A trust loan in California is an inheritance loan typically planned and implemented by a licensed trust & estate lender, or a private money lender.
Conventional lenders like banks and credit unions won’t extend a complex lending instrument (like a trust loan working with Prop 19) to borrowers, who are generally beneficiaries to a family trust, whose names never appear on the property title, making the loan even more complicated to the likes of banks and credit unions in the state of California.
a) For one, the trust that a loan is issued to should be an irrevocable trust…
b) An irrevocable trust has to permit the trust’s beneficiary, or beneficiaries, or trustee – to accept a loan associated with property and in fact be owned by the trust as collateral.
c) Secondly, the trust should also allow beneficiaries selling out their inherited property to accept the trust money as buyout funds…
d) Thirdly, the trust must position the trustee to function mainly for the benefit of the beneficiaries…
e) Moreover, with the authority to borrow against the trust as security for the loan.
f) A California beneficiary property buyout is generally executed within seven to ten days, with a trust loan working with Proposition 19. That being said, a trust loan and trust lender will work around the needs of the trust, executor, trust administrator or attorney.
g) Once beneficiaries selling off their inherited property shares have received their trust loan funds, the title of the property can be transferred to the beneficiary buying the property from the iron-clad irrevocable trust.
h) Finally, the property-owning beneficiary having bought out his or her co-beneficiaries, can now get approved for a conventional loan to refinance an irrevocable trust loan.
An Irrevocable Trust Loan Beneficiary Buyout
In California, trust loans are generally used to implement a beneficiary property buyout, to equalize buyout cash for each and every beneficiary selling their inherited property shares – working in conjunction with Proposition 19 to insure the beneficiary buying out co-beneficiaries get to minimize property tax reassessment, keeping a low property tax base when inheriting a home; since a trust loan is viewed as a third-party loan; and can pay for all the expenses of the trust, the trustee’s fees, and even pay for the trust estate’s attorney fees.
Why Borrow With An Irrevocable Family Trust Loan
An irrevocable family trust loan makes it possible for a trustee to get a mortgage secured by real property held by a family trust.
Borrowing money from a family trust like this lets a trustee or beneficiary equalize funds among beneficiaries selling-out their inherited property… while implementing a simple property buyout typically of sibling beneficiary property shares – dividing ownership in the inherited property; and receiving enough funds to resolve most family trust obligations. Californians, by now, are very aware of new CA property tax relief transferring low property tax values.
A family trust loan is made directly to the trust. Usually, the trustee or one of the beneficiaries is responsible for paying off the trust loan, and making sure the family trust mortgage is paid off as well.
If you are in need of a trust loan or loan to an irrevocable trust, contact Commercial Loan Corporation at (877)464-1066. They can provide you with a free benefit assessment and will be able to let you know how much you may be able to save in property taxes by utilizing a trust loan to buyout siblings and keep a parents low property tax base on an inherited home.
New Benefits Provided to Families by Proposition 19
Unlike prior years, Proposition 19 now gives every CA homeowner an exclusion from reassessment; available in every county – in other words, 100% statewide. This particular change now enables California residents to purchase a more expensive home, in any county, rather than a more inexpensive home to keep the tax relief benefits of the base year transfer.
If a more expensive primary residence is purchased, there is now a rather complex formula to minimize base year value. Moreover, Proposition 19 now increases the number of times an exclusion from reassessment, or rather certain exclusions, may be used by homeowners over age 55, up to three times in a lifetime.
Generally this option revolves around a common family or sibling conflict that typically has beneficiaries insisting on selling their inherited property shares strictly for as much cash as they get – which they finally realize their co-beneficiary sibling buying them out can provide, dispensing with a realtor’s 6% commission, closing costs, legal costs, and processing fees. plus all sorts of annoying, ancillary charges.
While the beneficiary buying them all out gets to retain the family home, generally with the help of an estate & trust lender, and often with an estate attorney watching over their shoulder, it becomes obvious tight away to all concerned that this trust loan / Prop 19 buyout solution furnishes a win-win formula for everyone. The trust lender funds the trust and provides “equalized distribution” so every sibling who is selling their shares receives an equal amount.
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.
