On June 6, 1978 Proposition 13 passed as a property tax relief measure with 4,280,689 votes for – versus 2,326,167 votes against. In the final analysis, it came down to finally taking a great deal of power away from the County Tax Collectors; and giving it back to taxpayers!
Howard Jarvis and Paul Gann, were the best known Proposition 13 advocates. Officially known as the “People’s Initiative to Limit Property Taxation”, also referred to as the Jarvis-Gann Amendment, Proposition 13 was listed for voters through the so-called “California ballot initiative process” – which allows a constitutional amendment to be offered to voters when political advocates assemble a certain number of signatures on a petition.
For Once, Tax Relief for the Middle Class in California – Not Special Interests
Many people aren’t aware of the fact that Mr. Jarvis was a hugely successful residential apt. building owner, and Mr. Gann, a political activist who passed away from HIV due to infected blood from a unfortunate transfusion, who ironically devoted the last several years of his life to AIDS treatment advocacy – in direct opposition to his fellow conservatives. California’s “Paul Gann Blood Safety Act” was passed into law in 1990, mandating that doctors discuss the risks of blood transfusion with their patients.
Two non-politicians named Howard Jarvis and Paul Gann courageously soldiered on – without precedence – until they won the day. This rarely occurs in political circles, as we all know. But for once, some non-politicians actually changed things for the better in California. And virtually overnight, once Howard Jarvis and his so-called “Tax Revolt” passed Proposition 13, property tax rates in California finally became predictable and equitable – from San Jose to San Francisco and beyond, in all 58 counties.
Under this new property tax relief measure, the property tax rate is now set at a uniform 1% throughout the state, and property tax increases are limited to no more than 2% a year as long as the property is not sold.
Previously, the tax rate in California averaged almost 3% of market value, and there were no limits on increases either for the tax rate or property value assessments. Some properties were reassessed 50% to 100% higher in just one year, so property owners’ tax bills skyrocketed, often way beyond homeowners’ ability to pay their property taxes.
Now, once sold, property is reassessed at 1% of the new market value (usually the sales price) with a 2% cap on annual tax increases. As a result, new buyers are always aware of what their taxes will be and know the maximum amount property taxes can increase each year for as long as they own the property.
Then, in 1986, Amendment Proposition 58 was passed; and homeowners as well as beneficiaries inheriting property from parents could happily take advantage of a transfer of property between siblings or sibling-to-sibling property transfer in conjunction with an irrevocable trust loan, typically for buying out inherited property shares from siblings, while keeping a low property tax base (now used with California Proposition 19 which has replaced Proposition 58).
Overnight, beneficiaries could transfer parents property taxes when inheriting property taxes; and could keep parents property taxes after a property tax transfer made possible by a parent-child transfer, officially a parent-to-child exclusion which, exactly like buying out inherited property shares, is also now governed by Proposition 19.
Benefits for Non Property Owners
While Proposition 13 is mainly famous for capping property taxes in California, it also stops arbitrary tax hikes at the state and local level. It makes sure that any state tax increase had to be approved by a 2/3 majority in the Legislature, and any new or increased local taxation must be approved by voters, not just a collection of special interest politicians.
Supplemented by Howard Jarvis Taxpayers Association – a co-sponsored tax measure entitled Proposition 218 (the Right to Vote on Taxes Act) makes sure that voter approval of all new local taxes is required, no matter what. So not just property owners, but also renters, benefit – as Proposition 13 stabilizes property taxes, making them predictable and reasonably controlled; reducing any uncontrolled or unexpected rent increases throughout the state of California.
Squabbling among siblings frequently erupts right after a parent passes away… when the time comes to divvy up real property shares, investment and liquid assets, as well as cash in an estate. Moreover, this in-fighting often results in lengthy and expensive litigation.
Therefore, to set the estate stage properly, to organize the equitable sale of all assets and valuables, to equally split real property, cash accounts, investments, and liquid assets… plus correctly establish productive, two-way communication among siblings prone to conflict and squabbling over money, with an objective, neutral party or familiar family lawyer to act as a mediator to resolve inheritance conflicts among siblings after a decedent has passed away.
However, when middle class parents pass away, leaving a home to several beneficiaries when there is little else to inherit, this frequently results in a heated conflict between one or more siblings who want to sell their inherited home, and the siblings who insist on keeping their family house along with parents’ low property tax base. As we all know, this can lead to a protracted, bitter battle of wits and words.
