Trust Loans & Sibling to Sibling Buyouts

Trust Loans

Trust Loans

How inherited property is to be shared by siblings, as stated in writing by parents in a Will, is a logical starting point for an estate.

Avoiding reassessment with irrevocable trust liquidity 

Sometimes, parents leave a larger share to one or two siblings and divides the balance of the estate among remaining beneficiaries. Whenever more than one sibling is left an inheritance involving property, all heirs and/or beneficiaries have to be in agreement as to how to proceed with that property – regardless how large or modest each beneficiaries’ share of the estate is.

When siblings are involved in an irrevocable trust liquidity solution – when you want to buyout siblings’ inherited property shares –  beneficiaries looking to buyout siblings have no choice but to consider the fact that an irrevocable trust loan can furnish liquidity and work in tandem with Proposition 19 to keep property reassessment low.  Something you can’t ignore, or simply walk away from.

You still have to get an appraisal for valuation of your inherited home and come to an agreement on an intra-family selling price. Then get final approval for financing… and distribute proceeds to all siblings wanting to sell out.

Knowing your options, and how to navigate the different stages in the process… is the challenging part.  Which is why you need an excellent trust lender and estate attorney — to help guide you through critical steps.

Beneficiaries looking to keep their inherited home should always get inherited property inventoried,  and valuation finalized… Plus:

•  Always  try to avoid intra-family conflict from reaching litigation, and mediate your estate situation to the point of reaching a cordial and equitable point of communication with your siblings.

•  Try to identify and enlist a reliable, established loan lender as soon as possible – who can project a realistic number with respect to property tax savings, with Proposition 19 working in conjunction with an irrevocable trust loan.

•  Consider all inheritance loan and refinancing options, such as an inheritance cash advance; probate cash advance assignment; trust advance; or irrevocable trust loan in concert with Prop 19. 

Under Prop 19 property tax relief, siblings need to consider:

1. How well all beneficiaries get along, or do not get along – and what the issues are that must be mediated and ironed out if resolution is to be reached…

2. What is agreed upon, with respect to the disposition of an inherited home…

3. How motivated siblings are to resolve problems – in order to reach final disposition of inherited property in a timely manner…

4. Who is insisting on selling off their inherited property shares, and who is determined to retain the family home…

5. When and if all sibling beneficiaries are in agreement, in terms of selling out or keeping inherited property. 

6. And lastly, as most of us know, an irrevocable trust has to be understood as an instrument that is profoundly different than all other trusts.

As we all know, a trust can be revocable, where a trustor can change or terminate the terms & conditions of the trust anytime.
When a trustor passes away a revocable trust becomes totally  irrevocable – no matter what the issues are.  When a trust becomes irrevocable nothing can be revised or changed – real property, beneficiaries and terms & conditions are locked in.  

So when a California irrevocable trust requires liquidation, it can be used in numerous ways that can greatly benefit trust estates, beneficiaries and families in general.

A trust loan is a loan offered typically by specialized private lenders directly to an irrevocable trust.

This type of loan utilizes property from the trust as collateral. To take out a trust loan, trust documents must permit trustees to use trust property as collateral for the loan.

Lenders like banks and credit unions have no interest in “providing liquidity” to irrevocable trusts in the state of California. This is mainly due to the complicated nature of this property tax relief solution, the lack of a personal guarantee, plus the various complex challenges involved in financing of this type. 

Private lenders, like Commercial Loan Corp, or trust loan property tax consultants like Michael Wyatt Consulting, for example, form a bridge for beneficiaries and trustees looking for liquidity in their trust.

As we always see in the final solution, an irrevocable trust can accept a loan for several reasons, the most important being to “furnish liquidity” in conjunction with CA Proposition 19 in order to provide beneficiaries with access to a low property tax base… guaranteeing low property reassessment, most importantly.

Along with enough capital to buyout siblings…  Commercial Loan Corp, for example, provides more cash than a realtor driven buyout with a third party buyer could possibly provide – given their 6% commission structure, transaction fees, fixer-upper costs, and other ancillary charges.  So everyone is able to walk away happy, as a result of a genuine win-win outcome.  And moreover, besides that, many eligible California homeowners are moving quickly on new CA property tax relief opportunities 2022

If you are in the process of inheriting a home, or recently inherited a home and would like to see if you are able to avoid property tax reassessment, you can reach Commercial Loan Corporation at 877-464-1066. Or use the following web form to learn more on trust loans and parent to child property tax transfers. 

What Are the Crucial CA Proposition 19 Property Tax Benefits?

