PART TWO: What is a trust?

What is a trust?

What is a trust?

Irrevocable Versus Revocable Trusts

It is important to make note of the fact that an “irrevocable trust” is inherited as a document left by a “grantor” once that person is  deceased, and cannot be altered; plus it may not be considered part of a taxable estate, therefore fewer taxes may be due on your passing. 

Whereas a “revocable trust”, also known as a “living trust”, can be a much more flexible inheritance instrument — and most importantly, the grantor who wrote the trust document can maintain control while still alive.  It is also worth mentioning, due to the problems many beneficiaries have with trustee, that it is critical to choose a trustee who will know his or her place, and not adopt an attitude that the money and assets belong to the trustee.

Another use for irrevocable trusts – in terms of beneficiaries getting trust loans that work hand-in-hand with Proposition 19, is a parent to child property tax transfer managed by a trust lender –  making sure that  the trust lender stays on top of the process, and  ensures that keeping a parent’s low property tax base  becomes a reality.

Moreover, the trust lender can help you, as a  beneficiary inheriting a parental home, buyout a sibling or several co-beneficiaries looking to sell their inherited property shares – with a sibling-to-sibling property transfer; at a much higher price range than any outside buyer would offer – due to the avoidance of a realtor, who would typically charge a 6% commission – plus other pricey  closing costs such as legal fees, paperwork processing fees; transfer taxes, escrow expenses, notary fees; as well as fees for credit checking, value appraisal, title search, home inspection, etc.

When it comes to selling a home, there is, as they say, “no free lunch”. Meanwhile, beneficiaries keeping a family home at their parents’ low property tax base, through an irrevocable trust loan in conjunction with Proposition 19 (formerly Proposition 58), is able to keep that inherited home in the family basically forever at the parents’ low  property tax base, thanks to tax relief still protected by Proposition 13. 

To be clear, an irrevocable trust typically transfers assets out of an estate and potentially out of the grasp of estate taxes and probate, but it can’t be altered by the grantor after it has been executed. So once you establish this sort of trust you lose control over the assets and cannot change any of the terms, or dissolve the trust. However, if you’re gaining the financial advantage of a parents’ low property tax base going forward – it’s generally worth the trade off.

A “revocable trust” can help assets pass outside of an estate in probate, and allows you to keep control of the assets, as long as you are alive. A revocable trust is flexible, and can be dissolved whenever you wish. A revocable trust generally becomes irrevocable when the grantor or trustor (i.e., the person who placed the assets into trust for his or her beneficiaries) passes away.

Trust Assets and Inheritance Distribution

An irrevocable trust is generally preferred over a revocable trust if your objective is to reduce the amount of estate taxes by removing inheritance trust assets from your estate. When the assets are transferred into a trust, you are of the tax liability on the income generated by the trust assets are relieved.  Even though inheritance distributions will most likely result in income taxes. However, this type of trust will also provide protection against a legal judgment, should that occur.

Assets in a trust may also be able to distribute to heirs outside of probate, saving time, court fees, and potentially reducing estate taxes as well. Other benefits of a trust include managing your money. You can set the terms of the trust to control when and who assets will be distributed to.

You can set up a revocable trust so the trust assets stay accessible during your life while deciding who remaining assets will pass to, regardless of family complications. Parents often set the terms of trust distribution to protect the money in a trust by holding off on final distribution until the beneficiary is sufficiently mature to handle inherited money wisely, such as distribution at age 30, and again at 40, or whatever.

Final Trust Distribution

Some trusts do not reach final distribution until a beneficiary, who may be considered to be a spendthrift, reaches his or her 60th birthday — imagine waiting that long! This type of trust can also protect an estate from creditors coming after heirs who unwisely get deep into debt. Most importantly for some, a trust can allow assets to transfer to beneficiaries outside of probate and thus remain private, along with lessening money spent on probate court fees and taxes.

However, attorneys bent on convincing a family to leave inheritance assets in trust and ignore probate when they pass on may fail to mention fees associated with a trustee, who typically remains with a trust for the life of that trust, as well as subsequent attorney fees, bank fees, and other nominal costs that add up.

The History of Property Tax Relief in California

California Property Taxes

California Property Taxes

An Historical View of Property Tax Relief

A property tax measure entitled “Proposition 13” locked in property tax relief in 1978 that, despite efforts from certain parties to turn the clock backwards for financial reasons, California has managed somehow to maintain for middle class and upper middle class homeowners and beneficiaries inheriting parental property.

This tax relief process, along with Proposition 58 in 1986, providing residents with a means to establish a low property tax base, and to transfer a home from parent to heir with a parent-to-child exclusion from paying current property tax rates…. While keeping a low parental property tax base.

