Tag Archives: proposition 58

Why California Families Inheriting Property Should Consider Borrowing Against An Irrevocable Trust

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Trusts

Trusts and Estates

Family Trust Debt Relief, After Mom and Dad Are Gone

Life in the 2020’s in California, and the United States in general, for middle class and even affluent families, is never all smooth and easy. There are always problems to deal with, legal or economic issues… family relationship disputes, or business conflicts people bring home with them, that often causes rifts between family members…

When a parent leaving property and assets to children passes away, they still, frequently, owe expenses, they often owe money to creditors, if they were elderly prior to passing away parents frequently leave this earth owing medical fees, sometimes legal fees to their family attorney, possibly hospital and lab test expenses, even mortgage payments, and more and more frequently these days – property taxes. There might also be debts owed to other beneficiaries of the trust they are leaving behind for their heirs.

When parents leave a trust behind for their children, who now become beneficiary siblings, there is frequently not enough liquidity in the family trust estate to make pay all these debts. Getting approved for a trust loan by a trust & estate lender like, for example, Commercial Loan Corp in Newport Beach, can produce the required cash to help resolve those kinds of family debts.

Buying Out Co-Beneficiary Siblings In California

As is often the case, parents leave a home to their children, which couldn’t be purchased and duplicated in today’s market for even close to what Mom and Dad pad for it a generation ago, or what Grandma and Grandpa paid for it two generations ago.

Yet there are always more sibling beneficiaries wanting to sell off their inherited property shares after Mom and Dad pass on, than there are beneficiaries or, more likely, one beneficiary who insists on not selling out and keeping Mom and Dad’s home… the family home.

Quite often, needless to say, serious disputes may arise between siblings over a contentious lack of agreement like this, whether to sell or to retain, a family home, where so much is at stake.

Frankly, these family conflicts sometime grow so out of control that family members aren’t even able to agree on the valuated price they believe their family home to be worth! So disputes can grow even more heated and convoluted stemming from an issue like that.

Avoiding Property Tax Reassessment In All 58 CA Counties

This is where an irrevocable trust, working in conjunction with Proposition 19 (formerly Proposition 58) can make it possible for you to take advantage of a parent-to-child exclusion from current property tax reassessment… and thereby actually avoid property reassessment at present day tax rates. Saving your family from a crippling tax hike. Finally, thanks to Proposition 19, property tax exclusions can  be utilized in all 58 counties in California.

Even affluent families would feel the bite of a tax hike like this, going back two, even three generations’ worth of reassessment imposed by the County Tax Assessor, and possibly suffer serious financial impact.

A Win-Win Family Property Solution For CA Beneficiaries

All of these financial issues can obviously cause a great deal of strife and stress among family members… However, with a wise attorney around to extend sound advice, a win-win financial solution can be implemented for homeowners… and certainly for beneficiaries inheriting property from parents, who either want to sell off their inherited property shares, or who wish to buyout siblings and minimize property reassessment — keeping a low property tax base when inheriting a home.

Frequently, this shows up in the form of an irrevocable trust,  which, working in concert with Proposition 19, will provide a buyout solution where a sibling beneficiary insisting on keeping a family home can buyout siblings looking to sell their inherited property shares, and, at the same time, can certainly minimize property reassessment, through a parent-child exclusion.  In fact, these days, most eligible California homeowners are moving quickly on  new CA property tax relief opportunities — to avoid triggering property reassessment.

Most Californians can avoid property tax reassessment, if they remain alert, with the right to a property tax transfer, to transfer parents property taxes and keep parents property taxes basically forever, upon inheriting property taxes from Mom or Dad with a parent-child transfer, with the help of an estate & trust lender… and possibly an estate attorney specializing in property tax relief, both who can help a family minimize reassessment rapidly and without any issues, if they correctly use Prop 19 property tax breaks.

Plus, siblings selling out their shares will end up with an extra $14,000 or $15,000 in their pocket, as opposed to doing the sale though a realtors, being impacted by their standard 6% realtor commission… and who knows what other fees and ancillary charges also being imposed on them as well. Peace and quiet will descend on the family… with every sibling getting what the want, in a genuine win-win family transaction… Not lip-service, mind you – but the real thing!