An Irrevocable Trust: Working in Conjunction with Proposition 19
The one proven solution to this sort of struggle, to end the squabbling for good, is for one side, generally the beneficiaries looking to keep their inherited home, a loan to a trust to buyout siblings looking to sell their inherited share, buying out sibling property shares, with a sibling to sibling property transfer, avoiding property tax reassessment and keeping a low property tax base.
Generally a high six-figure or low seven-figure loan from a trust lender to an irrevocable trust works in conjunction with Proposition 19, leaving beneficiaries who are keeping the family house with a Proposition 13 protected, low property tax base.
This avoids the need to work with a broker or realtor, therefore avoids a 6% commission, legal fees, transaction charges, etc. – providing a good deal more cash to the beneficiaries trying to sell the home than an outside buyer would tend to offer, or could offer.
Resolving Sibling Conflicts with Trust Based Estate Planning
That is to say, thinking ahead to resolve sibling conflicts. Planning an estate with a concrete will and/or trust, with heirs in mind, prior to death can avoid many of the problems between siblings after a surviving parent passes away.
If a parent leaves concrete instructions in a trust and/or a will as to which sibling receives what in terms of cash accounts, real estate, personal property, investments, antiques, lucrative artwork, liquid assets, valuables, important jewelry; etc.
A wise parent will leave clear instructions how a house is to be inherited, or possibly how it is to be sold, and how the proceeds are to be divided. Some siblings may receive more than others; some or one may be disinherited. All of these decisions may result in bitter conflicts later on.
Planning in Advance to Thwart Mercenary Heirs
Obviously, leaving an even share of assets, valuables, cash, and real property, in black and white, in a will and/or trust, would tend to avoid conflict – however this may not be what the decedent wanted. And even if all inherited assets are split evenly, there are often greedy heirs who want more, and manipulate to get more. And this is where a trust loan buyout can come in handy, with the assistance of a trust lender.
A parent can leave a revocable trust that can be changed at any time up to death, placing property in the joint name of a parent and child so that a bank account, brokerage account, or real estate can pass automatically to children/beneficiaries when the parent dies – to avoid conflict.
Using a cordial executor or trustee for the estate who does not gain anything in any way can also help avoid conflicts, although sometimes they start them! So choosing the right person becomes a critical decision for the parent.
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.
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!
Californians who make it their business to know – now understand that triggering property tax reassessment to “a new Base Year Value” as a result of new construction to a home, or a complete change in ownership – which makes it virtually impossible to establish a low property tax base; and results in a yearly tax rate that increases abruptly to current or “fair market” rates.
Translation in everyday language – you pay much higher property taxes every year. For example, the different between $600 per year and $9,000 per year. Significantly higher property taxes.
Every County Tax Assessor in California, in all fifty-eight counties, records and reviews every single property deed in every county, to figure out which homes and various other real properties require reappraisal, and which do not. The Tax Assessors also determine ownership changes with other investigative tools such as such as kept records from homeowner self-reporting, or from records of building permits; from newspaper files; or field inspections.
When a County Tax Assessor has determined that a property has changed ownership, Proposition 13 stipulates that the County Tax Assessor must reassess that property to its current (i.e., fair market) tax rate, as per the date of change of ownership.
Because property taxes in California are based on a property’s assessed value – at the time of acquisition – the property taxes will be increased if the current market rate is higher than the original assessed Prop 13 base year value adjustment. Therefore – if the current market tax rate is lesser than the previous adjusted base year value assessment, then taxes on that property will go down. Which is what everyone wants.
It is important to note, however, that a portion of ownership of that property may be reappraised. Let’s say that 50% of a home is transferred under Proposition 13, and the changes that the Tax Assessor is going to reassess is 50% of the home at the current market rate, as per the transfer date, so 50% will be deducted from the base year value, under Proposition 13 property tax relief…
Typically, when someone buys a home, the home goes through a “change in ownership” and 100% of the home is reassessed at full current market value. Even if the outcome of transferring real estate is a change in ownership, there are a number of exclusions from paying current tax rates – and so certain homes or other real estate will often not be be reappraised under these sorts of home transfers.
If a property owner files the proper claim, an exclusion from paying updated current property taxes will kick in as long the owner’s property, or portions of this property, are correctly excluded from reassessment.
