Tag Archives: Parent-child exclusion

Avoiding Reassessment of Inherited Property in California

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Avoiding Reassessment of Inherited Property in California

Avoiding Reassessment of Inherited Property in California

The property reassessment solution featuring CA Proposition 19’s parent-child exclusion (or exemption), in conjunction with an irrevocable trust loan, is really quite simple…  It just sounds exotic and complex.  The outcome of this solution is generally similar to a tax rate, for example, that you and your spouse might pay every year, residing in the same house for 40 years – at relatively low property tax rate.  However, if you ignore your CA Prop 19 parent-child exclusion, and your property tax burden is based on a fair market (i.e., current) property tax assessment –  the difference could be crippling to your bank account…

Examining the Process with “Real-Life” Examples

Let’s say you have a fairly large family, with three children; and your attorney drafted an estate plan that divides your assets equally among these three beneficiaries.

If you leave it up to your successors as to how your family property and assets get divided, you might have all three beneficiaries deciding to be sole inheritors of the family home, and reside there as a primary residence. But the more realistic scenario, if you were to look at the statistics, is one beneficiary wanting to retain the family home… with the rest of the siblings insistent on selling off their inherited property shares.  With significant tax consequences. 

However, a family attorney hopefully will have their attention, and point the beneficiary, who wishes to retain the family home, in the direction of a good trust lender, who will open their eyes to Proposition 19 working in conjunction with an irrevocable trust loan – to minimize the property tax reassessment affecting their tax burden with a CA Prop 19 Parent-Child Exclusion.  For the sake of argument, families do have other options to minimize reassessment of inherited property…

As an inheritance without any last minute revisions, beneficiaries that inherit a family home once both parents have passed away  frequently face taxes on that family home that are stepped up” to  current reassessment per each parent’s death.  Beneficiaries caught in this type of tax scenario could be in line to inherit a significant, even devastating,  property tax burden – if they decide to keep that family home.

Under Proposition 19, if the market value of the family home is more than the assessed value plus $1,000,000, property taxes would increase – if beneficiaries retain the family home, and a minimum of one of the beneficiaries moves in as a “primary residence” – property taxes would increase. Of course, if the market value is less than the assessed value, this would not occur.

Structuring Transactions That Won’t Increase Property Taxes

As we mentioned a moment ago, there is a quick list of tools and solutions one can use, depending on the situation, the people involved, and exactly what you’re trying to accomplish…

a) Using the “Legal Entity Exclusion” to avoid reassessment

b) Using the “Domestic Partner Exclusion” to avoid reassessment

c) Using the “Proportional Interest Exclusion” avoid reassessment

d) Using the “Original Transferor Rule” to delay reassessment

e) Using the “Cotenancy Exclusion” at death.  The Cotenancy Exclusion from reassessment allows a transfer from one cotenant to another that takes effect on the death of one transferor cotenant to be excluded from property tax reassessment.

Prop 19 Parent-Child Exclusion & Irrevocable Trust Loan

f) Lastly – the solution we touched on above, which is perhaps the most popular property tax reassessment minimization tool in California – is the property reassessment solution favored by many estate attorneys and trust lenders – taking advantage of the (formerly CA Proposition 58) CA Prop 19 parent-child exclusion – to avoid reassessment.  Despite new limitations and challenges, eligible California homeowners are moving quickly on new CA property tax relief opportunities in 2022

It always makes good sense to work with a first-rate, top-notch trust and  estate lender, specializing in loans to trusts and estates, to minimize or completely avoid property tax reassessment through an irrevocable trust loan in conjunction with Proposition 19; if a beneficiary inheriting property from parents also wishes to buyout siblings inheriting the same home… to retain sole ownership of that home; and is willing to live in that house as a primary residence – and establishes that within 12 months of the death of the remaining parent.  It’s crucial for California beneficiaries, and as a matter of fact all homeowners, to stay in contact with a good estate attorney and a reliable trust & estate lender… to always remain updated on new rules for property tax transfers in California

Many parents want their adult children to retain sole ownership of inherited or gifted property – and assess the original cost of the purchase (the tax basis) along with their inherited home’s assessed value – after Proposition 13 tax breaks, getting them a yearly property tax rate you can live with! The ideas is to look at no or low income taxes due on a typical inherited property transfer.