CA Property Tax Benefits, 2022 Onward

Despite confusing, often deceptive messaging, designed at all  costs to get Proposition 19 voted into law in The Golden State of  California – it’s clear to most Californians that Proposition 19 property tax breaks really will increase property tax relief measures for homeowners over age 55, plus add exclusions from  property taxes for homeowners who are victims of wild-fires and other natural disasters – plus homeowners who are seriously disabled. 

Despite a little juggling with the facts, the slick promotion to get this tax measure voted into law, with attractive promises of improved tax exemptions… it did in fact appear to be a legitimate, believable package of property tax relief benefits for residents of the state of California — as long as you ignored the fine print.

What used to be Proposition 60 (voted into law in 1986, the same year Proposition 58 was passed), helped homeowners over 55 to sell their house and move into another home valuated at the same amount or less – in the same county – maintaining a low property tax base… This has been rolled into Proposition 19, and can be taken at face value… as long as the  California State Board of Equalization (BOE) continues to function as a non-political, fact-based source of CA property tax info – which, according to experts and state economists, it does appear to be doing. 

Experts Weight in on Proposition 19

Gaye Chun, the City National Bank wealth planner confirms, telling us: “The idea was to make it easier for seniors to move without worrying about a huge jump in their property tax bill that might be difficult for them to pay.”

Bruce M. Macdonald, an attorney with Carico Macdonald Kil & Benz LLP in El Segundo, CA agrees, stating, “If someone over 55 sold a house for $5 million, but they were paying taxes on a lower assessed value based on their original purchase price, they could buy a new house for $2 million and still pay taxes at their original, lower tax assessment.” No doubt, a truly significant improvement to a tax hike reflecting current or “fair market” property reassessment.

Tax Assessments and Property Tax Breaks in California

Property taxes are typically based on assessed value rather than current fair market value.  In most states, tax assessments are conducted every one to five years and are not changed when a property is sold or transferred as a gift or inheritance.

In California, to everyone’s relief, property tax relief measures have been voted into law to limit tax assessed value of property, as well as capping property tax rates, plus enabling beneficiaries inheriting property from parents to avoid high property tax reassessment – establishing a low property tax base right away, when inheriting a home from parents.

Much has been said about property tax relief on the critical side, by realtors and high net worth business people that benefit from tax increases… However, if you talk to working families, middle class Californians, and even upper middle class homeowners – you will hear nothing but praise for property tax relief laws such as Proposition 13, passed in 1978; and Proposition 58, passed in 1986 – enabling middle class families to avoid CA property reassessment… making tax breaks available to homeowners and beneficiaries such as property tax transfer; with the ability to transfer parents property taxes when inheriting property while keeping a low property tax base; with the right to keep parents property taxes basically forever… inheriting property taxes without issue from Dad or Mom whenever they pass. 

Giving beneficiaries the ability to avoid CA property reassessment through parent to child transfer and a parent-to-child exclusion is a major asset to middle class residents in California; as well as being able to  take advantage of Proposition 19, in conjunction with a loan to an irrevocable trust to buyout siblings’ share of inherited property – keeping a close eye on mistakes to avoid when transferring a property tax base.  Now, the ability to avoid CA property reassessment and other property tax relief  benefits are under serious threat.  

All of  this was planned, launched and protected by Howard Jarvis and his famous  Taxpayers Association, as well as others who joined in the effort beginning in the mid 1970s, when property tax increases were basically out of control… often forcing elderly widows and others living on a fixed income, literally onto the street with their furniture piled up around them on the sidewalk!

Not the way anyone with a conscience would want elderly Californians to end up, in the Autumn of their life – simply to benefit a few real estate firms who will make more money from increased sales (with more homes for sale due to increased inability to pay rising taxes), with the CA Legislature piling up tax revenue higher and higher as property tax revenue increases. Perhaps helpful to a few in the short term… but with dire consequences in the long term for the entire state.

Experts Weigh In on CA Property Tax Relief

“In 1978, California voters approved Prop. 13, a constitutional amendment known as ‘The People’s Initiative to Limit Property Taxation’ that was meant to protect older residents who were unable to keep up with large property tax increases”, Gaye Chun tells us; and adds, “Several propositions since then have tinkered with property taxes.”

Homeowners who plan to transfer their residence to their children now or as part of their inheritance should seek professional advice, so they understand the impact of the new property tax rules”, asserts Bruce Macdonald, the well known attorney in El Segundo.

