Intra-family Loans to Purchase Real Property vs Intra-Family Trusts & Trust Loans

Family Trust Loans

Family Trust Loans

Intra-family loans, to purchase a home or other big ticket items, are sometimes confused with intra-family trusts involved with  buying out a sibling inheriting property, or several beneficiaries who have inherited property from parents yet wish to sell off their property shares to an outside buyer, keeping a low property tax base or a loan to an irrevocable trust that is also associated with exclusion from property reassessment.  

Components of these processes have been discussed on a number of high-end websites at length, such as National Review who informs us in no uncertain terms, that:

“… many clients use intra-family loans to assist a relative with the purchase of a residence, the funding of a business venture or an investment in any other asset. If properly structured, intra-family loans also provide clients with an excellent tax planning strategy. To avoid having any part of an intra-family loan considered a gift for tax purposes, a client should follow specific guidelines, including charging a minimum interest rate, documenting the loan, and requiring payment under the loan terms…”

As well as the ever popular economic bible for serious students of finance, Kiplinger – where they tell us: “Intra-family loans typically use the AFR (Applicable Federal Rate), the lowest interest rate that can be charged on a loan for it not to be considered a gift. The IRS has three rate tiers for the three different “terms” of loans: a short-term loan (0-3 years), a mid-term loan (3-9 years) and a long-term loan (9 years or more).”

If you apply some serious thought to it, you’re bound to come to the conclusion that it makes very little senses to involve the  government in family loan matters.  In fact, it’s not logical to involve the government in any personal matters – financial or otherwise. 

Let’s say you borrow $250,000 from your wealthy Dad – and you pay it back whenever  you pay it back, usually at zero interest, if this even remotely resembles a close family.  If your Dad is going as far as to actually charge you interest it is no ones’ business but your own, between the two of you, as to what the interest might be, or if there even is interest at all, which generally there is not when it concerns internal family lending.   

Although the concept of involving the government in family relationships and intra-family lending is counter intuitive, California intra-family trusts, irrevocable trust loans and exclusion from property reassessment are processes that are unlike any other tax relief or financing anywhere else in the United States – and are extremely useful to both trust lenders and beneficiaries inheriting property from family members, with respect to establishing a low property tax base, as well as buying out co-beneficiaries’ inherited property shares. 

This process moves into some interesting yet often challenging areas when used to resolve inherited beneficiary property disputes and conflicts – typically over retaining versus selling property inherited from parents.… Along with enabling new homeowners and beneficiaries inheriting property to take advantage of  tax breaks under Proposition 19, parent-to-child property tax transfer on an inherited home; and the parent-to-child exclusion from property reassessment on every parental property tax transfer and transfer of property between siblings through trust loan funding; as well as Proposition 19 transfer of property and Proposition 13 to avoid property tax reassessment  when inheriting property taxes, always with the ability to keep your parents’ low tax base for trust beneficiaries,  basically forever. 

Therefore, if you reside in California and are inheriting a home and/or land from a parent who has recently passed – and you prefer to keep your parent’s low  tax rate in addition to claiming an exclusion from property reassessment, along with buying out siblings who insist on selling to an outside buyer – you can always go to a reliable trust lender to accomplish all of the above. 

Moreover, this ensures the siblings you are in conflict with, who are intent on selling out their inherited property shares, that they will  receive a good deal more cash in the transaction that any outside buyer would give them for their property shares… ending as a win-win transaction for all parties concerned.

However, let’s be clear about one thing – it is an intra-family trust that you will be transacting – not an intra-family loan.

Keeping Your Parent’s Low Property Tax Base When Inheriting a Home

Keeping Your Parent’s Low Property Tax Base When Inheriting a Home

Keeping Your Parent’s Low Property Tax Base When Inheriting a Home

How to Keep Parents Property Taxes In 2021

What was once the parent-to-child property tax break called CA Proposition 58 has now morphed into a property tax relief measure to help avoid property reassessment, called CA Proposition 19… active as of Feb 16, 2021.  

Estate and trust lenders are accustomed to teaching beneficiaries and new homeowners freely, in unfettered fashion, how to keep parents property taxes with Proposition 13 or Proposition 58 property tax breaks. But they are still funding trusts with a loan to an irrevocable trust, and helping clients to establish a low property tax base, to avoid property reassessment… Property tax specialists like this are still helping beneficiaries buyout a sibling’s share of inherited property, through a trust loan – the transfer of property between siblings. 

