trust Lenders

Besides assisting beneficiaries with a parent-child exclusion and a low parental property tax base, a trust lender will help sibling co-beneficiaries looking to sell inherited property with trust loan funding that will provide them with far more cash than an outside buyer would offer – otherwise known to realtors and attorneys as “buying out a sibling’s share of inherited property” or a “sibling to sibling property transfer” as well as a “transfer of property between siblings”.

A seasoned property tax consultant like Michael Wyatt Consulting or a trust lender specializing In loans to trusts and estates such as Commercial Loan Corp, for example, can help families inheriting real estate in California to fully understand how to safely avoid property tax reassessment, plus how to transfer parents property taxes on a standard Proposition 19 property tax transfer when inheriting property taxes.  Likewise, how to keep parents property taxes basically forever, utilizing a parent-to-child transfer and a parent-child exclusion under Prop 19. Prior to 2021, a parent-child exclusion was strictly under the auspices of the wildly popular Proposition 58.

Again, this is where a trust lender comes in very handy (frequently referred by a property tax consultant or an estate lawyer – to insure that each critical step along the way is taken correctly, keeping a low property tax base; avoiding property reassessment.

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.

Property Tax Relief 2021 Forward

California Property Taxes

California Property Taxes

It would be worthwhile, for once, to provide interested property owners with a breakdown of little-known details on the property  tax relief system in California. The California Legislature has implemented numerous property tax relief measures that many residents know very little or nothing at all about, such as a CA parent-child transfer for example. Furthermore, some of these programs are complicated, with voluminous forms to fill out — which is why consulting with a tax attorney, a property tax specialist or trust lender is crucial, when inheriting a home in CA or moving from one home to another. 

However – despite mixed feelings from property owners, that is what the County Assessor’s office is for,  besides happily taking your cash – to assist with difficult, complex issues. Unless you have deep pockets and can get all of your tax questions answered by a pricey tax attorney… which most middle class residents are not in a position to do. 

For example, claims have to be filed with the County Assessor for any new construction, to ensure this will be excluded from property tax reassessment – if it concerns modification of any existing structures, for instance to make sure a certain structure is more easily accessed by anyone who is physically disabled or impaired in any way.

Disaster Relief Protections & Exclusions

Properties that have been substantially damaged or destroyed by a so-called “natural disaster” such as wildfire, a massive flood or an earthquake can be reassessed to determine if the damage has reduced the value of the property. If the county where such a property is located has a “disaster relief ordinance”. Written claims for this type of relief has to be filed with a County Assessor inside the time-frame allotted in the ordinance paperwork – or within 12-months from the date the property was damaged or destroyed (whichever is later).

The reduced value of a damaged property like that remains reduced until the property is completely restored. At that point, the factored base year value can be restored – as long as it’s similar to the way the property looked before it was damaged. If a county has no disaster relief ordinance, a taxpaying resident can ask the County Assessor for a “Proposition 8 reduction in value”. But only if the natural disaster occurred in an area validated by the Governor as an area in a state of emergency and the resident decides not to restore the damaged property. 

The taxable value of damaged or destroyed property can be transferred to a reasonably comparable replacement property that is in the same county and was purchased constructed within 5-years after the natural disaster. The County Assessor will accept claims for this exclusion. 

Replacement Residence Transfers

The taxable value of a principal residence that is genuinely damaged or destroyed can be transferred to a “replacement residence” in another county, as long as the alternative residence is in a county that has an ordinance permitting taxable value transfers like this.

Los Angeles County, Orange County, San Diego, San Francisco, Santa Clara, Contra Costa, Modoc, Solano, Sonoma, Sutter, and Ventura Counties have all signed onto ordinances that accept transfers of base year value. And naturally, all County Assessors accept claims for this type of exclusion.