What Are the Crucial CA Proposition 19 Property Tax Benefits?

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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.

What Has Made Proposition 13 So Popular, from 1978 to Now?

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Proposition 13 Saves Californian Property Owners Thousands

Proposition 13 Saves Californian Property Owners Thousands when compared to property tax systems in other states.

CA Proposition 13: Consistency and Necessity

In the 1970s property tax hikes were completely out of control. Especially for working families and middle class folks who were dependent on a fixed income… retired veterans and other government and municipal workers like retired postal workers; homeowners receiving Social Security, and retirees living on a modest pension; etc.

During the past twelve months the average home price in California accelerated by over 19%, the California Association of Realtors reports – seemingly unaware that this very statistic belies what they believe is a good thing (the unraveling of Proposition 13 and property tax relief generally in California), in actual fact it’s a good thing for realtors… not the middle class and working families across the state! In fact it shows that Proposition 13 is as necessary as ever.

Stabilizing CA Property Taxes Throughout All 58 Counties  

Kris Vosburgh, Howard Jarvis Taxpayers Association exec director tells us: “It [Prop 13] resulted in the stabilization of neighborhoods and allows people to stay in the neighborhood where they bought homes and not be forced out by increasing tax. The basic benefit to both new and old home buyers is that you know what your taxes are going to be from year to year.  One doesn’t have to shudder in fear.”

And shuddering in fear was exactly what middle class families did when tax time tolled around every year.  You never knew what your tax hike was going to look like. There was no stability in property taxation… No consistency you could rely on.

Before Prop 13: An Epidemic of Elderly & Retiree Foreclosure

In Los Angeles County in 1975 and 1976, over 400,000 senior  homeowners, many who were elderly, in their 80s or 90s, could not pay off their property taxes, simply because they couldn’t afford the accelerated tax rates and were either at risk of being forced onto the street – or literally were put out onto the street with clothes, furniture and all! Many who were elderly folks and nowhere else to go. Not a pretty picture.

Elderly couples and other older individual homeowners living on a modest fixed income were impacted most of all by these arbitrary property tax hikes. Many were living free and clear but were in grave danger of losing their home, despite the lack of debt, mainly because they simply could not afford excessive property taxes.

And as millions of older middle class Californians were being pushed out of their homes, onto the street, the heroic Howard Jarvis assembled over 1,500,000 signatures to qualify a statewide tax measure that would finally end excessive property taxes – and protect home ownership for working families and middle class homeowners – namely, Proposition 13.

California Property Tax Relief: Facts and Case Studies

One story tells the tale aptly, with respect to the urgent, pressing  need California had for fair and equitable property tax relief… It  concerned a 56 year old criminal defense attorney by the name of Cameron Quinn, a Lido Isle resident, who lives there with his wife and 18-year-old daughter.

Beneficiaries of Proposition 13, Cameron’s parents bought his house in 1966 for $45,000. After they died, the house passed to Cameron and the benefits of Proposition 13 were his to take advantage of.  Last year their property taxes were $966 for a home assessed at $95,403. “Where else could we go where it would be less?” Mr. Quinn tells us, “The fact that the taxes are low is a salvation!” 

And of course this eventually included a property tax amendment called Proposition 58.  So with robust property tax transfers in California intact, and both official property tax relief measures working – to avoid property tax reassessment – beneficiaries and homeowners could take full advantage of parent to child property tax transfer opportunities to keep parents property taxes with unfettered ability to transfer parents property taxes; officially known as a basic parent-to-child exclusion from reassessment – all to avoid property tax reassessment on one’s primary residence.

Mr. Quinn calls Proposition 13 “a financial security blanket and a far cry from the Costa Mesa condominium where we first lived, with not much more than a television, a bed and an old piano.”

This home is more than just a product of property tax relief for Me. And Mrs. Quinn. This is where they went after their first date, where his mom, a piano-teacher, and friends serenaded the couple. And just as it passed from Mom to them, this home will be passed again from Dad to daughter. “We wouldn’t move,” said Mr. Quinn’s 57 year old wife Neeta Quinn, “This is where we’re going to live forever.”