Helping Families Avoid Property Tax Reassessment
Many attorneys as well as trust lenders truly believe that a loan to an irrevocable trust is the safest, most secure and most beneficial option available to beneficiaries – to keep their inherited home at a low base rate, or walk off with a good deal of cash from selling their property shares. Depending on which way they chose to go. One or more family members, beneficiaries, retaining an inherited family home, buying out siblings that want to sell their inherited property, discover quickly enough that this is a viable option. But the siblings who want to keep their family home have to take great pains to avoid triggering reassessment.
Even with a parent-child transfer, using a parent-to-child exclusion (from property reassessment) – when inheriting property while keeping a low property tax base – how do you know for sure you’re not paying more property tax than you should be paying?
New homeowners have to consult with their attorney and trust lender, or CPA, to make sure they are taking the correct steps right from the beginning of the buyout process, to retain the low property tax base their parents had, thanks to CA Proposition 13, avoiding fair market (i.e., current) property tax reassessment. It’s a good thing there is new access for homeowners to “CA State Board of Equalization” & “Property Taxpayers’ Bill of Rights”
Without loans to irrevocable trusts, this type of property transfer would be seen as a sibling-to-sibling transfer and would trigger current property reassessment, the outcome being a huge tax hike! Beneficiaries keeping an inherited home through this sort of solution ends 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 – with the ability to keep parents property taxes, keeping property at a low base rate through the parent-child transfer and parent-to-child exclusion.
Transferring A Parents Property Tax Value In California
2022 Tax Relief: Inherited Properties & Replacement Homes
The 2021 CA constitutional amendment, Proposition 19, otherwise known as the “Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act”, expands a surprising number of tax breaks (with respect to “replacement residence” tax relief benefits) mainly for homeowners over age 55 or suffering from a severe disability… making it possible to transfer a low property tax base from an original home to a new residence, or “replacement home”.
Californians also able to take advantage of expanded property tax breaks are homeowners with a damaged or completely destroyed home, caused by a natural disaster such as a flood, earthquake, or wildfire, can now move to a replacement residence, up to three time – in any of California’s 58 counties, expanded from previous limits of only ten counties allowing the transfer of a low property tax base to a new residence. This is actually quite ironic, as senior and elderly Americans, and folks with disabilities, generally find themselves either ignored or on the short end of the stick, so to speak. So this represents a societal shift, for the better.
However, it is important to point out that Proposition 19 also imposes new limits on property tax benefits for inherited family property, limiting uses of the popular 1986 Proposition 58 “parent-to-child exclusion” from reassessed (i.e., increased) property taxes; limiting parent-to-child transfers of property by narrowing usage in various ways.
This necessitates primary or principal residence (as opposed to owning and renting out investment properties) for both parents and beneficiaries, along with some other, minor, limitations. On the other hand, beneficiaries do have a full year to move into an inherited primary home, only requiring a minimum of one heir to move in.
Buying Out Siblings & Keeping a Low Property Tax Base
Moreover, beneficiaries still have the ability to keep their parents’ family home, with their parents’ low property tax base, while taking advantage of Prop 19’s parent-to-child exclusion; always staying focused on inheriting property taxes from parents during a typical property tax transfer. Avoiding property tax reassessment being a top priority at all times. For many beneficiaries getting a loan to a trust is critical, generally to buyout problematic co-beneficiaries insisting on selling their inherited property shares.
This typically involves a 6-figure or 7-figure loan to an irrevocable trust from a trust & estate lender, for example like industry leader Commercial Loan Corp, working in conjunction with Proposition 19 – supplying beneficiaries who are selling their inherited property shares with more money than a conventional buyer is likely to offer.
Avoiding a realtor, bypassing their standard 6% commission, and side-stepping the usual legal fees and transaction charges, leaves a good deal more cash, from a trust loan, to equalize beneficiaries selling their share of inherited property. Basically, a win-win transaction all the way around.
Base Year Value Transfers for Homeowners 55+ or Disabled
Proposition 60/90 and 110 allowed persons over 55 or severely and permanently disabled persons to transfer the taxable value of their existing home to their new replacement home, so long as the market value of the new home is equal to or less than the existing home’s value and located in one of ten tax relief portability approved counties in California.
That left 48 counties not participating with tax breaks allowing the transfer of a low property tax base from an original home to a new replacement residence. When dealing with damage from a natural disaster like the wildfires California has been contending with lately… Or simply because you’re over the age of 55, or suffering from a serious physical disability.
Of course the good news is that Proposition 19 now allows eligible homeowners to transfer the taxable value of their existing home to their new replace, and wish to move to a replacement home, or to new residence – of any value, anywhere within the state, up to three times (rather than once, with limited county choices and limited assessed dollar values – as it used to be until 2021).