Current changes in property tax rules could be significant for some families, because it’s not that unusual in California to have a house that was assessed at $150,000 when the parents bought it, to be worth $5 million 40 years later,” Mr. Macdonald, Esq. explains; adding, “When the kids could inherit their parents’ house at the assessed value of $150,000, the property taxes would be approximately $1,500. Now, if the house is assessed at $5 million, that would incur a significantly higher tax bill!”

Experts in California tell us that this points to all the more reason for repealing Proposition 19… as well as adding more concrete protections to keep Proposition 13 safe from anti-property-tax-relief realtors and the politicians that are firmly in their pocket.

New Property Tax Relief Laws & Belief in the CA Legislature

Property Tax Transfers

Property Tax Transfers

Can California rely on Property Tax Exclusions from Prop 19?

Despite the growing waves of criticism and anxiety from residents in California, regarding Proposition 19, given all the cheer-leading from the California realtor community, more or less led by the CA Realtor’s Association – state sponsored public relations continues to convince us how fabulous Proposition 19 truly is.

We are constantly reminded that, despite certain obvious limitations affecting homeowners and beneficiaries inheriting property from their parents, we do have new property  tax exclusions from Prop 19.   Proposition 19 is providing us with tremendous property tax breaks which did not exist previously, with Proposition 58 tax relief.

Truth?  Publicity?  Or happy talk… 

Supposedly, despite new property tax exclusions from Prop 19,  the state will see an extra yearly revenue of a billion dollars plus, to help schools in towns and cities – although the California State Board of Equalization (BOE) is a little short on concrete specifics and details, in terms of how much revenue is actually expected to come in overall from these new property tax laws; and specifically how much money will go to fire departments, and how much will be allocated to help seniors and the elderly… and homeowners with serious infirmities. 

Moreover, Proposition 19 also seems to be rather fuzzy, with respect to anticipated property tax revenue that is supposedly going towards balancing budgets – possibly with provisions to step up the state’s recovery from Pandemic driven financial losses.

Additionally, beyond property tax exclusions from Prop 19 that we already know about, and hope will be consistent – extra tax revenue from Proposition 19 is supposedly expected to furnish all sorts of other “significant added protections” for CA residents – although proponents of Prop 19 as well as BOE are extremely vague, as far as articulating precisely what these “protections” might be every year.  Again – fact based info dissemination?  Or simply PR happy talk…

Prop19 revenue for city and county fire departments & schools

Proponents of Proposition 19 singled out supporters of Proposition 13 property tax relief as creators of “tax schemes” and “deceptive practices” – “costing local governments and schools up to $1.5 billion every year” – without describing exactly what those “tax schemes” and “deceptive practices” actually are… And what those numbers that  supposedly cost the school system a small fortune really look like – above and beyond vague projections designed to scare tax payers half to death.  

We also frequently hear about “unfair tax loopholes” used by supposed “East Coast investors” and “celebrities” or “wealthy non- California residents” as well as “trust fund heirs” – who are perpetually unnamed, wealthy property owners, who supposedly avoid paying “their fair share of property taxes on vacation homes, income properties, and beachfront rentals they own in California.”

An obvious reference to the Lloyd Bridges family, the only family in 40 years that has been named as property tax perpetrators of the above so-called violations, whose heirs happened to inherit a nice beach home, using Proposition 13 to cap property taxes at 2%… subsequently renting the home out at $16,000 per month to vacationers from out of state. (As opposed to residing in the property as a “primary residence”.)

No other family has ever been named and singled out as using Proposition 13 for such “nefarious purposes”.  It appears that the justification for Proposition 19 limitations were based on this one family… this one inheritance.

Maintaining the spirit of Proposition 13 and Prop 58

Proponents of Proposition 19 insist that their favorite tax measure will “continue to preserve the intent of Proposition 58 and Proposition 193” – keeping family homes affordable when parents and grandparents pass on their family home to children and grandchildren to use  as a  “primary residence”. 

As we all know, this is partly true, and where  limitations are concerned… partly not true. Fortunately, beneficiaries can still     use a parent-to-child exclusion in conjunction with Proposition 19.

When inheriting property while keeping a low property tax base,  smart beneficiaries are still able to buyout property tax shares from siblings, with advice from a Property Tax Consultant like Michael Wyatt; and funding from a Trust Lender such as Commercial Loan Corp.

We continue to hear about the $1 billion per year in Prop 19 generated revenue that is going to fire departments and unions, school systems and local governments.  We also hear about that revenue somehow being used for emergency services, public hospitals, general healthcare, homeless folks, and housing projects. However… again, no specifics. Just general allusion to a lot of hopeful initiatives. 