What to Look For in an Estate & Trust Lender

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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.

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.

Identifying & Accessing CA Property Tax Breaks

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California Proposition 19

California Proposition 19

Californians more or less take for granted the fact that the tax breaks provided by property tax measure Proposition 13, passed by a veritable landslide by voters in 1978 – locks in a home’s “base-year value” to reflect what it was when the real estate changed ownership most recently. As we all know, this caps yearly property tax increases at a 2% tax rate – up until the time the property changes ownership again.  All property tax relief measures in California exist to allow property owners of all kind to continue avoiding property reassessment.

As most of also know by now, the portion of property that is transferred, upon changing ownership, is reappraised to current market value. Obviously, if that real property has appreciated in value since the new transfer – the outcome could be a serious increase in the new owner’s property tax bill!

On the other hand, California does allow for exceptional property tax exclusions to the rules and regulations that now govern a change in ownership for married or unmarried couples, families and property co-owners that wish to avoid property tax hikes. Naturally, there are requirements. California’s property tax exemptions are written into the California State Constitution (Article-13), unlike many other states, which utilize exclusions  from property reassessment that are controlled by state tax laws  or local rules and regulations. 

California initiatives managed by County Tax Assessors, that are based on personal, individual data, as opposed to state statutes, would be, for example:

A primary residence: of which the initial $7,000 of the full value of a home is excluded, or exempt, from property tax.

Combat Veterans: can qualify for a substantial exemption. This can be claimed by someone serving presently in the military who is no longer serving, but has been honorably discharged. The same applies, under similar requirements, to an unmarried surviving spouse or the parent of a veteran that is deceased. Although, whomever is submitting the claim cannot own real estate or personal property that exceeds more than $5,000 if the claimant is single, or $10,000 for a couple that is submitting.

Disabled veterans: can receive a larger exemption. Exactly what that number is depends on income, age, and specifics regarding the disability. BOE website explains as follows – https://www.boe.ca.gov/proptaxes/dv_exemption.htm#Description

Senior Homeowners: over the age of 55 who purchase a new primary residence in any of the 58 counties in California, and sell that residence, can transfer the base-year value to the new primary residence – if the value of that property is equal to, or lesser than, the value of the previous home… Or if it is newly constructed inside of 2-years from the sale of the original home. As the BOE discusses on their site. 

Family transfers: are usually described in real estate or tax literature as children leaving property to parents, and parents to their children, but we all know 99% of the time it is a parent leaving a home or business property to their children/heirs.

Proposition 19: which was Proposition 58, still allows your surviving parent to leave you their primary residence – thereby  avoiding  property reassessment as long as you’re moving in as your primary residence, with an entire year to settle in.  Upon inheriting property taxes under these requirements, property tax transfer will typically result in the ability to transfer parents property taxes successfully – to keep parents property taxes for as long as the residence is resided in by the inheritor.

Avoiding property reassessment, similar to a Parent to Child Property Tax Transfer, is also possible if you inherit a home from your grandparents – however,  only should both your parents be deceased.  If the difference between the inherited property’s assessed value and current market value is over $1,000,000 upon inheritance and property-transfer, the newly assessed value will be its final current market value, minus $1,000,000.

Disaster relief: In some counties, if your home has been substantially damaged or destroyed by a disaster, you qualify for a reduced assessment.

What Brought About CA Property Tax Relief & Where is it Going?

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California homes are valued at high prices these days, and frankly most of these properties do seem to retain their high value, in comparison to lower-priced homes in many other states, for example in the Midwest, in the Deep South… way up north in New England, Vermont, Maine and New Hampshire, where families can purchase a multi-bedroom home on an acre or two of land in a decent neighborhood for a very reasonable price, at low 6-figures.

Proposition 13 and the Statewide CA Property Tax Rate Cap

Even so, many California homes now have a “taxable value” that is lower than the average American market value (i.e., in other states). However, these values are deceptive as this is only due to Proposition 13 being  voted into law in 1978, holding back the taxable value of property from going up higher than 2% per year, regardless of the increase in the overall average American market value; until, that is, property changes ownership.