Proposition 50 stipulated that a base year value of a home or property that is legitimately destroyed, or damaged beyond the point of residing there, by a disaster or wildfire verified as legitimate by the Governor may be transferred to comparable property within the same county.
Proposition 171 stated that the transfer of the base year value of a principal residence to one of 10 counties that has adopted these tax breaks. However, Proposition 19 now permits homeowners to move to a “replacement home” of higher assessed value than a previous primary residence – and transfer the lower tax base with an adjustment for the value difference when a home is damaged or destroyed by a wildfire or some other natural disaster.
Establishing a Low Property Tax Base ~ Who to Turn to in 2022
It’s always interesting, with respect to estate funding and inheritance financing, how different schools of thought come up with different solutions for saving money on property taxes, for out-of-the-box funding solutions against inheritance assets, and for mortgage capitalization.
Name brand name lenders, setting the tone for most lenders in California, such as Quicken Loans, e-Loan, Wells Fargo and Bank of America – are admittedly all high-end, reliable finance-information and lending sources. Yet – when it comes to important income tax or property tax matters, or inheritance funding solutions – their editors and writers, talented as they may be, still only nibble around the edges on anything but the most conventional, largely ineffective solutions.
For example, where tax relief is concerned these firms typically dance around the critical issues associated with property tax exemptions, establishing a low property tax base, or avoiding property tax reassessment – when inheriting a home in any of the 58 counties in California. So who do we turn to for help?
Many property owners embrace basics, and enlist assistance from established property tax experts such as Rachelle Lee-Warner, Esq. — well known Partner, Managing Attorney & Trust Administration / property tax relief expert at Cunningham Legal. Or a reliable trust lender like Commercial Loan Corp, led by inspirational CEO, Kerry Smith in Newport Beach – specializing in irrevocable trust loans, avoiding property tax reassessment and establishing a low property tax base – for middle class California families… guiding them through while showing them all the new advantages that Proposition 19 offers. Perhaps not as generous as Proposition 58 might have offered… however, lowering property taxes to a greater degree than you might think.
Avoiding Poor Solutions and Time-Wasters
With regards to lowering property taxes — these are typical solutions from “expert websites” that homeowners might not want to take very seriously, or avoid completely…
Limiting your “home improvement” projects;
Researching nearby neighborhoods for pricing and home values;
Asking uninformed young attorneys or relatives (to save money) if you qualify for tax exemptions;
Walking around your neighborhood with your Tax Assessor;
Checking your tax bill for inaccuracies;
Getting a second, third and fourth opinion from unproven Assessors and property tax consultants;
Meeting with your local Tax Assessor to convince him/her to revise your tax bill;
Researching and filing a property tax appeal challenge with your County Tax Assessor without a professional property tax appeal firm – on your own, simply to save money.
Checking for inaccuracies, or getting a second opinion isn’t a bad suggestion. But walking through your house with your local Tax Assessor? Researching prices around your neighborhood? With all due respect to the financial websites that hand out this kind of advice, these suggestions would be laughable – if they weren’t so serious. Limiting your home improvement projects – to lower your property taxes?
Effective Solutions with a Tax Professional or a Trust Lender
We will never be free from property taxes while we own our own home, but one does need to be on the there are a few simple “tricks” you can use to lower your property tax bill, as certain websites claim.
We can investigate comparable homes in our neighborhood for “discrepancies”. Never making any changes to our property exterior right before a tax assessment, as this can increase the value of our property; hence increase our property tax bill.
Or, we can stroll around our house and chat with our Tax Assessor during our yearly assessment. That makes a lot of sense. Lastly, we can look for local and state exemptions, and, “if all else fails, write up and file a tax appeal to lower our property tax bill” so suggests a well known financial site. Listen, if we’re going to file a property tax appeal with a County Tax Assessor, we’d be a lot better off doing it through a professional property tax appeal firm.
If we want to address this issue seriously, and not simple throw silly and unrealistic suggestions out there simply to see what sticks – we have to look at realistic opportunities to take advantage of.
For example, if we’re an heir of an estate, or a trust beneficiary inheriting a house from our Mom or Dad – and the house is in an irrevocable trust – a loan to an irrevocable trust from a trust lender is likely required if the trust does not contain sufficient cash to make an equal distribution to all of the co- beneficiaries looking to sell off their inherited property shares. This is frequently taken advantage of by beneficiaries, perhaps like yourself, who intend to keep a home inherited from a parent at the original low property tax base.