Parent-Child and Grandparent-Grandchild Exclusion

The purchase or transfer of a principal residence and the first $1 million of other real property between parents and children is not subject to reassessment.  Under the CA parent-to-child exclusion, to avoid property tax reassessment, CA parent-child transfer allows for a full year to move into a home inherited from a parent, as long as it is a primary residence, and the parent had used it as a principle residence as well – enabling  a beneficiary to transfer parents property taxes on a standard property tax transfer when inheriting property taxes.

At least one beneficiary can keep parents property taxes, as well as being able to buyout a sibling’s share of inherited property on a transfer of property between siblings, in concert with a Proposition 19 enabled CA parent-child transfer and an irrevocable trust loan for homeowners and beneficiaries inheriting property in California

The CA parent-child transfer and exclusion also applies to property  transfers from grandparents to grandchildren when both qualifying parents are deceased, subject to certain limitations. As usual, claims for this exclusion have to  be filed within a certain time-frame.

Eminent Domain Exclusion
 
Eminent Domain is the right of a government to expropriate private property for public use, with compensation. The taxable value of property may be transferred to a comparable replacement property if the person acquiring the real property has been displaced from property by eminent domain proceedings.

This is basically an acquisition by a public entity, or by some sort of pointed government action that resulted in an adverse legal judgment of some kind. The replacement property does not have to be located in the same county as the property that was taken; or as it’s referred to in polite company, as “removed”.  Claims for this exclusion has to be filed with the County Assessor within four years of the displacement.

Property Tax Exclusion for Residents Age 55+ or Disabled 

People over the age of 55 or who are severely and permanently disabled can transfer the taxable value of their principal residence to a replacement property if it is of equal or lesser value, located within the same county, and purchased or newly constructed within two years of the sale of the original residence. This type of unique  property tax relief can be utilized only once in a lifetime.

There is one exception to this one-time-only limit. If a candidate for this exception proves to be permanently disabled, after transferring the taxable value, and is under age 55, he or she can transfer the taxable value a second time under the disability requirement if the move is directly related to the disability.

Lastly, the taxable value can be transferred to a replacement property located in the same county, or to a replacement property in another county – as long as that property is in a county that has an ordinance that allows transfers like this. Alameda, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura Counties all have ordinances that allow transfers under this program. 

However, claims have to be  filed with the County Assessor inside of three years after the purchase of the replacement property, or after the completion of construction of the replacement property.  It’s critical to pay attention to this deadline.

Solar Exclusions

The construction or addition of a solar energy system (with the exception of a solar swimming pool heater or hot tub heater) is excluded from being viewed as “new construction”, and cannot be charged property tax until the property changes ownership.

PART ONE: What is a trust?

What is a trust?

What is a trust?

To keep it simple – a trust is a legal/financial instrument that allows a 3rd party (trustee), to manage cash or invested assets; real property; securities; retirement accounts; art or collectibles and other valuables; life insurance or other annuities; as well as any number of different assets, held in trust… usually to be inherited     by a trust beneficiary, or several beneficiaries – and set up by a valid “trustor” who is a parent or some other family member.

California Trusts

In California trusts are often used by wealthy families, or by an individual, to avoid probate; to use as a trust loan & Prop 19 parent-child exclusion to keep  inherited property at a low tax base; to avoid property tax reassessment; to defer taxes, or avoid taxes altogether.

Or, when it comes to irrevocable trusts (trusts that can’t be altered), California homeowners and beneficiaries frequently make use of a trust loan & Prop 19 parent-child exclusion (formerly a Prop 58 exclusion) when inheriting a home in California & looking for trust loan property tax savings, and possibly buying out siblings that are inheriting the same property, that are looking to to sell their property shares for a higher price than an outside buyer would offer them.

Many people believe that beneficiaries get access to inherited assets more rapidly with a trust than they would through an estate with a Will… However, that is often not the case.  Inherited assets held in a trust fund are frequently received from any number of different “final distribution” or inheritance payout schedules – i.e., for example cash distribution every five or ten years; or when a beneficiary turns 21, or 30, or 50, or on some other birthday. 