Property tax relief experts are still showing beneficiaries how to keep parents property taxes on a property tax transfer, taking advantage of the parent-to-child transfer or parent-to-child exclusion (from current property tax rates); helping families inheriting a home to transfer parents property taxes when inheriting a home, and inheriting property taxes. 

Help From Experts  

Some California firms with property tax relief expertise have been encouraged to get creative, to meet new property tax challenges and obstacles head on.  Firms such as Michael Wyatt Consulting in Corona who specializes in base year value transfers and parent-child transfer exclusion; real estate issues and property tax relief; or well known trust lender and Prop 58 / Prop19 experts Commercial Loan Corp in Newport Beach, who specializes in irrevocable trust loans and lending.  This particular trust lender is now offering heirs and beneficiaries inheriting a home from parents a free consultation for property tax savings – to help beneficiaries inheriting a home from parents to keep the parents’ low Proposition 13 property tax base; while also taking full advantage of Proposition 19 and Proposition 58.

This type of evaluation for property tax savings is designed to simplify a relatively complex process, helping heirs evaluate the benefits of a loan to an irrevocable trust, specifically for beneficiaries who want to buyout siblings’ inherited property shares, while keeping inherited property at their parents’ low property tax rate – as well as avoiding costly expenses associated with selling property through a realtor.  

The name of the game is to simplify the use of Proposition 19, as well as the transaction between trust lender and beneficiary. A process that is often difficult for families to understand.

Inside View From an Account Manager’s Perspective

One such seasoned proponent of simplification of the Proposition 58,  trust loan process is a highly experienced account manager by the name of Tanis Alonso – a particularly hard working, dedicated senior manager, who works closely with her clients, and frequently their estate lawyer or accountant.

In a recent interview with this blog Miss Alonso described her unique personal approach to planning and implementing estate & trust loans for families; how property tax saving trust loans and Proposition 58 tax breaks factor into her family undertakings and financial proceedings, Miss Alonso tells this blog:

We don’t view each trust loan scenario as simply a ‘financial transaction.’ Nor do we see the home they’ve lived in for decades as just a ‘piece of real estate’. To us, this a ‘piece of family history’ in the making. And the process a ‘family decision,’ not a ‘transaction’…

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.

Feedback From A Seasoned Property Tax Consultant

The other example we mentioned, Michael Wyatt Consulting, works in conjunction with real estate attorneys and frequently a trust lender, and formally reviews clients’ real estate values. The firm studies and forms strategy for proposed real estate transactions; ensuring avoidance of property tax assessment.

Mr. Wyatt conducts comprehensive research on real property, real estate deeds, and other instruments for accuracy; and serves as a liaison between clients and the Tax Assessor’s Office – maintaining problem-free communications with Assessors and other essential local government agencies. Mr. Wyatt explains:

We let our clients know the Proposition 58 [or Proposition 19] tax benefit entitles children of parents leaving them property to preserve the low Proposition 13 maximum 2% tax base. A California property tax transfer. However, a lot of people don’t fully understand that you have to apply for the benefit. It’s not automatic. And it doesn’t apply to the principal home. explain to them that they get the assessed value tax benefit only if it’s a non principal home. You get the assessed value waved if for example it‘s a million dollar property… You get the million excluded – but the overage is reassessed… A lot of people don’t know that.

The creators of the trust get this benefit. definition of ‘a child’ or “children” is typically the adult children of a decedent…But this also refers to step-parents. Step-parents can also transfer property to a step-child… Mom can be a step parent and can still get the benefit. In-laws get the benefit as well. You don’t have to be blood relatives.

We basically introduce the trust lender, for example Commercial Loan Corporation, as a private money lender that loans to irrevocable trusts, that applies for and works in tandem with California Proposition 58 [or Proposition 19]… for beneficiaries who are looking to sell their real property shares – for the purpose of facilitating “non pro-rata distribution”… So every heir gets an equal share of the entire overall estate – however, not necessarily of every asset.

Well, if the family in question uses the Commercial Loan Corp company that we have been using for years… the loan they provide is to a trust, and not to beneficiaries; so there is no title, and no crippling 66.66% property tax reassessment.  Well, for example, there might be three siblings… beneficiaries – and a house to inherit. And this is always important to remember.