At the same time Californians hope that they will be able keep parents property taxes, and take advantage of property tax transfers to retain a low property tax rate from this parent-to-child transfer upon inheriting property from parents, while inheriting property taxes… to avoid property tax reassessment – typically through a parent-child transfer.

Homeowners and beneficiaries are waiting to see what specific applications will be readily available to them:

• to limit property tax increases for victims of wildfires, replacing damaged or destroyed property; limiting damage from wildfires on homes through supposed funding for fire protection and emergency response.

• to cap property tax increases on family homes used as a primary residence by protecting the right of parents and grandparents to pass on their family home to children and grandchildren as a primary residence.

• to take advantage of supposedly “thousands of housing opportunities” by making homes available for first-time homeowners and families in all 58 counties across the state of California.

Ultimately, Californians are taking for granted that there is a cap on property tax increases for primary residences for homeowners over 55 years old, people with severe disabilities, and victims of natural disasters or wildfires by removing county restrictions – apparently allowing these residents to locate a home that “better fits their needs”.

State leadership may be asking residents to stretch their trust a long way; without any iron-clad guarantees. Just a long list of top-down assurances. And residents as well as estate attorneys and tax lawyers, as well as accountants, are wondering, going forward into a murky future, what they can question… and what they can really rely on.

Article 13-A of the California Constitution

Protecting Californians From Arbitrary Tax Hikes

Proposition 13 once protected all taxpayers, homeowners and non-homeowners — by maintaining a 2/3 vote requirement in order to pass most tax increases, including state sales and income tax. Intentionally making it more difficult to raise taxes on residents. Particularly critical with respect to property taxes.

Unfortunately for middle class tax payers, a tax measure entitled “Proposition 39” was approved in 2000 by a thin razor edged margin after a massively budgeted PR & marketing campaign was launched by a few Silicon Valley billionaires who thought it would be advantageous to make middle class homeowners pay for their Silicon Valley corporate tax breaks. Similar to our recent tax breaks for mega-wealthy Americans and high-end corporations. Again, mainly pulled from the pockets of middle class homeowners and working families. A sad testament to tax inequality.

So-called “Proposition 39” revised the 2/3 vote requirement for certain bonds to 55% — making it way too easy to pass those bonds, since they are paid back only through increased property taxes. Again, wealthy hands in the pockets of middle class families.

Property Tax Postponement Instead of Property Tax Relief

The State Controller’s Property Tax Postponement Program allows senior or elderly homeowners, blind homeowners,  and severely disabled property owners, to take advantage of a marginally helpful “tax deferment” affecting this year’s property tax bill. When the more equitable solution would obviously be total or partial exclusion from these property taxes; especially in the midst of a severe Pandemic — with subsequent economic failings and short-comings, with no real end in sight.

Over the past 44 years, the Howard Jarvis Taxpayers Association has battled and confronted California based special interest organizations, such as the CA Association of Realtors, groups, bureaucrats, and public-employee unions, among others, who benefit from government spending.

Beginning in 1978, Proposition 13 was determined to protect home ownership from overly greedy, destructive taxation. Therefore California property owners strive to continue enjoying the $528 billion that the Proposition 13 and Proposition 58 (now Proposition 19) Howard Jarvis Tax Revolt has saved homeowners by helping them, overall, to avoid property tax reassessment; allowing families to transfer  property between siblings without a crippling property tax reassessment, avoiding a sibling to sibling buyout.  Enabling beneficiaries to transfer parents property taxes to themselves through property tax transfer relief, when inheriting property, and subsequently inheriting property taxes from a parent — thereby inheriting property while keeping a low property tax base.

Hence, allowing inheritors to keep parents property taxes basically forever… generally with property tax transfer relief from a parent-child transfer — ultimately, through an established parent-to-child exclusion.  Something no California homeowner or beneficiary wants to lose.

How Secure is Property Tax Relief for Californians?

Property Taxes in California

Property Taxes in California

Despite Critics, CA Property Tax Relief Is As Popular As Ever  

What all homeowners, property owners and working families inheriting property in California want to know – is whether or not property tax breaks from Proposition 13 and Proposition 19 are guaranteed, during our lifetime, to all California homeowners and beneficiaries inheriting property.

Naturally, this encompasses the ability to transfer parents property taxes, with a protected property tax transfer; the right to keep parents property taxes when inheriting property  property taxes, most frequently through a parent-child transfer, otherwise known as a parent-to-child exclusion.  Always to avoid property tax reassessment, even when it involves a loan to an irrevocable trust, in conjunction with Prop 19 for the transfer of property between siblings, commonly called an “inherited property buyout”, which is often implemented in concert with the right to keep parents property taxes.