Traditional banking and other lending institutions no longer provide Californians with loans that solve financial requirements for irrevocable trusts, estates, probates, conservators, and other non-traditional inheritors and borrowers. We now must look to Trust Lenders to bridge this financing gap when it pertains to funding trusts, to buyout co-beneficiaries, siblings typically… as well as locking in a Proposition 13 protected low property tax base, with tax rates that cannot exceed 2%.

Property tax breaks like property tax transfers and the parent-to-child exclusion; the right to transfer property taxes that cemented the foundation of Proposition 58 – now in the foundation of Proposition 19…. With some restrictions that, regrettably, many Californians were not fully aware of when they cast their property tax vote in Nov of 2020.

Property Tax Relief – Involving Prop 13 & Prop 19 Trust Loans

The process that makes up the robust foundation of Prop 13 and Proposition 58, now Proposition 19, has managed to survive despite fluctuations and changes throughout 2020 and 2021, enabling funding of a trust or estate to allow equalization of distribution to beneficiaries inheriting property that are looking to sell out their property shares; while those looking to keep inherited property get to establish a low property tax base, and avoid property reassessment.

Your situation may reflect elements sin one or more of the following inheritance scenarios – frequently requiring a non-traditional solution; typically an inheritance funding assignment, or the funding of an irrevocable trust… Trust lenders like Commercial Loan Corp offer a free consultation in which some of the following scenarios and options will most likely be discussed – 

a) Siblings may be going through intra-family conflicts concerning which assessed evaluation of the property in question reflects the “true value of the property”; or confirming which beneficiaries want to keep inherited property, at their parent’s low property tax base – and which siblings insist on selling their property shares to a buyer, at which point it becomes obvious that a buyout from a trust will furnish beneficiaries looking to sell with far more cash than a typical buyer going through a realtor will provide – by avoiding a realtor’s 6% commission, additional fees, legal costs, etc. 

b) Does your family agree there is a need for a loan to an irrevocable trust, or an estate loan. An experienced trust lender is able to fund an intra-family trust that will furnish enough liquidity to equalize funding to all beneficiaries intent on selling off their inherited property shares… while at the same time establishing a low property tax base for heirs that are committed to keeping the family home — avoiding property reassessment in conjunction with Proposition 19.

c) Does your family agree to a specific loan amount required to liquidate an irrevocable trust; to “equalize” buyout cash for beneficiaries within a middle class or upper middle class family that wish to sell off their inherited property shares. Property value and whether or not all the siblings agree on the assessed evaluation, the amount of liquid assets in a trust, as well as the number of siblings set on selling their property shares — influence the liquidity requirements of an irrevocable trust.

d) “Funding equalization” and “cash distribution” should be reviewed during a free consultation – insuring that equalization will result in a sufficient amount of funds being directly distributed to all beneficiaries intent on selling their inherited property shares. Therefore, change of ownership will handled properly and filed to ensure an exclusion from reassessment (i.e., a “parent-to-child exclusion”, often called an “exemption”) – bottom line, making sure that the family can avoid property tax reassessment, keep parents property taxes when inheriting property taxes  becomes a reality.  Property tax transfer, the ability to keep parents property taxes, is still a bottom line property tax relief benefit in California.

The heir or beneficiaries keeping the home pays back the trust loan with personal funds, or with a conventional loan, or through some other means of repaying the irrevocable trust loan.  Keeping the finalization of the process as straight forward as possible. It must appear to be simple, and in a way actually be simple, or residents will shy away from it, if they can’t understand how it works, even in a general way.  

Choosing the Right Trust Lender to Keep Your Parent’s Low Property Tax Base When Inheriting A Home

How to Choosing the Right Trust Lender to Keep Your Parent’s Low Property Tax Base When Inheriting A Home

Choosing the Right Trust Lender to Keep Your Parent’s Low Property Tax Base When Inheriting A Home is Critical.

It would be best, in choosing a trust lender, to pick a firm that is a self-funded private lender, offers a fast approval process, has flexible underwriting terms, has no prepayment penalties, has no minimum monthly interest, and can fund a trust within a 7-10 day period.

This process may look simple when discussing from behind a desk, however it is not as simple as it appears. By leveraging cash from a private loan in conjunction with an agreement between the heirs, executors and trustees can provide a valuable service to families who otherwise would have to forfeit their valuable real estate in the course of estate administration.

Parental property is typically an older home with a little land, and a host of memories and emotional attachments… Beneficiaries of this type of middle class inheritance that don’t execute a personal loan to a trust in conjunction with Proposition 19 to equalize that trust would be viewed as beneficiaries looking to sell their shares in that property simply taking a payment from siblings looking to keep their inherited property.

The outcome of this would be a “transfer between beneficiaries”, without the ability to keep inherited property at a low base rate, that is to say, your parents’ low property tax base, as opposed to a “transfer from parent to child”, the type of transfers between parent and child that enable exclusion from reappraisal. Side-stepping this process would disqualify the transfer from operating under the parent-to-child exclusion. As the BOE interprets it.  And this involves benefits all the way down the line.