A loan to an irrevocable trust makes it possible to buyout inherited property shares from co-beneficiaries and greatly speeds up the trust distribution process. A trust loan also saves a great deal of money when you compare selling the family home through a realtor or broker receiving a 6% commission, plus legal fees, and other closing costs.
Inheriting Parents’ Home While Keeping Their Low Property Tax Base
Bottom line, avoiding property tax reassessment and establishing a low property tax base by transferring property taxes, are property tax relief benefits available to all property owners in California, protected by Proposition 19 & Proposition 13. This should always be taken full advantage of. You can transfer parents property taxes when inheriting property and inheriting property taxes – and keep parents property taxes basically forever, establishing a low property tax base with Prop 19 benefits as well as taking advantage of a trust loan buyout of property inherited by siblings. Why not? It’s your right. Plus, there is no better time than the present to become better acquainted with the parent to child property tax transfer.
This type of property tax transfer is at the foundation of property tax relief for all Californians, generally through a parent to child property tax transfer on an inherited home – usually referred to as a Prop 19 parent-child transfer or parent-to-child exclusion… all the way to a transfer of property between siblings through a loan to an irrevocable trust, in conjunction with Proposition 19 – with an entire year to settle in to an inherited principle residence, or multiple residence (although only one heir is actually required to lock this tax relief benefit in). As long as the parent leaving that property to heirs resided there as a principle residence as well – which is usually the case anyway.
Using a Trust Loan to Establish a Low Property Tax Base
Buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base is a popular avenue for many families. Not only that, if your siblings are receiving funds from an irrevocable trust to sell their inherited property shares, they would receive far less money getting cash from an outside buyer, as opposed to funds from an irrevocable trust. The costs associated with preparing a home for sale, expensive realtor fees, and potential closing costs associated with selling an inherited home can be incredibly expensive.
When a trust loan is used to facilitate a trust distribution, each beneficiary receives an average of an additional $15,000.00 in distribution when compared to selling the home. The person keeping the family home also benefits – saving $6,200+ per year in property tax savings – simply by avoiding property tax reassessment on a nice old inherited home from Mom and/or Dad.
Voters passed CA Proposition 19, just squeaking by with a handful of votes from confused voters in Nov of 2020, and the tax measure became active on April 1, 2021. If you want to intake good advice and avoid mistakes, have property tax experts carefully walk you through Proposition 19, and Proposition 13.
Most middle class and upper middle class California homeowners probably have heard about Proposition 19, the new property tax law that allows seniors and disabled homeowners to keep their current property tax rate when they sell their home and buy a new one. But they may not know how to apply this new law when moving to a new home.
It’s the state’s largest expansion of property tax benefits in decades, basically allowing qualified homeowners to take their Proposition 13 tax base with them anywhere in the state, no matter the price of their new home.
Helping California Middle Class Homeowners Avoid Property Tax Reassessment
Under Prop. 13, tax hikes are capped at 2% a year, meaning the longer you own your home, the lower your property taxes relative to the market value of your home. But some homeowners lose their Proposition 13 tax break when they sell their old home and see their new tax jump to the full market value of their new one.
If you are 55 years or older, a person with a severe disability or a victim of wildfires or natural disasters, you can move to any home in the state, regardless of the home’s price. Your tax is unchanged up to the value of your old home. If your new home costs more than your old one, you pay an additional amount based on the market value over your old home’s price.
When you’re used to a low property tax bill, it can be a shock to your monthly expenses when buying a replacement home includes a huge property tax increase – especially if you have lived in your current home for many years.
Some older middle class homeowners feel trapped because they can’t leave their current home, even if it no longer fits their needs, because they are on a fixed income like Social Security, or a modest pension or military retirement, and can’t afford to move. Taking advantage of Proposition 19 may appear challenging. But as time passes, more and more tax assessors are providing online links to forms and resources to help homeowners understand how to benefit from these new property tax rules and regulations.
As most property owning Californians are aware in 2021, both time-honored and new cost-cutting property tax breaks are accessible to home owners over age 55, who have a severe disability, or who are verified victims of a natural disaster or forest-fire – as far as new property tax breaks are concerned.