The best way to cover changes in ownership that are excluded from automatic reassessment, or reassessment by claim; is to enlist the help of a tax attorney, a property tax consultant, or a trust lender who specializes in establishing a low property tax base for heirs upon inheriting a home from a parent.
Frequently, this will assist beneficiaries in buying out inherited property shares from co-beneficiaries through a loan to an irrevocable trust, which realtors and property tax specialists call a transfer of property between siblings or a sibling-to-sibling property transfer – working in conjunction with a California Proposition 19 parent to child property tax transfer on an inherited home – a parent-to-child exclusion (from property tax reassessment at full, current market rates), to establish a low property tax base.
Naturally, this line of property tax relief, based on a parent’s property also includes the ability to transfer property taxes when inheriting property taxes from a parent. Under these tax breaks, a property tax transfer like this can help heirs keep parents’ property taxes basically forever, based on a parent-child transfer; or a parent to child exclusion from reassessment – to legally avoid property tax reassessment.
You can always consult your Tax Assessor, however it is generally in the Tax Assessor’s best interest to charge you the maximum amount possible. A property tax consultant or trust lender, on the other hand, is motivated to save you money on taxes, not see you spend more.
We have discussed this issue previously in this blog… however, it does bear further introspection. Property taxes that have been deferred for a few months can hardly be called property tax relief! Regardless how many people in state leaders hip positions call it “property tax relief”, it simply is not. It’s merely tax deferment. A parent-child exclusion avoiding property reassessment is a genuine property tax relief benefit. The press should not conflate the two in headlines as if they were the same. They’re not.
Genuine Property Tax Relief VS Postponed Property Taxes
The State Controller’s property tax postponement program permits senior property owners and homeowners with a severe disability to defer property taxes on a primary residence – if they are in compliance with the new Prop 19 requirements plus have 40% or more equity in their house; with a household income of $45,810 or less per year. With a lien against the house, until taxes are paid off.
You get to delay paying the tax man for ninety days. So Californians need to determine what this actually accomplishes. Does this help homeowners financially? Now, deferring taxes for five-years might be helpful to some property owners. But a few months is simply not going to move the needle into the “help” column.
Other than being a rather weak gesture, this is a dismal effort to help residents in California get through an unprecedented, tough time. If the folks running the state wanted to really help Californians, they might want to consider simply deleting property taxes this year, and see how the virus crisis is next year.
Not only would this be a great political move – it would actually help homeowners in a big way. It would be a genuine property tax relief initiative. Postponing property tax payments is merely deferring taxes that have to be repaid anyway, therefore there is no authentic relief of taxation involved here, merely a delay.
Property Tax Exemptions for Disabled Veterans
If a military veteran is 100% disabled as a result of a combat wound or whatever, that veteran can get approved for a full property tax exemption. Other homestead exemptions exist for veterans over the age of 65, along with surviving spouses.
Eligibility
To be eligible, a homeowner has to apply and subsequently meet all of the criteria below for every year in which a postponement of property taxes is being requested:
• Residents must be age 62 or older; or severely disabled (including blindness); • Residents must own and reside in a primary home (exception being house-boats); • Residents must verify a household income of $45,810 or under; • Residents must own 40% or more of the property; • There can be no reverse mortgage on the property in question.
Property Taxes that are in Default, or are Unmanageable
CA state law does not allow the SCO (State Controller’s Office) to pay for delinquent or defaulted property taxes that are owed on a home, for example, that is under consideration for postponement of property taxation. Late These taxes simply have to be paid, by California law. Regardless of a Pandemic, or whatever.
However, you can qualify for postponement of current taxes. The amount of defaulted property taxes will be added to the amounts owed against the property to determine equity. Therefore “delinquent” or “defaulted” property tax payments do not qualify for tax deferment. Another reason this mild gesture does not contain any of the earmarks of genuine tax relief…. such as those provided for by tax breaks like a parent-child exclusion avoiding property reassessment.
Interest Rates on Deferred CA Property Tax Payments Owed
The interest rate imposed on “postponed” taxes under this PTP (Property Tax Postponement) program is 5% yearly. Interest on postponed property taxes is computed monthly on a simple interest basis. Interest on the postponement account continues to accrue until all postponed property taxes plus interest are repaid to the state. So $1,000 in deferred taxes would be $50 yearly – $4.17 monthly.