Avoiding a loan to an irrevocable trust will disqualify new homeowners and beneficiaries inheriting property from being able to keep parents property taxes when inheriting property taxes  during property tax transfers – more specifically being able to keep parents property taxes.  Not utilizing a trust loan with a trust lender will make it impossible to keep inherited property at a low base rate as would be possible through a parent-to-child transfer and parent-to-child exclusion (from paying current property tax rates).

The same goes for the right to transfer parents property taxes alongside inheriting parents property and inheriting parents property taxes to avoid property tax reassessment.  Obviously, a trust loan is well worth not ignoring, when your inheritance calls for it, in concert with Prop 19, formerly Proposition 58.

Middle class and even upper middle class estates and trusts with limited funds, or “liquidity” would lose these critical tax benefits if the estate or trust has no resources available which would allow heirs or beneficiaries to retain the old family home. Hence, the California Board of Equalization has sanctioned third-party real estate loans to trusts to “equalize” the value of beneficiaries’ interests in the trust assets while keeping the allowed property tax exclusion from tax reassessment (at current updated rates).

California was pretty bad before 1978, when Proposition 13 tax relief went into affect. California was raising taxes more than any other state, before 1978. Most seniors – before Prop 13 – were reassessed at present-day rates. And many, many were forced out of their home. They simply could not afford the property tax hikes descending on them. Period. People, especially older people, were being impacted with higher property taxes year after year. And in many cases – with catastrophic results, obviously.

Commercial Loan Corporation reachable at (877)756-4454, 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. Also, Commercial Loan Corp is self funded, and that’s basically why they can extend easier terms to clients. Compliance for both commercial and residential property owners is far less strict.

Commercial Loan Corp doesn’t charge any fees up-front, that’s another great benefit. Plus, they don’t require paying 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 that the borrower has to pay back the mortgage in full before the borrower can transfer the property to another person. There is none of that.

The speed of their trust loans is much faster, typically five to seven days instead of two or three weeks. And if you sold a property outright, without using a trust loan, you have closing costs, legal fees; a commission; etc. It gets very expensive. Going with a firm like Commercial Loan Corp – costs are offset.

When Mr. Kerry Smith speaks… people listen.

New CA Parent-Child and Grandparent-Grandchild Property Transfer Rules Under Proposition 19

California Prop 19 Rules for Transferring Property Taxes

California Prop 19 Rules for Transferring Property Taxes

As an updated review of sorts, we would like to revisit certain Proposition 19 issues governing California property taxes. These issues have become particularly important to beneficiaries and new homeowners in particular throughout the state. The following updates address measures that are especially popular with homeowners…

In terms of basics, it’s important to reiterate that under Proposition 19 an inherited home can be transferred from a parent to their child/heir without triggering property tax reassessment, with the right to keep parents CA property taxes. However it’s essential these days to pay more attention to deadlines and filing stipulations — whereas previously this was not as necessary.

Beneficiaries frequently want to know if a parent died prior to Feb 16, 2021, but the change in ownership forms were not filed with the assessor until after Feb 16, 2021 — if the parent-to-child exclusion (from current property tax rates) is applied under former Proposition 58 measures, or if it is applied under current Proposition 19 tax measures, with the ability to keep parents CA property taxes…. The confirmed answer is that an inherited property transfer is calculated by date-of-death to determine the official date of change of ownership.

A good number of trust beneficiaries inheriting real property from a parent, considering their option to buyout siblings’ inherited property shares, often ask trust lenders if a parent is leaving a family home to three siblings/heirs, will that family home be the primary family home of all three heirs — or just the one heir.  And it turns out that only one sibling/heir is expected, under California tax law, to take over that family home as a primary residence. Yet all three siblings still have to be valid heirs.

Beneficiaries and heirs of an active estate, inheriting assets, often ask their attorney about the correct time-frame to establish an inherited family property as their “primary family home”…  Estate attorneys typically confirm that beneficiaries inheriting a house from a parent who wish to keep parents CA property taxes on a property tax transfer, when inheriting property taxes, are expected to establish that house as their “principle family residence” within 12-months of the purchase or transfer of that inherited property, if they want to avoid property tax reassessment using their existing ability to transfer parents property taxes, when inheriting property taxes from a parent. 

Yet heirs are still being able to take advantage of their right to a parent to child property tax transfer on an inherited home  and a  parent-to-child exclusion; even with all these confusing and sometimes baffling new rules for property tax transfers in California  additional intra-family options are available to heirs such as buying out co-beneficiaries’ property shares on a sibling-to-sibling property share while keeping a low property tax base when inheriting a home.