Moreover, when inherited property is in an irrevocable trust and additional cash is required to make fair and equal distribution to all beneficiaries determined to sell their inherited property shares – a trust lender like Commercial Loan Corp is where such beneficiaries go for irrevocable trust funding, along with getting help from the firm to work in conjunction with Proposition 19; to insure inheriting a low property tax base, to avoid property tax reassessment both in the short and long run.
This process also allows beneficiaries looking to keep an inherited home to buyout inherited property from siblings at much higher rates than any outside buyer would offer, given that there is no realtor involved, with their 6% fee; and no pricey legal bills and ancillary costs associated with an outside property sale. It costs beneficiaries less in every respect with a Proposition 19 trust loan from Commercial Loan Corp, then it does if they were to use their own cash to complete the property transfer process, to insure inheriting a low property tax base.
Senior Account Manager – trust loan and property tax relief specialist – Tanis Alonso recently shared her viewpoint on this process with us recently. She explained as follows:
“Let’s say a property value is currently one million dollars and the current tax base is $1,200. If they were to get reassessed at current value that would be around $11,000 annually. By someone keeping the property and obtaining a trust loan to properly buy out their siblings that allows the beneficiary that is keeping the property to keep parents property taxes, to retain 100% of the Proposition 13 tax base that was paid by their parents and keep that low property tax base of $1,200.
This of course creates much greater affordability than if they were to improperly buy out their siblings and have that property reassessed. The loan to trust goes hand in hand with the Proposition 58 property tax transfer system, creating enough liquidity to equalize distributions, not sell, and allow a beneficiary to keep their parents property with their low property tax base.”
“Commercial Loan Corporation loans to trusts give our clients several invaluable benefits. Their terms can be a lot more flexible than an institutional lender like Wells Fargo or Bank of America. Also, Commercial Loan Corp is self funded, and that’s basically why they can extend easier terms to clients. Compliance for both commercial and residential property owners is far less strict. Commercial Loan Corp doesn’t charge any fees up-front, that’s another great benefit. Plus, they don’t require paying interest on their trust loan in advance.
The speed of their trust loans is much faster, typically five to seven days instead of two or three weeks. And if you sold a property outright, without using a trust loan, you have closing costs, legal fees; a commission; etc. It gets very expensive. Going with a firm like Commercial Loan Corp – all costs are offset, unless you plan to keep a property for 2 or 3 years or less. Then it doesn’t make sense. But generally you’re looking at keeping that property for seven or more years, as a rule.”
Rachelle Lee-Warner Partner & Managing Attorney for Estate Law and Trust Administration at Cunningham Legal, although a well known Trust and Estate Attorney, also functions to a some degree as a property tax consultant. No matter how many people she helps, Miss Warner never loses sight of the fact that no two cases—or people — are alike; and sums up her role as follows:
“I want to be known as an attorney who treats each client like they are my only client. Each situation is unique and each client deserves to be heard and offered the assistance we can provide. I often meet with clients who are in the midst of stressful and emotional situations. Whether it be the declining health or loss of a loved one, my goal is to be a voice of reason, a calm presence, and an encourager through the process. Helping these clients gives me purpose in my career.”
“One of my clients was in hospice care and had an A/B trust with property in the B Trust carrying significant gain since her husband had passed away,” offers Rachelle as an example. “If left intact, her daughters would pay hundreds of thousands in capital gains taxes. I was able to get an ex parte petition filed and granted within two days to eliminate the capital gains taxes for her daughters. My client died a few days later, and her daughters were so grateful we sprung into action to save them money and give their mother peace in her last few days.”
After two pivotal events in my life — becoming a mother and losing a parent — my perspective shifted events helped shape me to understand more clearly the perspective of my clients and my clients’ needs.”
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 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.
Otherwise known as Proposition 19, the new tax measure, more or less replacing Proposition 58, implemented changes to the parent-to-child and grandparent-to-grandchild exclusion – with the base year value transfer measure going into effect April 1, 2021.
Although we’ve covered these rules and regulations previously in this blog it’s always worthwhile to hear what yet another California property tax specialist has to say, if only to verify what others have described as viable revisions to long standing property tax relief in California – so critically important to middle class and upper middle class residents.
Viewpoint From Los Angeles Tax Assessor Jeff Prang
So let’s take a quick look at what senior Los Angeles Tax Assessor Mr. Jeff Prang has to say about these changes to property tax relief in California, and see if his viewpoint is consistent with, or otherwise deviates from, other noted tax experts and property tax specialists in the state, some that we have reviewed or actually spoken to over the past tumultuous year.