Property tax relief? It looks more like loan sharking than it does tax relief.
A Lien or Security Agreement for Postponed Property Taxes
To secure repayment of deferred property taxes, the State Controller’s Office (SCO) imposes a lien against property with the county or a security agreement with the Department of Housing and Community Development. The lien or security agreement remains in effect until the account is paid off. A one-time fee is added to release a lien once the account has been completely paid off.
Property Taxes Paid By California Lenders
The State Controller’s Office (SCO) is not responsible for contacting your lender if your property taxes are currently paid through an impound, escrow, or other type of account. If you’re approved for Property Tax Postponement (PTP), the SCO will typically agree to make a payment on your behalf directly to the County Tax Collector. PTP does not reduce your monthly mortgage payment. A business property owner or homeowner must contact their lender directly to pay off monies due.
Refund of Paid Property Taxes
Once an application is approved and property taxes have been paid for a current-year, or if the property taxes are paid by a lender, a property owner receives a refund from their county tax collector. All full or partial payments are applied to accumulated interest and to the balance owed. Checks or money orders are payable to the “California State Controller’s Office” and mailed to:
California State Controller’s Office Departmental Accounting Office – PTP P.O. Box 942850 Sacramento, CA 94250-0001
Collection and repayment process
Homeowners can pay all or a portion of the balance to the State Controller’s Office at any time. However, postponed property taxes and interest are due right away or payable when a homeowner:
a) Moves away from a property; b) Sells or conveys title to the property; c) Is deceased but does not have a spouse, registered domestic partner, or other qualified individual who continues to reside in the property; d) Is delinquent on future property taxes or has other senior liens; e) Refinances or gets a reverse mortgage on the property in question.
Authentic Property Tax Relief
As you may or may not know – genuine property tax relief does exist in California, in terms of establishing a low property tax base when inheriting a home; through a process discussed in this blog several times, combining a parent-to-child exclusion avoiding property reassessment protected by Proposition 19 in concert with a 5 or 6 figure loan to an irrevocable trust from a trust lender.
The process of buying out siblings’ shares of inherited property through an irrevocable trust loan – the transfer of property between siblings or “sibling to sibling property transfer” – equalizes payment among beneficiaries selling their inherited property shares, and furnishes them with far more cash than a conventional outside buyer would.
Likewise, genuine property tax relief such as keeping a low property tax base when inheriting a home; or property tax transfers in California for those inheriting real estate from parents… giving homeowners the ability to transfer parents property taxes under Proposition 19 in tandem with a locked-in parent-child transfer or a parent-to-child exclusion avoiding property reassessment at high current tax rates when inheriting property taxes, and transferring property taxes in California.
Although, manufactured home owners with delinquent and/or defaulted property taxes do not qualify for property tax postponement. However, as we have already indicated, it’s high time to cease discussions altogether about property tax postponement – and start pivoting rapidly towards property tax cancellation, while the pandemic continues to cause shutdowns and job losses and economic hardships for middle class homeowners.
It is important to make note of the fact that an “irrevocable trust” is inherited as a document left by a “grantor” once that person is deceased, and cannot be altered; plus it may not be considered part of a taxable estate, therefore fewer taxes may be due on your passing.
Whereas a “revocable trust”, also known as a “living trust”, can be a much more flexible inheritance instrument — and most importantly, the grantor who wrote the trust document can maintain control while still alive. It is also worth mentioning, due to the problems many beneficiaries have with trustee, that it is critical to choose a trustee who will know his or her place, and not adopt an attitude that the money and assets belong to the trustee.
Moreover, the trust lender can help you, as a beneficiary inheriting a parental home, buyout a sibling or several co-beneficiaries looking to sell their inherited property shares – with a sibling-to-sibling property transfer; at a much higher price range than any outside buyer would offer – due to the avoidance of a realtor, who would typically charge a 6% commission – plus other pricey closing costs such as legal fees, paperwork processing fees; transfer taxes, escrow expenses, notary fees; as well as fees for credit checking, value appraisal, title search, home inspection, etc.
When it comes to selling a home, there is, as they say, “no free lunch”. Meanwhile, beneficiaries keeping a family home at their parents’ low property tax base, through an irrevocable trust loan in conjunction with Proposition 19 (formerly Proposition 58), is able to keep that inherited home in the family basically forever at the parents’ low property tax base, thanks to tax relief still protected by Proposition 13.