Proposition 13 cut the statewide property tax rate to 1% of a home’s taxable value, down from a statewide average of 2.67% to 3%, give or take. Of course, what many Californians don’t realize is that this tax relief for homeowners also holds rental prices down, as apt. building owners, landlords, are spending less on property taxes themselves, therefore are less inclined to go up in rents.

As many of us know, property values were increasing in the early to mid 1970s in California, and business property owners as well as homeowners were suddenly victims of consistent property tax hikes, and artificially escalated property values, when until then you could buy a lovely middle class property at a very affordable rate – almost anywhere in the state, other than certain obvious high-end enclaves, such as Santa Cruz, Santa Barbara, Sausalito,  Beverly Hills, Malibu, etc.

Public Push-Back Against Property Tax Hikes

Residents like retirees, middle class widows, veterans and elderly folks with fixed incomes, were basically living on government pensions or social security and perhaps a few stock dividends kicking in here and there. The problem was, from a Californian public relations point of view – folks living on these modest fixed incomes were all of a sudden losing their home to egregious property tax hikes… And public anger was rising to a fever pitch by 1976, 1977.

By 1978 this dissatisfaction among middle class and upper middle class families – against artificially escalated, unpredictable property tax hikes rose to such a fever pitch throughout California that property tax relief, in the form of Proposition 13, was an inevitable outcome.  Largely due to the efforts of wealthy apt. building landlord Howard Jarvis and his “Taxpayers’ Revolt” – and this put a stop to homeowners hemorrhaging cash every year on property taxes.

Prior to Proposition13 the state was growing in leaps and bounds, becoming more affluent by the decade; therefore large homes and business properties were being purchased by the middle and upper middle classes – and inherited from parents – which subsequently triggered a “change in ownership” and thus property reassessment.

Therefore the resulting property taxes were high enough to be called estate taxes, and often caused middle class families to sell their home, as they simply could not afford this type of property taxation any longer. Put quite simply – it was unsustainable. Which is precisely why Howard Jarvis and Proposition 13,  and later the ability to transfer CA property between siblings, came about in the first place.

Proposition 58 and the CA Parent-Child Exclusion are Born

By the 1890s property owners in the state were getting used to property tax relief, and wanted more. So in 1986 the California Legislature voted with a huge majority to place a measure on the ballot called Proposition 58, to exclude parent-child transfers of property from the legal definition of “change of ownership.”  And the right to transfer CA property between siblings, along with parent-to-child exclusion, was born… adding to the popular suite of tax relief benefits furnished by Prop13. 

This tax measure (which has completely morphed into Proposition 19, with additional tax breaks), used in conjunction with a loan to an irrevocable trust, made the right to transfer CA property between siblings, also called “a sibling-to-sibling property transfer”, possible – so beneficiaries looking to buyout inherited property shares from co-beneficiaries could easily do so, while establishing a low property tax base, when inheriting a home from parents… when inheriting property taxes. 

Heirs were now able to transfer parents property taxes, to transfer CA property between siblings (through a trust loan) and keep parents property taxes from a now standard property tax transfer – which attorneys call a Parent to Child Property Tax Transfer… plus for the first time the right to avoid property tax reassessment during an inheritance – and this was actually normalized.  Which was incredibly important to middle class homeowners all across the state of California, who were previously struggling to make it every year, with heightened property taxes always looming over their heads.  This was causing a growing state of anxiety, county by county. 

This also meant that when homes and small business properties were inherited the property tax bill would not be affected. Proposition 58 was approved by more than 75% of voters statewide. In fact voters soon thereafter passed Proposition 193 to extend the same rules to transfers between grandparents and grandchildren, as long as the children’s parents were deceased.

Of course, as with everything else, certain malcontents (the realtor community among them), simply couldn’t stand to see that many people benefiting from a good thing, and so decided to unravel it, get more property tax revenue into the state coffers, as well as increase real estate sales commissions!