A Spendthrift Clause (written into many California trusts) will make a trust even more inflexible, and insufferable for the beneficiary.

Trusts can be arranged in all sorts of ways, to specify exactly how and when inherited assets pass on to beneficiaries.  Often stemming from the view the person leaving the trust had of the beneficiary… whether he is responsible handling money, or if she   is a spendthrift with liquid assets… and so forth.

Different Types of Trusts

A Marital or “A” Trust is designed to provide benefits to a surviving spouse; generally included in the taxable estate of the surviving spouse

A Bypass or “B” Trust (also referred to as a “credit shelter trust”) is   established to bypass a surviving spouse’s estate in order to make full use of any federal estate tax exemption for each spouse

A Testamentary Trust is created through a Will after a someone   passes away, with funds subject to probate and transfer taxes; and  often continues to be under probate court supervision.

An Irrevocable Life Insurance Trust (ILIT) is an irrevocable trust designed to exclude life insurance proceeds from the deceased’s taxable estate while providing liquidity to the estate and/or the trusts’ beneficiaries.

A Charitable Lead Trust makes specific assets available to a charity; with the balance of the decedent’s assets going to his or her  beneficiaries.

A Charitable Remainder Trust enables a beneficiary to receive an income stream for a defined period of time and stipulate that any remainder go to a charity.

A Generation-Skipping Trust takes advantage of the “generation-skipping tax exemption”, distributing trust assets to grandchildren or even generations coming of age after grandchildren; without  a generation-skipping tax or estate taxes being imposed on the subsequent death of ones’ children.

A Qualified Terminable Interest Property (QTIP) Trust distributes cash flow to a surviving spouse.  When the spouse passes, those assets will then be distributed to other additional beneficiaries listed in the  trust document.  Often used in second marriage situations, or to maximize estate and generation-skipping tax or estate tax planning.

A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust funded by gifts by its grantor; designed to shift future appreciation on quickly appreciating assets to the next generation during the grantor’s lifetime.

FAQ: Property Tax Transfers & Taxes on Inherited Homes

Trust Loan Question and Answers

Trust Loan Question and Answers

California Proposition 19 Trust Loan Questions and Answers

If you are staying abreast of updates and news, concerning property tax relief in California, you are most likely aware that there is still some confusion among homeowners as far as where Proposition 58 leaves off and Proposition 19 picks up… with respect to tax breaks like the parent-child exclusion, low tax base issues, and all property tax benefits associated with property inherited from a parent.

We will attempt to dispel some of that homeowner confusion here today through  some well worn questions and answers among beneficiaries, estate & tax attorneys, property tax consultants and trust lenders in California.

Q: If we forgot to apply for the parent-to-child exclusion before Feb 16, 2021, can we still qualify for this exclusion anytime thereafter in 2021 to avoid property tax reassessment through Proposition 58 and Prop 193 for the grandparent-grandchild exclusion?

A: As long as the change in ownership of your property from your parent took place on or before Feb 15, 2021, the transfer will qualify for the exclusion under Proposition 58/193. The date of death is the same as the date of the change in ownership. However, bear in mind that your claim has to be filed with your County Assessor within 3 years of the date of transfer (or prior to transfer to a third party) or within six months of the date of notice of “supplemental” or “escape assessment”. So no, your actual claim did not have to be filed by Feb 16, 2021.

Q: Regarding Proposition 19, if I inherit my parent’s family home and move into it as a primary residence, do I have to reside in that house to take advantage of the parent-to-child exclusion? Can I move somewhere else?

A: Apparently at least one beneficiary has to reside full time in that family home in order to avoid property tax reassessment with the parent-child exclusion. Once that property is no longer your full time home it will be reassessed at current market rates.

Q: Property transfers were executed under Prop 58 prior to Prop 19 becoming law on Feb 16, 2021. Is it true that Proposition 58 can also apply to property transfers after Feb 15, 2021?