Mr. Prang confirms that Proposition 19 tax base transfers allow seniors, age 55 and up, to transfer the taxable value of their existing home to a new “replacement home of any value” – anywhere in the state of California – up to 3-times, instead of only once, as previous property tax regulations allowed, prior to Feb 2021.
Interestingly enough, Mr. Prang mentions the former Proposition 50 and Proposition 171, and looks at the improvements brought about by Proposition 19 to those tax measures – concerning personal harm and property damage from natural disasters, or wildfire; and the subsequent transfer of base year value of a principal residence to any other county, which was much more limited before Proposition 19 took effect .
Mr. Prang also goes out of his way to point out that Proposition 19 allows homeowners to purchase a replacement home of greater value than their original home and transfer their tax base with an adjustment to account for the value difference in cases of homes destroyed or severely damaged by wildfire, which is ironically running rampant in 2021, or some other natural disaster such as flooding or an earthquake.
Parent-to-Child and Grandparent-Grandchild Property Transfer
As of Feb 2021, most tax experts and property tax consultants agree that in order to inherit a low assessment of a parent or grandparent’s property, under Prop 19, some new conditions must be met, and estate attorneys must get up to speed with these conditions – such as getting in the habit of informing clients that an inherited home has to be moved into within 12 months, retaining a parent’s low property tax base; as primary residence, plus to qualify for a base year value the inherited home must have been the primary residence of the parent or grandparent leaving the property to heirs.
In fact, there is now so much new information for estate and tax attorneys to get up to speed with – notably inheriting property while retaining a parent’s low property tax base, to avoid property tax reassessment– that many law firms more frequently, lately, have been sending clients who are inheriting real property from parents to a trust lender, as those particular lenders bridge the knowledge gap – and serve a purpose lawyers cannot serve, which is providing funding to irrevocable trusts if you as a beneficiary want to keep your parent’s home and, most importantly, retain their low property tax base – buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base… Basically, taking advantage of Proposition 19 (previously Proposition 58 benefits) in conjunction with an irrevocable trust to buyout one or more siblings’ property shares. Sounds simple, however it isn’t.
General consensus of tax experts in California is that the CA State Board of Equalization stipulates a concrete set of property tax rules and regs, despite the fact that there are still areas concerning Proposition 19 that remain vague and oddly non-specific, which is still causing accountants and other tax professionals a good deal of distress; and for their business and high net worth clients even more concern – particularly when there is a great deal of money at stake.
As many of us who have traversed the complex trail of real estate loans and long lines of credit know – there are certain non-traditional financing options, such as loans to irrevocable trusts and probate estates, that are generally denied by virtually all lenders – with the exception of certain licensed trust lenders… or more specifically, irrevocable trust lenders.
Conventional lending organizations such a credit union or your friendly local bank, will typically deny any loan request of this kind and will rarely approve a loan like this to an irrevocable trust – until the trust has been dissolved and the home title has been converted to the financial interest of a borrower, or individual.
California trust beneficiaries and trustees find out very quickly that funding for a trust is not the type of financing your standard bank or conventional lending firm will deal with. We find that most niche financing can be accomplished for high net worth individuals, or for individuals with an extremely high credit rating… Not so in this case.
Even if you have a fabulous credit score or credit report, most lending organizations will still not fund an irrevocable trust for you. For example, when you buyout beneficiaries that are instigating family conflicts by insisting that the family sell off inherited property and wind up selling their inherited property shares to one or more siblings looking to keep the property in the family – and keep a parent’s low property tax base… This will make the sellers happy to do so when they find out that by avoiding a realtor to sell their inherited parental home plus other hidden costs they end up with a lot more cash in their pocket having their sibling or siblings buy them out through a trust loan.
In fact, no matter how urgent or important our situation is, we discover very quickly that the only type of firm that will fund an irrevocable trust is a trust lender, with genuine expertise in property tax relief, and in the subtle measures contained in Proposition 19, and Prop 13. As long as a loan to an irrevocable trust is structured properly by your trust lender, you should be OK buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base – what property tax professionals refer to as “equalizing the distribution of a trust…”
So, in other words, the party or parties keeping the parent’s home and low property tax base, as well as the beneficiaries selling off their shares, soon realize they are entering into a win-win transaction, where everyone walks away in better shape than when they began!