California Realtors Finally Deal a Blow to Property Tax Relief

In 2020, backed largely by the powerful California realtor community, with the CA Legislature stepping in to provide political cover, “Proposition 19” was created to take a large slice of that tax relief back from homeowners – yet appealed strongly to homeowners over 55, the elderly, folks with infirmities, and victims of natural disasters, fires and earthquakes, all who benefited nicely from a host of attractive property tax relief benefits!

Although, many voters (now experiencing buyer’s remorse) did not fully realize that Proposition 19 took away some of the protections afforded by Propositions 58 and Prop 193, and replaced them with a more limited exclusion from property tax reassessment.  Many middle class and upper middle class Californians who have worked all their lives to own a home to pass down to their children are finding that their plans have been upended by Proposition 19.  Due to the increase in property values, reassessment of inherited properties to current market value will force some homeowners to sell because they can’t afford to pay the higher tax bill every year.

Which is exactly why the spirit of Howard Jarvis reared up its’ head again, in the form of the Howard Jarvis Taxpayers Association organizing volunteers to collect signatures to try to repeal the “death tax” portion of Proposition 19, without changing the provisions that protect seniors and wildfire victims. To qualify the measure for the November 2022 ballot, nearly a million valid signatures of registered voters are needed. Deadline to submit signatures is 4/29/22.

Once again the middle and upper middle classes, along with the elderly, have powerful allies in California!

Taxpayer’s Association Summation of Efforts to Protect Tax Relief:

“Early organizing will be essential if the effort to repeal the death tax is to succeed. The Howard Jarvis Taxpayers Association (HJTA) is shifting into high gear, with all hands on deck, signing up volunteers and spreading the word at https://reinstate58.hjta.org/#volunteer The Taxpayers Association is sponsoring a Bill entitled “Senate Bill 668”, introduced by Sen. Patricia Bates (of Laguna Niguel) – which would, if passed, continue to protect your grown children, and theirs, against tax hikes should they inherit your home, which attorneys have a fancy name for – i.e., “intergenerational transfers of property” (up to Feb 16, 2023).

Proposition 19’s changes to the tax treatment of inherited property took effect in February, leaving Californians little time to consult with family members, attorneys or tax professionals to plan for these sudden, harsh changes to property tax liability for the next generation.

HJTA also supports a constitutional amendment to reinstate Proposition 58 (1986) and Proposition 193 (1996), two measures that were overwhelmingly approved by voters to protect family property from reassessment when passed from parents to children or grandparents to grandchildren. Assemblyman Kevin Kiley (Granite Bay) is working with HJTA on final language for an Assembly Constitutional Amendment that would restore these protections.

California voters have strongly opposed state inheritance taxes, which were abolished by constitutional amendment in 1982. Proposition 19 has effectively resurrected the inheritance tax in California, with the added burden that families must pay it every year as a condition of keeping their property.”

And once again the middle and the upper middle classes plus the elderly in California have powerful friends and allies stepping up into the spotlight to protect their homes, their  security and their well being!

Popular Reasons Why California Beneficiaries Get a Trust Loan

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California Trust Loans

California Trust Loans

Typically, beneficiaries who are seeking a mid to high six-figure or low seven-figure loan to an irrevocable trust are looking to accomplish an important outcome that is generally not possible with other types of financing such as inheritance advance assignments, credit union financing or personal bank loans – as reviewed below…

What Type of Trust Lender do You Want to Work With?

Families buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base typically enlist the help of an experienced California trust lender that is self-funded. Beneficiaries generally want a self-funded lender as they deliver funding at a faster rate than institutional lenders, such as five to seven days, versus three to four weeks. They also offer terms that are more flexible than an institutional lender such as Bank of America or Wells Fargo. Their compliance requirements for both commercial and residential property owners are also less restrictive than traditional lenders.

Self-funded trust lenders seldom charge up-front fees, they do not require borrowers to pay advance interest on their trust loan; and there is never a “due-on-sale” clause that requires the mortgage to be repaid in full when the property is sold. Lastly, beneficiaries like the fact that this type of firm does not impose an “alienation clause”… in the event of a property transfer, insisting that the borrower has to pay back the mortgage in full before the borrower can transfer the property to another person. Estate and trust attorneys, or property tax consultants will always advise beneficiary clients to avoid these types of restrictive and costly requirements.