A: No, it is Proposition 19 that will apply to property transfers after Feb 16, 2021.

Q: How does Proposition 19 affect my inherited property that’s being held in an irrevocable trust?

A: First of all, the trust governs the property. For a home held in trust, tax law states that a change in ownership occurs when real property goes to anyone other than the trustor or the trustor’s spouse or “domestic partner” when a revocable trust becomes irrevocable, and cannot be revised. The date of the decedent’s passing is viewed as the date of change in ownership. Proposition 19 states that Prop 58 applies to transfers that were executed before Feb 15, 2021. Proposition 19 applies to transfers that occur after Feb 16, 2021.

Q: If a family home is given to three sibling beneficiaries as a gift, must all three siblings reside in this home as a primary residence in order to take advantage of the Prop 19 parent-to-child exclusion?

A: As long as at least one sibling inheriting this property continues to live in the home as a primary residence, or principal residence, the exclusion will remain active for that property, and that beneficiary.

Q: Does Proposition 19 apply to a property transfer of a rental home, as Proposition 58 did?

A: No, under Proposition 19 the parent-child exclusion from reassessment applies only to the transfer of a family home that remains the principal residence of the beneficiary that moved in and continues to live there.

Q: If the value of my inherited home is more than $1,000,000 exactly what are Proposition 19 rules and regulations concerning the parent-to-child exclusion?

A: Under Prop 19 it is the sum of the factored base year value plus $1,000,000. Should the assessed value exceed this limit, you can benefit from partial property tax reassessment, or partial property tax relief. The amount greater than the excluded amount would be added to the factored base year value.

Q: If my county Tax Assessor doesn’t know about the passing of my Dad before Feb 16, 2021, and becomes aware of his death 15 months later and so reassesses the property I inherited from my Dad on the date of my Dad’s passing… Is a parent-to-child transfer or  parent-to-child exclusion applied through Proposition 58 or Prop 19?

A: The law in effect today tells us that the date of death will apply. It has been made clear that Prop 58 applies to an inherited property transfer from a parent on or before Feb 15, 2021.  It’s important to remember that California Proposition 19 applies only to property transfers that go through after Feb 16, 2021.

Q: Now that Prop 58 parent-child exclusion has morphed into Prop 19 property tax breaks, how do I apply for the homeowners’ exemption or disabled veterans’ exemption within 12 months of the transfer to qualify for a parent-to-child exclusion and grandparent-to-grandchild property transfer exemption from fair market property tax rates, as dictated by Prop 19? Who can help me apply for homeowners’ exemption or or disabled veterans’ exemption in my county?

A: To keep it simple, a claim will have to be filed with your County Tax Assessor, who will be on the BOE list of all California Tax Assessors;  and who will inform you as to what forms to complete, to apply for the homeowners exemption or disabled veterans exemption.

New Rules For Property Tax Transfers In California

Rules for California Property Tax Transfer

The new rules for California Property Tax Transfer in 2021

To Transfer Property Taxes: New Rules & Regulations 

When Proposition 19 was voted into law in Nov 2020, taking affect in Feb of 2021 – a learning curve was suddenly in effect for new homeowners and beneficiaries inheriting property from parents. It became essential, especially for middle class and upper middle class families, to quickly learn about changes to tax relief laws that would impact both existing trusts and inherited real estate.

For example, a “qualified personal residence trust” (QPRT), which is a trust that is established with the intent of allowing parents to continue to live in a house; and once that period of time has ended the balance of the interest is transferred to beneficiaries.

Put simply, a QPRT is a special kind of irrevocable trust that allows the person who created it to remove a primary residence from his, or her, estate so gift taxes can be reduced when transferring assets to a beneficiary.