To be clear, an irrevocable trust typically transfers assets out of an estate and potentially out of the grasp of estate taxes and probate, but it can’t be altered by the grantor after it has been executed. So once you establish this sort of trust you lose control over the assets and cannot change any of the terms, or dissolve the trust. However, if you’re gaining the financial advantage of a parents’ low property tax base going forward – it’s generally worth the trade off.
A “revocable trust” can help assets pass outside of an estate in probate, and allows you to keep control of the assets, as long as you are alive. A revocable trust is flexible, and can be dissolved whenever you wish. A revocable trust generally becomes irrevocable when the grantor or trustor (i.e., the person who placed the assets into trust for his or her beneficiaries) passes away.
Trust Assets and Inheritance Distribution
An irrevocable trust is generally preferred over a revocable trust if your objective is to reduce the amount of estate taxes by removing inheritance trust assets from your estate. When the assets are transferred into a trust, you are of the tax liability on the income generated by the trust assets are relieved. Even though inheritance distributions will most likely result in income taxes. However, this type of trust will also provide protection against a legal judgment, should that occur.
Assets in a trust may also be able to distribute to heirs outside of probate, saving time, court fees, and potentially reducing estate taxes as well. Other benefits of a trust include managing your money. You can set the terms of the trust to control when and who assets will be distributed to.
You can set up a revocable trust so the trust assets stay accessible during your life while deciding who remaining assets will pass to, regardless of family complications. Parents often set the terms of trust distribution to protect the money in a trust by holding off on final distribution until the beneficiary is sufficiently mature to handle inherited money wisely, such as distribution at age 30, and again at 40, or whatever.
Final Trust Distribution
Some trusts do not reach final distribution until a beneficiary, who may be considered to be a spendthrift, reaches his or her 60th birthday — imagine waiting that long! This type of trust can also protect an estate from creditors coming after heirs who unwisely get deep into debt. Most importantly for some, a trust can allow assets to transfer to beneficiaries outside of probate and thus remain private, along with lessening money spent on probate court fees and taxes.
However, attorneys bent on convincing a family to leave inheritance assets in trust and ignore probate when they pass on may fail to mention fees associated with a trustee, who typically remains with a trust for the life of that trust, as well as subsequent attorney fees, bank fees, and other nominal costs that add up.
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.
Discovered that 65% of Americans have never written and signed off on a Will;
77% of Americans plan to leave a financial inheritance for their children or grandchildren;
64% of Americans believe they are actually in a position to even leave an inheritance of any kind to their children;
only 50% of aging American parents have an estate plan in place reflecting inheritance assets being left to their children.
Some retirees are committed to leaving money and assets to their children; while other parents see it as “a good thing to do”… yet “not essential” as part of their plan for retirement. Not exactly a sign of high interest on the part of parents, is it, where leaving money to their children are concerned!
However, middle class and even upper middle class families in the United States are understandably concerned about cash flow, and the future of their net worth. Exacerbated by increasing concern over the variant Covid virus issues; which further discourages parents from leaving anything at all to their children upon passing away… virus or no virus.
These concerns are causing many families in America to believe that all states in America, not just California, should have tax relief laws benefiting middle class, lower middle class and upper middle class consumers, not just tax cuts and property tax breaks for wealthy residents.
Different state economists are looking specifically at property tax relief for their state, as this is one of the simpler areas to affect in this manner to help free up more consumer cash, and thereby improve their overall economy in this fashion, step by step.
Allowing beneficiaries of trusts and heirs of estates to be able to access genuine property tax relief… with the ability to get a loan to an irrevocable trust from a trust lender, when parents leave a home to them as an inheritance. This enables these folks to keep their family home, inherited from parents, at a low property tax base.
This process also enables beneficiaries to buyout sibling beneficiaries – or as attorneys put it, “the transfer of property between siblings, without a direct sibling-to-sibling transaction” – by lending money to an irrevocable trust – typically from an irrevocable trust loan lender, who can guide your ability to buyout sibling beneficiaries, and show you how you’re putting a lot more cash in siblings’ pockets when you go through a trust loan to buyout sibling beneficiaries. The fact is, we need to know our rights, with respect to these unique tax breaks.