Buying Out Property Shares Inherited By Co-Beneficiaries

Generally this option revolves around a common family or sibling conflict that typically has beneficiaries insisting on selling their inherited property shares, while other beneficiaries are looking to keep the family homes, and are enlisting the help of a trust lender to buyout siblings who are determined to sell.

This method of funding provides the beneficiaries looking to sell with a good deal more money than a realtor will get them, with more cash from a trust loan and trust lender than an outside buyer would come up with… Avoiding an expensive, standard 6% realtor commission, avoiding closing costs, legal costs, and processing fees.

This type of family conflict is stressful, however the trust loan process provides a win-win solution for all concerned – keeping property at a low base rate for those who are retaining their parent’s home, and putting a lot more cash in the pocket, as far as beneficiaries who are intent on selling their inherited property shares are concerned.  The trust lender funds the trust and provides “equalized distribution” so every sibling who is selling their shares receives an equal amount.

Avoiding Property Tax Reassessment

Beneficiaries looking to keep their inherited family home, while buying out siblings that are looking to sell off their inherited property shares with personal funds, will discover quickly enough that this is not a viable option. Siblings who wish to keep their family home must avoid triggering reassessment, hence using a loan to an irrevocable trust is the most beneficial option, keeping property at a low base rate, or walking off with a lot more cash from selling inherited property shares. Depending which side of the fence you’re on.

As a CA homeowner – how do you ensure, as with a parent-child transfer, that you’re not paying more property tax than you should?  New homeowners must take the right steps in the beginning to keep the low property tax base their parents had, avoiding property tax reassessment at high current rates.  Without trust loan funding, the transaction would be viewed as a “sibling-to-sibling transfer” and thus would not avoid property reassessment. 

A beneficiary keeping the inherited home winds up saving on average $6,200 in yearly property taxes.  Borrowing against an irrevocable trust ensures that the process moves directly through the estate and locks in a low property tax rate. Closely related property tax benefits – that beneficiaries and new homeowners need  to get extremely familiar with – stem from Proposition 13 as well as Proposition 58;  and have morphed rapidly into Proposition 19…  

This all begins with basic property tax transfer… meaning the ability to keep parents property taxes, keeping property at a low base rate through the parent-child transfer and parent-to-child exclusion.  Beneficiaries, and believe it or not their estate attorney, absolutely have to know all about their right to transfer parents property taxes when inheriting parents property and inheriting property taxes from Mom or Dad…

Paying Trust Expenses

For beneficiaries, when a trustee passes away, there is often not enough cash or “liquidity” in an estate or in a trust to pay debts an initial trustee owed, such as attorney fees, medical bills, mortgage and personal loan debt, and other financial obligations. A trust loan can help resolve these debts.

Renting or Selling Inherited Property

If heirs or beneficiaries decide they’d like to rent out an inherited property, there are often maintenance costs and repairs to be considered. Especially when dealing with an inherited homes, age is an issue… hence there are often roof issues, boiler problems, pipes to be replaces, and so on. Before one is able to put an older home on the market to rent or to sell.

Irrevocable trust loans and Proposition 19 property tax exclusion, working in conjunction with each other,  insures that beneficiaries and new homeowners can get these fairly complicated tasks  accomplished in a relatively easy, stress-free and inexpensive manner.

How the Role of a Trust Lender Can Impact Beneficiaries in California

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Trust Loans in California

How to get a trust loan in California

As most Californians know, property tax measure Proposition 13, voted into law in 1978, capped property tax rates at 1%–2%. Property could now be reassessed on a property transfer from parent to child, with the right to transfer parents property taxes protected by the parent-to-child exclusion which was folded into tax measure Proposition 58, voted into law in 1986, and as you know is now revised, having morphed into 2021 Proposition 19 property tax law, with new rules for property tax transfers in California…

This continued the exemption for property transfers between parent and child, avoiding property tax reassessment with the right to transfer parents property taxes when inheriting property taxes from a parent; with the ability to keep parents property taxes long-term with this type of standard Proposition 19 protected property tax transfer, parent to child transfer and of course parent to child exclusion.