Buying Out Sibling Property Shares While Keeping Your Inherited Home at a Low Proposition 13 Tax Base

As many Californians know, a loan to an irrevocable trust can also be used to buyout siblings’ property shares, inherited from a parent… while allowing beneficiaries who wish to retain that property, to transfer property taxes and keep that home at their parents’ low Proposition 13 protected tax base. It’s essentially a home equity loan on inherited property, made to the trust.

What a lot of people don’t know is the fact that the trustee and beneficiaries who are intent on keeping their inherited property will frequently borrow money to have their trust funded by a qualified trust lender licensed in the state of California so that an equal distribution of the trust can be made in order to meet California Proposition 19 Board of Equalization requirements.

Typically, beneficiaries enlist funding from a trust lender when a trust does not have sufficient cash to make an equal distribution to all the beneficiaries who are looking to sell their inherited property. Hence, the ability to transfer property taxes, mainly to transfer parents’ property taxes; and avoid property tax reassessment of an inherited home. Usually a savings of over $6,200 per year in property taxes. 

Avoiding ‘Fair Market Rates’ with Proposition 19 Trust Loan Exclusion from Property Reassessment

Changes to California property tax relief in 2021 are a challenge to  understand.  Trusts, Californians have discovered, are now used for more purposes than merely deferring property taxes for a few months. Californians have also discovered that they can avoid being reassessed at fair market rates by moving into inherited property as their principle residence  – bearing in mind a $1,000,000 cap on an exclusion from existing property tax rates.

The benefits of making a lifetime transfer of inherited property has to be compared to a transfer at the passing of a parent, which may cause you, as an heir, to inherit a “stepped-up basis” in transferred property. In other words, when you inherit assets that increased in value from when your deceased parent owned it, the asset’s “basis” is increased to the property’s current or “fair market” value on the date of the parent’s passing.  Unless you take steps to avoid this increase, to be able to transfer property taxes successfully, and avoid property tax reassessment altogether!

Saving Money on Property Taxes With Help From Experts!

When purchasing a new home or inheriting your parents’ residence
it makes sense to call a specialist experienced in the use of irrevocable trust loans to maintain your parent’s low property tax base, for example like the Michael Wyatt Consulting firm out in Corona, CA.  If you are inheriting a home, or expect to inherit a home and plan to transfer the low property tax base to a new home down the road, through an irrevocable trust loan in conjunction with Proposition 19, or Prop 58.

If you’re inheriting a home from a parent and wish to avoid property tax reassessment you still have all the tools to do so, as long as all new requirements are met.  If you’re a beneficiary, a brand new homeowners, you can  transfer parents property taxes when inheriting property and thus inheriting property taxes; with the ability  to keep parents low property tax base, as long as you live in your inherited home. 

Michael Wyatt, an Expert on CA Tax Savings for Homeowners Shares His Viewpoint on  Keeping a Low Property Tax Base

As Michael Wyatt of Michael Wyatt Consulting, tells us: 

When it comes to keeping a low property tax base, with Prop 58 [or now Prop 19] and a trust loan, I always bring my clients to Commercial Loan Corp.  Their loans to trusts give my clients several invaluable benefits. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America.  They’re self funded, and that’s why they can extend easier terms to clients…

When your parents die, and your trust agreement says ‘equal shares’  –  That means equal shares!  People basically just get the overall concept of getting money from a trust loan even if it doesn’t sell. It makes more sense all around to get a trust loan; and everyone gets more money.

Regarding the ever-present issue concerning families deciding to either sell inherited property; Or opting to keep property inherited from their parents – Mr. Wyatt  weighs in, telling us: 

More heirs and beneficiaries end up not wanting to sell their inherited property. And  if they did want to sell, a lot of people can be easily convinced, with more cash from a trust loan and trust lender than an outside buyer would come up with, ‘equalizing’ things for them…

You have to look at it this way: there are always  one or two, minimum, who  insist on selling their shares in an inherited property. And there is our initial client contact, with those who want to sell.  And that is where these family estate or trust conflicts begin.  If they sell their property, capital gains tax always hits them. That’s where a trust loan comes in, to avoid that.