Homeowners and beneficiaries in all states should know how to buy out beneficiaries’ shares of inherited property; and how sibling-to-sibling property transfer works. Moreover, all Americans should know how loans to irrevocable trusts can help co-beneficiaries get cash while avoiding selling their share of an inherited house – keeping yearly taxes on property at their parents low tax base.
All middle class Americans should be aware of the California system, of California advantages of inheriting parents property and thus inheriting property taxes that are lower and can remain low. Property tax transfer is an unknown in so many states…whereas inheriting a parents’ low property tax base, and avoiding property tax reassessment, as well as being able to buyout sibling beneficiaries with a trust loan – should be known to all, and be a normal state of affairs in all states. It certainly is a “best kept secret” for wealthy families all across America!
Property owners in other states can surely find the time to start the ball rolling to start adopting these property tax relief laws, plus they should be able to see how these types of yearly savings free up cash for many homeowners to be able to purchase a larger home later on.
This would feed more sales activity and cash back into the local economy, with loans to trusts to avoid property tax reassessment, working in concert with new property tax measure that became active in Feb of 2021, California’s Proposition 19 – which used to be the ultra popular Proposition 58, enabling exclusion from current tax rates with a parent to child property tax transfer – along with Proposition 193 for grandparent-to-grandchild exclusion from high fair market rates.
Designing a system like this that has been so successful in California would keep property taxes at a much more equitable system state by state, whereas right now most states do not have a system in place similar to California are not offering middle and lower middle class families a sustainable system within which they can thrive and increase their spending ability.
Californians would then be able to give back more consistently into the general overall economy – inheriting property taxes they can afford, hence being able to maintain inherited property, while helping to increase overall intra-state consumer spending. Creating positive overall financial connectivity, instead of separate declining family spending capabilities, which do not benefit the whole at all.
Economists in many states now believe that within struggling families, if beneficiaries were able to transfer a low property tax base from parents, with an iron clad right to keep parents property taxes as a part of the inheritance process, from parents and grandparents – middle class, upper middle class, and working families would all benefit greatly, and at the end of the day their state would benefit as a whole as well.
If this system were in place in other states, families would be able to free up more cash to spend on goods and services all across their state, thereby benefiting merchants and other consumer businesses, benefiting their families, so they can spend more, moving more cash into the economy, and so on – benefiting each state economy all the way around in every state that shifted in this direction with property tax relief measures designed to help not only individual homeowners and beneficiaries but each state in general.
Saving money on inheritance based property transfers would (as it does in California) allow middle class and upper middle class beneficiaries who do not wish to sell out to keep their parents’ home in the family, which most middle class inheritors otherwise could not afford to do. And yet, unfortunately, California is still the only state that provides a systemic system to help residents avoid property tax reassessment at current, unaffordable rates.
This sort of property tax relief program… capped at 2% taxation, as offered by the 1978 CA Proposition 13 would allows residents in other states to keep parents property taxes, and inherit property taxes at a low property tax base… having the ability to use a Proposition 19 style property tax transfer, with a parent-child transfer or parent-to-child exclusion.
Taking Advantage of Every Key California Property Tax Break
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?
California homeowners are hit with some of the highest property taxes in America. So the key question we face every year is – how can we legally decrease our property taxes? As we all know – although it’s worth a second look due to the various confusing changes imposed as of 2020, 2021 – two most popular systems we can utilize to lessen our property tax burden involve tax breaks, contained in the 1978, 1986 and 2021 property tax measures entitled Proposition 13, Proposition 58 and Proposition 19.
To clear up some of the most confusing issues associated with Prop 19 which now implements the classic parent-child transfer or parent-child exclusion (to avoid paying current property tax reassessment, or “fair market” rates), we’ll have to examine the updated key tax breaks associated with this type of property tax relief in California, as confirmed by the CA State Board of Equalization (BOE).
To review what most of us probably already know – if you inherit a home to be used as your primary residence from your parents or from your children, who used the property as a primary residence, you can successfully avoid property tax reassessment at fair market rates. This special treatment also applies if you acquire the home from your grandparents (avoiding property tax reassessment through the Proposition 193 grandparent-to-grandchild exclusion), but only if both of your parents are deceased. Naturally these processes include any basic property tax transfer designed to avoid property tax reassessment, to transfer parents property taxes when inheriting property taxes from a dad or a mom, or from grandparents. The point being to keep parents property taxes at all costs, through a parent-child transfer.