When there is only one heir, child of the parent, property transfer is relatively simple, knowing you have the right to transfer parents property taxes involving only one heir.  Conflict typically surfaces only when there are two or more siblings inheriting property shares… with one heir looking to retain the parent’s home, while the other heir or heirs insist on selling off their inherited property shares; generally calling for a “non-pro-rata” trust distribution, meaning that each heir with an interest in the inherited property receives an equal proportion of the entire estate with the help of a trust lender and a Prop 19 trust loan – however not necessarily of each asset. It’s important to note that non-pro-rata distribution by a trustee can have a major impact on property taxes.

Not using a Prop 19 trust loan solution, the use of personal funds to pay off a sibling co-beneficiary’s interest in a home would be viewed as a “change in ownership” therefore the outcome of this transaction would trigger property reassessment of that beneficiary’s inherited property share. If there are two heirs, each having inherited 50% of the property, the remaining 50% would be open to property tax reassessment. On the other hand, if there were three beneficiaries and only 1/3 of the property were retained, 2/3 beneficiary interest being bought out – 2/3 of the property would be vulnerable to property tax reassessment.

However, with the help of a trust lender funding an irrevocable trust, buying out the beneficiary or beneficiaries looking to sell off inherited shares – the fact that the trust is actually borrowing the funds to equalize distribution to the siblings that are selling out, and funding is not in fact distributed to the sibling or siblings themselves – property tax reassessment is successfully avoided.

For example, let’s examine the Anderson family in North Hollywood, who owns a home valued at $800,000, free and clear of any debt. In other words the family owns the house outright. Assessed value is $100,000. Let’s say, for the sake of argument that sibling Nina insists on selling the home, and wants a cash for her share; while another sibling, Jasper, is determined to keep the home.

(Option A) Jasper cleans out his savings account and pays out $400,000 to buy out Nina’s inherited property shares. This results in a “change of ownership” with respect to Jasper’s 50% property buyout, and the assessed outcome is a 50% property tax reassessment with a significant increase in property taxes.

(Option B) Jasper enlists the help of a trust lender, who provides a $400,000 loan to an irrevocable trust, along with getting approval to allow the trust loan to work in conjunction with Proposition 19; enabling Jasper to keep his parent’s low Proposition 13 protected property tax base. The third-party trust lender also sees to it that that funds are distributed equitably to Nina – in fact with more cash than any outside buyer would be likely, realistically, to offer – with no change in ownership, and no property reassessment; and therefore no property tax hike. The trustee at this point transfers the entire property to Jasper who plans to pay off the $400,000 loan to the irrevocable trust by cashing out a life insurance policy.

Thad Farrell, Proposition 19 / trust loan account manager (Commercial Loan Corporation at 877-756-4454) at the Commercial Loan Corp trust lending firm in Newport Beach, sums up the process as follows:

“Usually siblings that want to retain inherited property from parents come to us first, generally after being referred to us by a law firm. Middle class families that can’t afford to pay reassessed taxes on an inherited home… Which pretty much sums up most families these days! Siblings inheriting a home have two options. They can sell or keep their inherited property. In other words, your family has to make up their mind – what they want to do, sell or keep. Selling it is far more expensive. By keeping the home, each beneficiary looking to sell out receives approximately $15,000 extra in a cash trust distribution when compared to selling the home to a regular buyer; because they avoid costly realtor and real estate sale expenses. A realtor typically charges 6%, there can be costs to prepare the home for sale and closing costs such as title, escrow or assistance with buyer closing costs on top of that… Each beneficiary keeping the inherited home winds up saving on average $6,200 (each) in yearly property taxes. So do the math, for starters. Whereas, if the property is reassessed – the cost can be very high.”

At the end of the day, there are positive emotional outcomes from this process as well as financial savings and extra funds… However the key result is the fact that when everyone walks away from using a trust loan to take advantage of the proposition 19 parent to child property tax transfer, they all understand that they have just completed a win-win transaction… In other words, unlike most business transactions where there is often a winner and a loser – in this scenario everybody wins and no one loses.