If you’re one out of the three siblings that wants to keep the inherited house, you are definitely looking at a 66.66% property value tax reassessment – if you’re operating without a loan to a trust, or you’re using your own cash; or getting money from a very pricey institutional lender – typically with multiple restrictions and extremely strict terms.”

Mr. Wyatt sums up and simplifies a process that tends to look complicated to new clients.  At the end of the day, all families need to understand is the fact that in the end, they save a great deal of money on property taxes if they aim to keep their parent’s home.  If they are looking to sell, they simply need to understand that they will be putting lot more cash in their pocket  using the trust loan approach, rather than selling to an outside buyer.  Everything else is secondary, if you are inheriting property.

If you are interested in finding out how much you might be able to save by keeping a parents low Prop 13 property tax base on an inherited home, we suggest you contact Commercial Loan Corporation at 877-756-4454. They will provide you with a free estimate on what your annual property tax savings will be and provide you with information on the Proposition 19 process.  They can even put you in contact with a trust and estate attorney in your area if needed.

Taking Advantage of Every Key Property Tax Break

Taking Advantage of Every Key Property Tax Break

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.

Irrevocable Trust Loans & Proposition 19 Property Tax Exclusion

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.

Proposition 19 Impact on CA Homeowners

Proposition 19 Impact on Property Taxes in California

Proposition 19 Impact on Property Taxes in California

Proposition 19 Impact on Property Taxes in California

Now that the popular Proposition 58 tax break system has changed into tax measure Proposition 19 – these are some of the key issues specific to modern Proposition 19 property tax relief.

These changes cover real property parent-to-child transfers after Feb 16, 2021. Whether key outcomes are based on the death of a parent before Feb 16, 2021, or based on deeds filed after Feb 16, 2021, is still questionable, whether Proposition 19 would apply, or if California parent to child exclusion from property tax reassessment, derived from Proposition 58, will apply – with respect to parental property tax transfer.

We believe the bottom line is simply to continue applying political pressure on those in power in this state – to make sure the California property tax system continues to provide genuine property tax breaks for residents, with the ability to avoid property tax reassessment via  Proposition 19 (formerly Prop 58 and its’ parent-child exclusion) in concert with a loan to an irrevocable trust – keeping a low property tax base when inheriting a home, when buying out property shares from co-beneficiaries through a trust loan; with the ability to keep parents property taxes, with the right to transfer parents property taxes, getting the most out of Prop 13 and Prop 19 property tax breaks upon the transfer of a home, when inheriting property taxes. 

Positive Changes Affecting Heirs & Homeowners From Prop 19

1. One major change is that Proposition 19 eliminates the parent-child and grandparent-grandchild exclusion from reassessment for properties other than a primary residence.

2. California homeowners over the age of 55 or with severe disabilities (which is still not defined as to what the exact definition of “severe” is) will have the ability to transfer their current property tax assessed value (i.e., “base year value transfer”) of their primary residence to another primary residence anywhere in California.

This change eliminates the problem of not being able to take advantage  of Prop 58 and its’ parent-child exclusion in all 58 counties in California – in terms of being approved, or not approved, for a base year value transfer. 

In other words, Proposition 19 is strictly statewide, without obstacles blocking your ability to avoid property tax reassessment in some counties, while there is no problem avoiding property tax reassessment in other counties!  That type of bias towards homeowners and beneficiaries in some counties caused a lot of problems in California.

This change enables residents to purchase a more expensive home rather than a more inexpensive home to keep tax the relief benefits of the base year transfer.  If a more expensive primary residence is purchased, there is now a rather complex formula to  minimize the increase in base year value.  Moreover, Proposition 19 now increases the number of times the exclusion may be used, up to three times in a lifetime.

Prop 58 Parent-Child Exclusion Has Morphed Into Prop 19 Property Tax Breaks

Prop 19 Property Tax Breaks

Prop 19 Property Tax Breaks

The Proposition 58 parent-child exclusion and other tax  breaks have now  changed into the Proposition 19 Parent to Child Property Tax Transfer

As most Californians are aware, a home undergoes reassessment at “market value” if it’s transferred, inherited, sold or gifted – and, in turn, taxes on the property often increase significantly. Yet, if the sale or gift or transfer is between parent and offspring, in certain situations, the home won’t undergo reassessment once specific requirements are met and the relevant application is filed properly.