A trust lender like Commercial Loan Corp, that doesn’t charge any fees up-front, that’s another great benefit.  Plus, they don’t charge interest on their trust loan in advance. Not only that, there is never a “due-on-sale” clause… that requires the mortgage to be repaid in full when sold; or that all or some of the interest owed must be paid up-front to secure the mortgage. No “alienation clause”… in the event of a property transfer, stating the borrower has to pay back the mortgage in full before the borrower can transfer the property to anyone. 

Going with a firm like that – all costs are offset, unless you plan to keep a property for 2, 3 years or less. Then it doesn’t make sense. But generally you’re looking at keeping that property for seven or more years, as a rule...”

To learn more about your options when inheriting a home from parents – transferring a low property tax base to your new primary residence – contact Michael Wyatt  Consulting, or the Commercial Loan Corp, at (877) 756-4454 to speak with a Trust Loan or Property Tax Savings specialist. Chances are the end result will be a much lower property tax bill.

For more information on California Property Tax News, visit the PropertyTaxNews.org website for all of the latest information and updates. 

Taking Advantage of Every Key Property Tax Break

Taking Advantage of Every Key Property Tax Break

Taking Advantage of Every Key California Property Tax Break

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?

California homeowners are hit with some of the highest property taxes in America.  So the key question we face every year is – how can we legally decrease our property taxes?  As we all know – although it’s worth a second look due to the various confusing changes imposed as of 2020,  2021 – two most popular systems we can utilize to lessen our property tax burden involve tax breaks, contained in the 1978, 1986 and 2021 property tax measures entitled  Proposition 13, Proposition 58 and Proposition 19.

To clear up some of the most confusing issues associated with Prop 19 which now implements the classic parent-child transfer or parent-child exclusion (to avoid paying current property tax reassessment, or “fair market” rates), we’ll have  to examine the updated key tax breaks associated with this type of property tax relief in California, as confirmed by the CA State Board of Equalization (BOE).

To review what most of us probably already know – if you inherit a home to be used as your primary residence from your parents or from your children, who used the property as a primary residence,  you can successfully avoid property tax reassessment at fair market rates. This special treatment also applies if you acquire the home from your grandparents (avoiding property tax reassessment through the Proposition 193 grandparent-to-grandchild exclusion), but only if both of your parents are deceased.  Naturally these processes include any basic property tax transfer designed to avoid property tax reassessment, to transfer parents property taxes when inheriting property taxes from a dad or a mom, or from grandparents.  The point being to keep parents property taxes at all costs, through a parent-child transfer.

As of February 16, 2021, an inherited home must be used as your primary residence if you wish to avoid property tax reassessment upon it. Additionally, if the difference between the property’s assessed value and fair market value is more than $1,000,000 at the time of transfer, the new assessed value will be the fair market value minus $1,000,000.

Irrevocable Trust Loans & Proposition 19 Property Tax Exclusion

Changes to CA Proposition 58 property tax breaks became active Feb 16, 2021 due to Proposition 19 – trust lenders all across Southern and Northern California are busier than ever, helping Californians who are  inheriting a home from parents, as well as beneficiaries inheriting residential property – establishing a low Proposition 13 property tax base for all inherited property going forward.

On top of all that, beneficiaries who are intent on keeping an inherited home are given, through Proposition 19, formerly Proposition 58, the ability to buyout co-beneficiaries, typically siblings, who are looking to sell their shares in the same inherited property… Only with a lot more cash in hand than a non-family outside buyer would pay for the exact same property.  