So after 44 years of capping property tax increases at 2%, Prop 13 continues to be wildly popular with Californians. And due to the fact that Proposition 13 is a CA Constitutional Amendment, it can only be revised by voter approval.

Howard Jarvis Taxpayers Assoc president Jon Coupal tell us:

Without the two-thirds vote requirement, one of these second-mortgage bonds can now be passed by people who won’t pay the tax and in fact are getting more from the government than they pay in taxes.

After Proposition 39 took away the two-thirds vote protection for these bonds, localities quickly passed almost $30 billion in such bonds — debt that homeowners will be burdened with long after they’ve paid off their homes.  Since then, the two-thirds vote has been repeatedly attacked by a pro-tax coalition that wants to eliminate this protection for more and more kinds of bonds and taxes.

Currently, several proposals are active in the State Legislature to change the state constitution to eliminate the two-thirds vote requirement for other kinds of bonds, and for certain sales and property taxes. If enacted, it will become far too easy to pass all kinds of tax hikes, so the Howard Jarvis Taxpayers Association is actively fighting this legislation.

Special Interest Groups Intent On Unraveling Tax Relief

Wealthy special interest organizations are out there scheming and planning, especially like-minded people in the realtor community that are secretly, and not so secretly, aiming to unravel California property tax breaks – such as the CA Associations of Realtors, who bankrolled Proposition 19,  replacing Proposition 58 in 2021. 

The CA Associations of Realtors donated $40.4 million to their crusade; and $47.57 million total bankrolled this effort to convince Californians with deceptive yet clever public relations and marketing.  Naturally, there were other organizations that chipped in, that do well with state government cash and don’t want homeowners to save big on property taxes, as property tax revenue feeds those organizations and their financial interests.

Proposition 15, the property tax measure, also promoted by the realtor community, was designed to overturn Proposition 13’s commercial property tax protections, and was defeated by a hair. Had it passed, most residential rentals and business rentals, thanks to inflated commercial property taxes from an unraveled Proposition 13, would have gone sky high – taking prices of all goods and services in California with it…and would have carried the future of California with it…. downhill!

Special interest groups such as the Realtor organizations pushing these anti property tax relief efforts, have got to learn that you can’t weaken and in many cases destroy the lives of millions of the  39,538,223 citizens residing in California – simply to benefit 131,551 real estate brokers. Weakening the financial life of millions just to make some realtors and real estate brokers a little wealthier just doesn’t even out.

CA Property Tax Relief Heroes ~ Fighting the Good Fight

This is precisely why folks such as the Howard Jarvis Taxpayer’s Association; Assemblyman Kevin Kiley and his ACA-9 Bill to repeal Proposition 19;  Michael Wyatt Consulting; Devin Lucas Real Estate Law Firm; Commercial Loan Corp led by president Kerry Smith; and others – maintaining an especially courageous effort to control property tax hikes; and keep crippling property taxes capped and equitable for California working families, for both middle class and high net worth homeowners – to keep the California American Dream of home ownership alive, fair, and affordable.

Common Mistakes to Avoid When Transferring a Property Tax Base

Transferring Property Taxes in California

Transferring Property Taxes in California

The Right Advice & Tax Plan from a Trust Lender 

Much to the relief of Californians who own property and/or are in the process of inheriting a home from a parent, for example, in any of the 58 county across the state, the parent-to-child exclusion from property tax reassessment is still alive and well in all 58 counties, in 2022.

However, quite often, new homeowners and beneficiaries trigger a property tax hike strictly by accident, and end up facing thousands upon thousands of dollars in property taxes from property tax reassessment – that could and should have been avoided, had the right advice and tax plan been in focus.

High property values in California highlight the need for careful property tax planning. If you have owned your property for many years Generally, in terms of property taxes, homeowners who have owned their home for a long time typically have a lower assessed value than current or “fair market” property value tends to be.

Parent-to-Child Exclusion

As far as parent to child transfers are concerned, when one beneficiary who is inheriting a home decides to buyout property shares inherited by co-beneficiaries (siblings) – to have complete ownership of said property – it’s easy to misstep and mistakenly trigger property tax reassessment.

A parent to child property tax transfer in is line with the effort to  avoid property tax reassessment under Proposition 19’s parent-child exclusion, retaining a parent’s Proposition 13 low property tax base. Therefore a loan to an irrevocable trust working in conjunction with Proposition 19 allows us to transfer property between siblings – buying out property from siblings.