If beneficiaries or heirs are inheriting a family farm, they often look to their estate lawyer, or trust lender, for answers… if they are looking to buyout co-beneficiaries to retain the inherited property for themselves – at their parent’s low property tax base – to find out if the Proposition 19 parent-to-child exclusion (from current tax rates) also applies to family farms.

In other words, does a family farm also have to be a principal or primary residence of the inheriting beneficiaries or heirs… And the answer is no, the family farm does not have to be the principal residence of the inheriting parties in order to qualify for the parent-to-child exclusion. A family farm is viewed as any real property which is under cultivation or which is being used for pasture or grazing, or that is used to produce an agricultural product.

Many Californians want to know if Proposition 19 is retroactive; if property transfers that have already benefited from Proposition 58 parent-to-child exclusion benefits are going to be reassessed… And they are informed that Proposition 58 applies to transfers that were implemented on or prior to Feb 15, 2021. The current Proposition 19 ability to keep parents CA property taxes applies only to transfers that take place happen after Feb 16, 2021.

An inherited house, when transferred from a parent to their child/heir – is expected to be the “primary family home” of an heir. Beneficiaries or heirs frequently ask their property tax consultant or attorney how long they need to reside in or maintain their inherited property as “a primary family home” to be able to retain the parent-child exclusion. The answer is unequivocally that the Prop 19 exclusion applies only as long as the heir, or beneficiaries, reside in inherited  property as their “principle family home”.

In the event that a family home is no longer used as the primary residence of a beneficiary inheriting a home, that property should receive the factored base year that applies, had the family home not qualified for exclusion at the time of purchase or transfer. The new taxable value will be the fair market value of the home on the date of inheritance, adjusted yearly for inflation. 

Hence, an updated look at certain new parent-child and grandparent-grandchild property transfer rules and regulations under Proposition 19. 

Is a Parent to Child Transfer Still Relevant for CA Beneficiaries & Homeowners?

Parent to Child Property Tax Transfer

Parent to Child Property Tax Transfer

In a Pandemic depressed economy, with a tsunami of unemployed and under-employed workers floating around in every state… it’s obvious that middle class working  families need to save more… and spend less – on items not classified as necessary for survival.  Property taxes being one of those sort of artificial expenses imposed on citizens by the government.

One solution for this dilemma is property tax relief, which we talk about at length on this blog.  Why not institute genuine property tax relief, not tax deferment as the state government has suggested, moving payment dates around.  Clearly ineffective in a crisis like the one we’re in right now.  California needs expanded property tax relief that’s even more wide reaching than  what we have now.  

We should be building on what we already have – not watering it down!  Despite property tax breaks that no other state has, California could use expanded tax breaks from Proposition 19, to help homeowners establish an even lower property  tax base, saving residents even more during  a crisis like the pandemic we’re in right now.  With an even greater ability to resolve inherited property conflicts between beneficiaries as well. 

In other words, a beneficiary buyout of co-beneficiary property shares, while avoiding property tax reassessment, can be re-drawn so there is no 12-month deadline for beneficiaries to follow… Plus the ability to avoid property tax reassessment on certain investment properties that have revenue potential. 

Residents need more opportunities in a depressed economy like we’re in now to drive revenue, not less.  Solutions like inheriting property taxes in California 2021 need to be expanded statewide, and legally strengthened. Solutions and firms like that will help beneficiaries & homeowners buyout a sibling’s share of an inherited home as an investment property to rent out, not just to live in as a primary residence.

Every property owner should understand the details underlying Prop 19, and know what’s involved with a beneficiary buyout of sibling property shares, or “transfer of property between siblings”, and “lending money to an irrevocable trust“ – from an irrevocable trust lender.  Every California homeowner and beneficiary inheriting property should know how a sibling to sibling property transfer works; keeping yearly taxes on property at parents low rates; and inheriting property taxes in California 2021.

Only California allows this, so it’s worth taking a closer look, and taking full advantage of.  Take a look at the site managed by CA State Board of Equalization, at and research property tax breaks  and Proposition 19 property tax relief revisions at Loan to a Trust  and read up on updates to Proposition 19 at this blog, Property Tax News.    There are also property tax consultants to learn from  such as  property tax consultants who are experts at property tax breaks that save homeowners, commercial property owners, and beneficiaries inheriting property thousands of dollars if not tens of thousands of dollars every year.   

The well known president of Commercial Loan Corp, Kerry Smith is another expert to learn from, or to receive a trust loan from, if the need is there.  Trust and Estate Loans is another source of excellent material, if you want to learn more about establishing a low base property tax rate through a trust loan, and Californians ability to execute a transfer of parents’ property and transfer of parents property taxes when inheriting parents property and inheriting property taxes during a property tax transfer with your parents’ low property tax base. If you’re going to own property in California, it’s worth it to know about your ability to avoid property tax reassessment, and to keep parents property taxes.  Well worth it!