California’s unique Proposition 58 tax break enables new homeowners or beneficiaries to avoid property tax reassessment when inheriting real estate and liquid assets; upon receiving a home or other real estate from a parent – or vice versa. When a home, for example, is sold, given as a gift, transferred as an inheritance, or transferred through a trust.  However, the fact remains – inheriting property taxes from Dad or Mom is now more limited than it was before.

As we know, a new homeowner’s property taxes are calculated through the time honored, low Proposition 13 base year value, typically what parents had paid… as opposed to so-called “fair market value” or “current market value” when new property is acquired – gifted, bought, generally inherited… As most homeowners know by now, real estate transfers excluded from property tax reassessment by Proposition 58 or Prop 193 have to be used as a principal residence (with no value limit). 

For those of you who are extra detail oriented – Proposition 58 is established in section 63.1 of the Revenue and Taxation Code.  It’s also worth mentioning that, with respect to  Proposition 193,  parents of a grandchild do have to be deceased prior to property transfer from grandparent to grandchild.  Alternatively, the grandparent’s child can be deceased, with the surviving parent-in-law being remarried prior to the transfer event.

The below bullet points may untangle some of the confusion that has formed around some of these property  tax breaks.  We need to take note that property tax relief limitations built into Proposition 19 are presently serving as a replacement to the pre-Feb 2021 Proposition 58  parent-to-child exclusion, also referred to as a “parent-child exemption” (from property tax reassessment).

Some of the new Proposition 19 tax breaks are a work in progress,  however most have been given a stamp of approval by the BOE

• Proposition 19 was more or less rushed through the political and electoral process, passed by the CA Legislature in under a week, and placed onto the Nov 2020 ballot, changing the California state constitution without implementing the appropriate statutes. Homeowners’ ability to transfer parents property taxes, in other words the right to keep parents property taxes on any parental property tax transfer, inheriting property taxes from Dad or Mom… and enabling heirs to keep parents property taxes are sill in place as valid tax breaks, allowing beneficiaries or heirs to avoid property tax reassessment – the process is just more limited than it was previously. 

Moreover, establishing a low property tax base along with the transfer of property between siblings, sibling-to-sibling property transfer – buying out a sibling’s share of inherited property through a trust loan, in conjunction with Prop 58, is still firmly in place, however inheriting property taxes from Dad or Mom is now limited somewhat by Proposition 19. Similar limitations are now in place as well concerning the process of inheriting property taxes from a parent, the parent to child transfer and exclusion for reassessment of property taxes, or parent-child exclusion (from property tax reassessment at current market rates).

• Sections of the approved documentation and revisions to various sections are vague at best and often unclear

• To correct these issues, Santa Clara County Tax Assessor Larry Stone was appointed by the California Assessors’ Association (CAA), with four other tax Assessors, to a hastily formed CAA “committee” to try to provide some clarity to the new Proposition 19 implementation process.

• The CAA “committee” has enlisted supposed specialists and tax lawyers throughout California, and is working with the Board of Equalization (BOE) to furnish guidance and where necessary recommend passage, on an urgency basis, towards implementing appropriate statutes.

• Homeowners over the age of 55 (or “who meet other qualifications” which remains vague) would be eligible for property tax savings when they move. To avoid property tax reassessment at current or “fair market” rates, beneficiaries inheriting property from parents must move within 12-months into an inherited home, using this property only as a primary or principle residence.

• Likewise, the parent leaving the home to beneficiaries must have been residing in that home as a principle or primary residence. Apparently, going forward into 2021 and beyond, there will be no exceptions to these new rules and regulations.

• Only inherited properties used as primary homes or farms would be eligible for property tax savings. Those who are “severely disabled”, or whose homes were destroyed by wildfire or a “natural disaster” can now transfer their primary residence’s property tax base value to a replacement residence of any value, anywhere in the state.  This was considerably more limited prior to Feb 2021.

• Eligible homeowners can now take advantage of “special rules” to move to a more expensive home. Their property tax bill would still go up but not by as much as it would be for home buyers that are “not eligible”.

• Eligible homeowners may use these “special rules” three times in a lifetime. (for declared disaster victims, there is no limit on the number of times these benefits can be used.)

Filing Requirements

A claim form must now, as of Feb 2021, be completed and signed by the transferors and transferee and filed with the Assessor. A claim has to be filed  within three years after the date of purchase or transfer, or prior to the transfer of the real estate to a third party, whichever is earlier.