Likewise, beneficiaries, upon inheriting property from parents, still have a property tax transfer at their disposal to transfer parents property taxes and keep parents property taxes when inheriting a parental home, and thus inheriting property taxes, but at a low  base rate.  Hence, the use of a parent-child transfer… enabling the use of the invaluable parent-to-child exclusion – bottom line, helping us avoid any possibility of triggering property tax reassessment! 

Choosing the Right  Trust Lender, to Keep a Low Property Tax  Base While Buying Out Inherited Property From Siblings

We prefer a trust lender who can formulate and deliver the more reliable, simple Proposition 19 rules & regs, in conjunction with an irrevocable trust loan to equalize beneficiary buyouts of inherited property shares.

We have found that any type of unconventional property financing other than irrevocable trust loan funding may run into unpleasant surprises such as property tax reassessment – due to an abrupt change in control, or revised ownership!

LLCs, Corporations, or various Partnership entities owning real estate are subject to a myriad of property tax rules & regs that can change on a dime, often disqualifying beneficiaries from taking full advantage of the parent-to-child exclusion, to maintain a low property tax base, and perhaps buying out inherited property shares from co-beneficiaries – avoiding property tax reassessment and running headlong into pricey financial surprises.

Transferring Your Base Year Value Under Proposition 19

Given new changes to Proposition 19, if you happen to be over age 55, or are severely disabled, you may be able to transfer your home’s current base year value to the purchase of a different home, thereby keeping your property tax payments low. To qualify, you must acquire your new home through a sale transaction. If you acquire any portion of the new property by gift or inheritance, you will not be able to transfer your base year value.

Property Tax Relief for All Californians

Proposition 13 – 34% Against Versus 62.6% For

On June 6, 1978 Proposition 13 passed as a property tax relief measure with 4,280,689 votes for – versus 2,326,167 votes against. In the final analysis, it came down to finally taking a great deal of power away from the County Tax Collectors; and giving it back to taxpayers!

Howard Jarvis and Paul Gann, were the best known Proposition 13 advocates. Officially known as the “People’s Initiative to Limit Property Taxation”,  also referred to as the Jarvis-Gann Amendment,  Proposition 13 was listed for voters through the so-called “California ballot initiative process” – which allows a constitutional amendment to be offered to voters when political advocates assemble a certain number of signatures on  a petition.     

For Once, Tax Relief for the Middle Class in California – Not Special Interests

Many people aren’t aware of the fact that Mr. Jarvis was a hugely successful residential apt. building owner, and Mr. Gann, a political activist who passed away from HIV due to infected blood from a unfortunate transfusion, who ironically devoted the last several years of his life to AIDS treatment advocacy – in direct opposition to his fellow conservatives. California’s “Paul Gann Blood Safety Act” was passed into law in 1990, mandating that doctors discuss the risks of blood transfusion with their patients.

Two non-politicians named Howard Jarvis and Paul Gann courageously soldiered on – without precedence – until they won the day. This rarely occurs in political circles, as we all know.  But for once, some non-politicians actually changed things for the better in California. And virtually overnight, once Howard Jarvis and his so-called “Tax Revolt” passed Proposition 13, property tax rates in California finally became predictable and equitable – from San Jose to San Francisco and beyond, in all 58 counties.

Under this new property tax relief measure, the property tax rate is now set at a uniform 1% throughout the state, and property tax increases are limited to no more than 2% a year as long as the property is not sold.

Previously, the tax rate in California averaged almost 3% of market value, and there were no limits on increases either for the tax rate or property value assessments. Some properties were reassessed 50% to 100% higher in just one year, so property owners’ tax bills skyrocketed, often  way beyond homeowners’ ability to pay their property taxes.

Now, once sold, property is reassessed at 1% of the new market value (usually the sales price) with a 2% cap on annual tax increases. As a result, new buyers are always aware of what their taxes will be and know the maximum amount property taxes can increase each year for as long as they own the property. 

Then, in 1986, Amendment Proposition 58 was passed; and  homeowners as well as beneficiaries inheriting property from parents could happily take advantage of a transfer of property between siblings or sibling-to-sibling property transfer in conjunction with an irrevocable trust loan, typically for buying out inherited property shares from siblings, while keeping a low property tax base (now used with California Proposition 19 which has replaced Proposition 58). 

Overnight, beneficiaries  could transfer parents property taxes when inheriting property taxes; and could keep parents property taxes after a property tax transfer made possible by a parent-child transfer, officially a parent-to-child exclusion which, exactly like buying out inherited property shares, is also now governed by Proposition 19.  