As of February 16, 2021, an inherited home must be used as your primary residence if you wish to avoid property tax reassessment upon it. Additionally, if the difference between the property’s assessed value and fair market value is more than $1,000,000 at the time of transfer, the new assessed value will be the fair market value minus $1,000,000.
Changes to CA Proposition 58 property tax breaks became active Feb 16, 2021 due to Proposition 19 – trust lenders all across Southern and Northern California are busier than ever, helping Californians who are inheriting a home from parents, as well as beneficiaries inheriting residential property – establishing a low Proposition 13 property tax base for all inherited property going forward.
On top of all that, beneficiaries who are intent on keeping an inherited home are given, through Proposition 19, formerly Proposition 58, the ability to buyout co-beneficiaries, typically siblings, who are looking to sell their shares in the same inherited property… Only with a lot more cash in hand than a non-family outside buyer would pay for the exact same property.
In fact, the need for middle class families to establish a low property tax base for newly inherited property has become so urgent that well known estate & trust lender Commercial Loan Corp in Newport Beach is now offering heirs and beneficiaries inheriting a home from parents a free consultation on parent-child transfer preparation, as well as an estimate of property tax savings overall – to keep their parent’s low property tax base. This Free Consultation for Property Tax Savings helps evaluate the benefit of a loan to an irrevocable trust, specifically for beneficiaries who want to keep inherited property at their parents’ low property tax rate, with the formerly Prop 58 [now Prop 19] parent-child transfer – to avoid current market reassessment. This often involves an unusually fast and inexpensive buyout of siblings looking to sell their share of the same inherited home and/or land.
So to reiterate – by originating loans to trusts and estates in probate, a trust lender like Commercial Loan Corp helps to maximize the distribution of funds to a trust or estate; allowing beneficiaries to buyout inherited property from co-beneficiaries, while keeping a low property tax base when inheriting a home. When providing mortgages to trusts or estates in probate, a good trust lender helps clients avoid the re-evaluation of property at current tax-rates – enabling families to retain a parent’s low Proposition 13 tax base – by obtaining a parent-child exclusion, with a parent-child transfer… saving on average $6,200+ per year in property taxes. If you need assistance with a trust loan in order to equalize a trust distribution to qualify for Proposition 19 or Proposition 58, we highly recommend you call Commercial Loan Corp at 877-756-4454.
The Trust Loan Process From the Inside Out
Tanis Alonso, senior account manager at the Newport Beach trust lending firm, offers an experienced inside viewpoint on the trust loan transaction in conjunction with the Proposition 58 and Prop 19 exclusion from paying high current property tax rates:
“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 [now Proposition 19] 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. It does sound counter intuitive – yet it’s true…“
A Property Tax Appeal Can Lower Taxes on Your Home
County property tax assessors in all 58 California counties assess every homeowner’s property tax by multiplying each home’s taxable value by existing applicable tax rates. The taxable value is typically based on purchase price, generally referred to as “base-year value”. However, tax authorities do have the right to increase taxation by up to 2% every year in tandem with inflation, plus reassess the tax value of most real properties under certain specific circumstances.
For example, if a property owner makes changes to his or her property, such as home renovations, or adding a large swimming pool, or perhaps building an additional wing or modernizing a kitchen or bathroom, whatever – the county tax assessor who gets a copy of that property’s building permits, might possibly reassess, if a decision to do so is made at that time. And this is when discrepancies or errors sometimes occur, when a tax assessor is also able to initiate a separate base-year value on any new renovations or re-constructed areas attached to a home. Mistakes are often associated with these reassessments.
Therefore, one effective way to lessen your property tax burden is to reduce the assessed value of your home by filing an appeal stating that the home’s assessed value is less than the value the tax assessor assigned to it.
The appeal might prove that the home is in much worse condition than the assessor factored into his or her assessment… or perhaps prove that newly constructed changes to the home were not nearly as extensive as the final property tax assessment showed. Tax reduction firms typically handle county tax assessor challenges of this kind, tax appeals, and this is generally the direction most residents go in, in order to submit a successful appeal, in keeping with the CA State Board of Equalization Property Tax Dept.
California State Board of Equalization County Assessor Directory
The BOE publishes a helpful online guide that explains property tax exclusions in detail. For further information about applying an exclusion to your property inheritance, home or living situation, and any required forms you need to complete the deadline for filing these forms, contact your local tax assessor by consulting the BOE county assessor directory.