Fortunately, there is no California estate tax. However, federal taxes are a different matter altogether. If property parents leave to their children exceeds their lifetime gift and estate tax exemption of $12.06 million, they’ll owe a federal estate tax on the portion that exceeds these “thresholds”.

Working With the Right Professionals to Avoid Certain CA Tax Hikes

Estate taxes can climb as high as 40%.  However, working with a good attorney, we can look at tax breaks we could access by being a married couple – shielding oneself from federal taxes. There are other ways one can avoid a possible estate-tax burden simply by working with an experienced tax attorney or CPA.

The best route overall, looking at this from a high level vantage point, is typically to take advantage of all tax relief measures under Proposition 13… while carefully establishing an accurate assessed value of one’s inherited home, if that’s the scenario – plus establishing a step-up in basis upon the death of one’s parents.

The key is having excellent inheritance or property counsel and tax advisors to work with all the way down the line. Trying to escape taxes by yourself, just to avoid spending a few dollars, is definitely penny wise and pound foolish.

Why Are Trust Loans So Popular With Families Inheriting Property in California?

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California Trust Loans

California Trust Loans

Trust Loans Creating a Low CA Property Tax Base for Heirs

Trust loans in California – typically irrevocable trusts – are usually taken advantage of by sibling beneficiaries, with the invaluable help of a reliable trust & estate lender, to find a method of dividing inherited shares of real property held within a trust instrument…

Meanwhile, one or more beneficiaries interested in retaining sole ownership of their inherited property with a low CA property tax base, generally use a trust like this, in conjunction with Proposition 19, to buyout siblings looking to sell their inherited property shares, who get more cash than if they were to sell out through a realtor.

Financing an Estate Buyout Through a Trust Lender

A trust loan is generally viewed as the safest and easiest way to make equalized cash available to each beneficiary selling off their inherited property shares… providing them each with an equal share of the overall total worth of a home being bought out by a beneficiary or beneficiaries looking to retain sole ownership of inherited property… Unfortunately, credit unions and banks are not willing to lend to a trust to help a family in need of funding. However, a trust & estate lender invariably is.

This particular trust financing solution allows a beneficiary to keep a beloved family home, while co-beneficiaries looking to sell off their inherited property shares take their fair share of buyout cash plus an extra $14,000 or $15,000 by not selling through a realtor, given the standard 6% realtor commission and other ancillary fees and charges imposed on sellers in California. It gets expensive!

Embracing an intra-family buyout solution – Proposition 19 and an irrevocable trust loan – beneficiaries selling their inherited property shares end up walking away with that extra cash in their pocket… while the beneficiary or beneficiaries buying out their siblings happily receive their parents low Proposition 13 property tax base; as well as the opportunity to retain sole ownership of their parent’s home. This means everything to some folks – not only for the sake of important family memories, but also for the benefits found in owning a family home that could never be duplicated at anywhere near the original price the parents paid for it two or possibly three generations ago… 

Inheriting a Low Property Tax Base

The unique benefit of inheriting your parents’ low property tax base, unique to California – minimizing property tax  reassessment –   could never be duplicated except for the tax relief provided by Proposition 13, and the Proposition 19 parent-to-child exclusion.

Proposition 13 locks in a base-year value to a home whenever it originally changed ownership, and limits the annual property tax cap to 2% until ownership changes again – or until the realtor community manages to pass another property tax hike.  Which is why time is ripe to become better acquainted with the parent to child property tax transfer, and its’ crucial, subsequent parent-child exclusion from reassessment… As well as new access for homeowners to CA State Board of Equalization & Property Taxpayers’ Bill of Rights.

These are still such invaluable tools to use, when transferring inherited property from parent to child-beneficiary, in order to avoid property reassessment at such dangerously high current tax rates; plus other challenging taxes and obstacles. 

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

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

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

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

Maintaining a Watchful Eye on Your Local County Tax Assessor

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

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

Protecting Your Family From Property Tax Reassessment 

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

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

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

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

Getting Financing & Guidance from a Reliable CA Trust Lender

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

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

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

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

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

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

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

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

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

Property Transfer in California Between Parent and Child

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California Parent to Child Property Tax Transfer

California Parent to Child Property Tax Transfer

Ability to Transfer Property Taxes to Children

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

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

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

How to Avoid Triggering Property Tax Reassessment

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

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

Transferring a Family Home to Beneficiaries

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

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

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

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

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

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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 consultants, 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

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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

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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 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?

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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

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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

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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.