Benefits for Non Property Owners

While Proposition 13 is mainly famous for capping property taxes in California, it also stops arbitrary tax hikes at the state and local level. It makes sure that any state tax increase had to be approved by a 2/3 majority in the Legislature, and any new or increased local taxation must be approved by voters, not just a collection of special interest politicians.

Supplemented by Howard Jarvis Taxpayers Association – a co-sponsored tax measure entitled Proposition 218 (the Right to Vote on Taxes Act) makes sure that voter approval of all new local taxes is required, no matter what. So not just property owners, but also renters, benefit – as Proposition 13 stabilizes property taxes, making them predictable and reasonably controlled; reducing any uncontrolled or unexpected rent increases throughout the state of California.

CA Parent to Child Property Transfer & Buying Out an Inherited Home From Siblings

Avoiding Property Tax Reassessment on an Inherited Home

Avoiding Property Tax Reassessment on an Inherited Home for Californians

Most beneficiaries in California favor a parent to child transfer to avoid property tax reassessment.

As long as a transferred home is, initially, a primary family residence and the offspring receiving gifted or inherited property is moving in as a primary residence,  plus an  exclusion is claimed inside 12 months from change in ownership… remaining aware of the fact that the first $1,000,000 is not reassessed.

At any rate, despite certain limitations, the financial savings from this process  are genuine savings for beneficiaries inheriting property – avoiding property tax reassessment – and for many children of parents leaving a beloved family home to them.  This often makes the difference between being able to keep that family home, or losing it – frequently at a financial loss.

Plus, besides trust distribution to co-beneficiaries to keep an inherited home – also being able to take advantage of property tax breaks such as the right to transfer parents property taxes during a property tax transfer, with the legal right to keep parents property taxes basically forever… after inheriting property taxes through a standard parent-child transfer, and parent-to-child exclusion!

We also have to remember that, in 2022 California, a loan to an irrevocable trust, working in conjunction with Proposition 19, allows a beneficiary to buyout inherited property shares from siblings looking to sell their inherited property… thereby speeding up the trust distribution process. 

Moreover, an irrevocable trust loan also generates a much higher profit margin for beneficiaries selling their inherited property shares, by avoiding expensive home prepping for a sale, as well as avoiding a costly 6% realtor commission, expensive legal fees, and other pricey closing costs.  All in all, avoiding property reassessment, property tax hikes, and higher expenses  in general for all concerned.

When a trust loan is used to process trust distribution to co-beneficiaries, on average each beneficiary or sibling gets an additional $15,000 in distribution as opposed to selling the home to a conventional buyer. The family member keeping a family home also saves money – generally $6,500 or more per year in property tax savings by avoiding property tax reassessment on an inherited property.

That’s why many families inheriting a home from parents go to a reliable trust lender to be able to take full advantage of Proposition 19 tax benefits. Beneficiaries and homeowners continue to take advantage of Proposition 19 and Proposition 13 and basic property tax transfers in California and related tax breaks… keeping a low property tax base when inheriting a home – inheriting property taxes at a low rate from parents.

Saving beneficiaries many thousands of dollars, this is often a life-saver – and could, in many ways, be considered a final act of parental affection, from parent to child.

Understanding New Prop 19 Rules & Calculating Taxable Value

California Proposition 19 Property Tax Transfer

California Proposition 19 Property Tax Transfer

Parent-to- Child and Grandparent-to-Grandchild Transfers

Prop 58 & Prop 193 allowed parents, and in certain qualified cases grandparents, to transfer their existing property assessments of a “principal” or “primary” residence of any value  without  triggering property reassessment, which is generally required upon a change in ownership – even when real property was used as a rental property by [offspring] beneficiaries.

Prop 58 & Prop 193 enabled assessments of inherited residential or commercial property up to $1,000,000 – covering additional real estate being gifted to, or inherited by, an heir.

Now, under CA Proposition 19 (as of Feb 16, 2022), parents and grandparents can leave their home, with Proposition 13 base year value intact, to their children or grandchildren – as long as inherited property was the primary residence of the parents or grandparents – as well as the primary residence of  the beneficiaries moving into the home that is now being inherited…

Moreover, a beneficiary has plenty of time to move into an inherited home as a primary residence (12 months), plus a good deal of time to file a Homeowners’ Exemption (one year) to qualify for a parent-child or  exclusion.