In fact, the need for middle class families to establish a low property tax base  for newly inherited property has become so urgent that well known estate & trust lender Commercial Loan Corp in Newport Beach is now offering heirs and beneficiaries inheriting a home from parents a free consultation on parent-child transfer preparation, as well as an estimate of property tax savings overall – to keep their parent’s low property tax base.  This Free Consultation for Property Tax Savings helps evaluate the benefit of a loan to an irrevocable trust, specifically for beneficiaries who want to keep inherited property at their parents’ low property tax rate, with the formerly Prop 58 [now Prop 19] parent-child transfer – to avoid current market reassessment.  This often involves an unusually fast and inexpensive buyout of siblings looking to sell their share of the same inherited home and/or land.

So to reiterate – by originating loans to trusts and estates in probate, a trust lender like Commercial Loan Corp helps to maximize the distribution of funds to a trust or estate; allowing beneficiaries to buyout inherited property from co-beneficiaries, while keeping a low property tax base when inheriting a home.  When providing mortgages to trusts or estates in probate, a good trust lender helps clients  avoid the re-evaluation of property at current tax-rates – enabling families to retain a parent’s low Proposition 13 tax base – by obtaining a parent-child exclusion, with a  parent-child transfer… saving on average $6,200+ per year in property taxes. If you need assistance with a trust loan in order to equalize a trust distribution to qualify for Proposition 19 or Proposition 58, we highly recommend you call Commercial Loan Corp at 877-756-4454. 

The Trust Loan Process From the Inside Out

Tanis Alonso, senior account manager at the Newport Beach trust lending firm, offers an experienced inside viewpoint on the trust loan transaction in conjunction with the Proposition 58 and Prop 19 exclusion from paying high current property tax rates:   

Let’s say a property value is currently one million dollars and the current tax base is $1,200. If they were to get reassessed at current value that would be around $11,000 annually.  By someone keeping the property and obtaining a trust loan to properly buy out their siblings that allows the beneficiary that is keeping the property to keep parents property taxes, to retain 100% of the Proposition 13 tax base that was paid by their parents and keep that low property tax base of $1,200.

This of course creates much greater affordability than if they were to improperly buy out their siblings and have that property reassessed. The loan to trust goes hand in hand with the Proposition 58 [now Proposition 19] property tax transfer system, creating enough liquidity to equalize distributions, not sell, and allow a beneficiary to keep their parents property with their low property tax base. It does sound counter intuitive – yet it’s true…

A Property Tax  Appeal Can Lower Taxes on Your Home

County property tax assessors in all 58 California counties assess every homeowner’s property tax by multiplying each home’s taxable value by existing applicable tax rates.  The taxable value is typically based on purchase price, generally referred to as “base-year value”.  However, tax authorities do have the right to increase taxation by up to 2% every year in tandem with inflation, plus reassess the tax value of most real properties under certain specific circumstances. 

For example, if a property owner makes changes to his or her property, such as home renovations, or  adding a large swimming pool, or perhaps building an additional wing or modernizing a kitchen or bathroom, whatever – the county tax assessor who gets a copy of that property’s building permits, might possibly reassess, if a decision to do so is made at that time. And this is when discrepancies or errors sometimes occur, when a tax assessor is also able to initiate a separate base-year value on any new renovations or re-constructed areas attached to a home. Mistakes are often associated with these reassessments.   

Therefore, one effective way to lessen your property tax burden is to reduce the assessed value of your home by filing an appeal stating that  the home’s assessed value is less than the value the tax assessor assigned to it.  

The appeal might prove that the home is in much worse condition than the assessor factored into his or her assessment… or perhaps prove that newly constructed changes to the home were not nearly as extensive as the final property tax assessment showed. Tax reduction firms typically handle county tax assessor challenges of this kind, tax appeals, and this is generally the direction most residents go in, in order to submit a successful appeal, in keeping with the CA State Board of Equalization Property Tax Dept.

California State Board of Equalization County Assessor Directory

The BOE publishes a helpful online guide that explains property tax exclusions in detail. For further information about applying an exclusion to your property inheritance, home or living situation, and any required forms you need to complete the deadline for filing these forms, contact your local tax assessor by consulting the BOE county assessor directory.