And that is the unique upside and tremendous benefit that a good trust lender brings to the table… in particular the well known trust lender, Commercial Loan Corp irrevocable trust loan financing, which focuses on helping beneficiaries to keep a parent’s low property tax base, long-term, through the parent-to-child exclusion, and ability to avoid property tax reassessment, through Prop 13 and now Proposition 19, which still protects and breathes life into property tax relief in the state of California. Commercial Loan Corporation can be reached at 877-756-4454. They have a flawless record for assisting clients avoid property tax reassessment on an inherited home and their testimonials can be viewed on Google with this link.
“These property tax benefits from Proposition 13 came about in California because people didn’t want property tax increases of 25% or 30%, or whatever. It really was out of control. And property tax rates were particularly high and unpredictable and unstable in California, for whatever reason, prior to 1978 when Prop 13 passed. So, as you know, property appreciates let’s say on average 20% per year. For the sake of argument, let’s say 20%. But property tax values are only going up by 3%…
People know intuitively that they can’t rely on the Assessors evaluation. Property value goes up 10% or more let’s say, as opposed to assessed value going up by 2%. That’s a significant difference. Was California really that bad before 1978, when Proposition 13 tax relief went into affect? Yes. California was raising taxes more than any other state, before 1978.
Most seniors – before Prop 13 – were reassessed at present-day rates. And many, many were forced out of their home. They simply could not afford the property tax hikes descending on them. Period. People, especially older people, were being impacted with higher property taxes year after year. And in many cases – with catastrophic results, obviously.”
While at the same time providing the beneficiaries selling off their inherited property shares with more cash than any outside buyer would want to offer them. A definite upside of working with a trust lender, in conjunction with Proposition 19. Obviously, beneficiaries in this sort of equation would have their own attorney or law firm looking over their shoulder, and advising them on the paperwork.
Trust and estate needs are varied and sometimes complex, but taking an experienced view toward the real estate component can offer superior results. One common situation occurs when one heir wants to keep the “old family home,” but the trust entity does not have enough cash or investments to “even the equities” among the beneficiaries. That same heir may want to eventually live in the home, or convert it to a rental property in the future and hold it as a long-term investment. Either way it is a profitable return.
Removing certain taxes is something the CA Legislature can control to lessen the current financial strain on middle class Californians. Income taxes and sales tax pose greater political obstacles at the revision stage, and payroll taxes fund Medicare and Social Security to a large extent – therefore California would do well to look carefully at decreasing or putting property taxes on hold, until the pandemic lifts and normalcy has returned to some degree.
The California Legislature proposing tax deferments for a few months will not help the state if thousands of homeowners are about to be foreclosed on and evicted – hence paying no property taxes thereafter; as an example of non-taxation that the government will survive without for a year or two. Putting property taxes on hold would not trouble California in any meaningful way.
Certainly, lowering or removing property taxes is a logical solution for property owners who are in trouble all over the state. Insisting on all property taxes being paid no matter what is a poor answer right now, as long as the Covid crisis continues causing shutdowns, mass unemployment, widespread under-employment, and unprecedented health issues.
If pausing property taxes is not a realistic possibility, then the state government would be wise to spend more time and energy educating the public on property tax breaks that are available to them, such as how to still take advantage of Prop 58, as well as Proposition 13 and who, as well as how, folks can make use of Proposition 19. Communications on this to educate the public in California is not nearly as robust as it could be.
Increased, easy to understand information dissemination on Proposition 13 and Proposition 58, as well as Proposition 19 and parent to child property tax transfer on an inherited home. This would help Californians take more advantage of sibling-to-sibling CA property transfer in conjunction with Prop 19; to become more familiar with parent-child transfer rights – taking advantage of every key property tax break… establishing an exemption from paying current, property tax rates when inheriting or transferring a primary residence, within a 12-month period.
More residents should be exposed to information about getting a trust loan, to take advantage of a sibling-to-sibling CA property transfer in concert with Proposition 19, to be able to lock in a low Proposition 13 property tax base – buying out siblings’ inherited property tax shares without issues, plus equalizing distribution, in fact for more money than an outside buyer would offer, for heirs that want to sell their inherited property shares.
. All of these decreases would help California to assist residents in spending less on taxes, if not implementing a total hold on property taxes until the pandemic is completely under control and life returns to normal in California, and throughout America as a whole.