A Prop 19 exclusion from reassessment of a primary residence of  a parent or grandparent, keeping a low property tax base when inheriting a home, plus all updated requirements, qualify beneficiaries for these types of base-year-value transfers; avoiding property tax reassessment and enabling these new homeowners with the right to transfer property between siblings through a loan to an irrevocable trust; plus all the usual property tax relief bells & whistles that go along with property tax transfer. 

Naturally, this includes the right to transfer parents property taxes and keep parents property taxes by inheriting property taxes generally through a parent-child transfer and parent-to-child exclusion (from paying currently reassessed property taxes).


Selling An Old Home – Distributing Cash Equally Among Heirs

A trust loan from a trust lender, to create equal cash distribution for co-beneficiaries looking to sell off their inherited property, can help those beneficiaries  become sole primary owners of an inherited residence.  Moreover, a primary residence homeowner in California over age 55 can transfer a low property tax base to a “replacement residence” (that is also a primary abode).

In order to qualify for a CA Prop 19 exclusion from reassessment (of your property taxes) – at the same time keeping your parents’ low property tax base – distribution of your trust funds to all beneficiaries have to be equal… especially when it comes to beneficiaries that are selling their inherited property shares to a co-beneficiary inheriting the same property. Each sibling must get the same amount whether it is cash, equity or other assets – to qualify for a Prop 19 exclusion from reassessment.

Many times the trust or estate will not have enough cash or other assets to make an equal distribution.  In these situations the trust or estate can borrow the money from a third party (not the person taking the property) and use the loan proceeds to pay off the other siblings’ share.

A Commercial Loan Corp calculator will demonstrate “how long it will take for the property tax savings to cover the costs of a loan from a third party. One needs to be fairly certain they will live in the home longer than the time it takes to break-even on third party loan costs or have a plan to transfer the low tax base to another property after the sale of the parents’ home.”

What to Look For in an Estate & Trust Lender

Trust Loans in California

How to get a trust loan in California

Retaining a Low Property Tax Base in California

Establishing and locking in a low property tax base helps you as a new homeowner, or beneficiary inheriting parental property, to minimize your property tax burden over the long-term. As most Californians know, to save on taxes it’s essential to utilize existing property tax relief tools to reduce taxes on inherited real estate… Tools that support property tax transfer and property tax breaks;, the ability to  transfer parents property taxes and keep parents property taxes as long as an inherited home remains a primary residence; inheriting property taxes.

Most residents believe expert help is essential, from a property tax consultant, a tax attorney, or a trust lender; and feel it would make very little sense to ignore this.  

What we should find in an experienced California trust lender, along with providing a loan to an irrevocable trust, is expertise guiding new homeowners, or beneficiaries inheriting a home, through the inheritance process – able to establish the low property tax base still possible under Proposition 13 – in conjunction with Proposition 19…

Proposition 19 is still clinging to the frayed edges of Proposition 58, as homeowners and renters alike show signs of buyers remorse, all across California, having voted for Proposition 19, thinking that their ability to avoid a property tax reassessment was the key ingredient… amidst confusion over the fine print concerning property tax transfers – hidden behind sentimental window dressing claiming to be tax revenue going mainly to firefighters, the elderly, and folks hindered by wildfires or other natural disasters and disabilities.

Californians are sentimental Westerners by nature, and what Westerners could possibly vote against the elderly and homeowners with severe disabilities!

At any rate, a loan to an irrevocable trust from a trust lender, working in concert with Proposition 19, in conjunction with a parent to child property tax transfer — better known as a parent-child transfer and parent-to-child exclusion, allows heirs and  beneficiaries to avoid a property tax reassessment – while also being able to buyout inherited property shares from siblings, for more cash than an outside buyer would offer.

Essential Trust Lender Tasks

Meanwhile, California real estate taxes are maintained at a reasonable level by Proposition 13, which limits real estate tax increases to 2% maximum per year. Proposition 58, Proposition 193, and Proposition 19 allow for this low tax basis to continue if real property is transferred to heirs from a parent or grandparent.

At any rate, a good trust lender should be able to complete the following tasks flawlessly and without issue:

1. Deciding which beneficiary will own the inherited property in question.

2. Determining how much money is needed for an irrevocable trust loan.

3. Funding a high six-figure or low seven-figure trust loan.

4. Distribution of an irrevocable trust loan, equalizing the amount of cash going to each beneficiary that is looking to sell off their inherited property shares.

5. Filing change-of-ownership, while keeping a legacy tax basis.

6. Mapping out how beneficiaries will repay a trust loan. 

Finally, a relationship with a trust lender is based on belief, and good faith, as all relationships are.  Plus results, which surface soon enough.