If a claim form has not been filed by the date specified above it will be timely if filed within six months after the date of mailing of the notice of supplemental or escape assessment for this property. If a claim is not timely filed the exclusion will be granted beginning with the calendar year in which you file your claim.

What CA Beneficiaries, Trustees & Homeowners Need to Know

New California Prop 19 Property Tax Transfer

New California Prop 19 Property Tax Transfer

Tax Basis Portability

As of Feb. 2021, so-called “tax basis portability” has been available to beneficiaries and homeowners, under the new Proposition 58 quasi-replacement, CA Proposition 19.  Tax basis portability is a way to reduce the assessed value of your home.  As a result, you have the generally significant benefit of lower property tax liability.

With “tax basis portability”, you can transfer the old assessed value of your previous home, to your next home. For instance, if you own  a house with an assessed value of, say, $400,000. You sell it for $600,000, and purchase a house for, let’s say, $550,000.  So rather than a new reassessed value of $550,000, you can apply to reverse  the value of the property back to the previous assessed value of $400,000. Therefore, the lower value can shave roughly $1,800 off your property taxes every year.  OK, it’s not a million dollars, but it adds up…

As long as you can verify that you are –

  1. age 55 or older;
  2. or severely disabled;
  3. or own a home that has been significantly damaged by forest-fire or wildfire, or a natural disaster, such as a flood.or severely disabled;
  4. plus, are inheriting a home that was a principle residence; and are moving into the property only as a principle residence.

“Portability” is language used to define estate tax law that enables a surviving spouse to use an estate tax exemption left by a deceased spouse to protect valuable assets during the surviving spouse’s life, or at the surviving spouse’s death.

Potential Issues with a Replacement Property

A “replacement property” can be purchased prior to the sale of home you are currently living in. Of course there may be some problems property tax relief critics, realtors, politicians, and the Legislature doesn’t like to acknowledge – such as the size of an inherited home, your family may be way too large for it.  Or the inherited home may be in an undesirable area. 

If you have children in school, the school in the new school district you may find yourself in might be completely  inferior to the previous school, upsetting your children. Or your commute to work may end up being an extra 4 hours on the freeway, getting to and from your new inherited home!

These issues can be exhausting and debilitating in the long run. Certainly something to consider.  In a perfect world, these issues would not surface and become a big problem when you inherit a home from a parent. However, it’s generally not a perfect world.

Improvements to Propositions 60, Prop 90 & 110

Revisiting several of the new property tax relief options… One can safely say, despite components that are perhaps not so helpful – that Proposition 19 is, in some ways, less restrictive than the old Proposition 60, Prop 90, and Prop 110.  There are no more county or sales price restrictions, and people can use the Proposition 19 property tax benefit more than once in a lifetime.

Proposition 19 Benefits

a) County restrictions are eliminated… The older rules limited the location of the properties in question. Proposition 60 restricted the tax basis portability within one county. Proposition 90 expanded that to a certain list of counties, so you could sell in one county and buy in another, but only if they were on that list.

b) Under Proposition 19… instead of limiting the counties of transfer, you can use this benefit anywhere in California.

c) No more sales price restrictions… Under Propositions 60 and 90, only transfers of “equal or lesser value” were eligible for tax basis portability.

d) A transfer of low tax basis… is now enabled by Proposition 19, regardless of value. However, certain adjustments to the tax basis are required if the purchase price of the replacement property is higher than the sale price of the previous home. 

New Proposition 19 Restrictions for Inherited Properties

On the other hand, under Proposition 19, beneficiaries could see a substantial increase in their property taxes for inherited property. While property tax relief in California had no exclusion or exemption limitations under Proposition 58, current property tax law exclusions under Proposition 19 apply strictly to the first $1,000,000 of inherited property value.

For instance, should your inherited property (i.e., primary residence) be assessed with a market value of $2,000,000 upon transfer to you as the official beneficiary, newly assessed value will be $1,000,000. In other words, $2,000,000 minus $1,000,000 (i.e., the first $1,000,000 of property value) – will equal a $1,000,000 limited exclusion.

Although you are most likely aware of other changes and limitations imposed on California property tax relief, it bears repeating.  As a beneficiary inheriting CA property taxes from a dad or mom, you now have to reside in a home only as a primary residence, if you are to take advantage of the Proposition 19 tax break, providing an exclusion from property tax reassessment at current market rates. You can no longer receive an exclusion from reassessment for an investment property.

Some say the underside to this reveals a change that mainly benefits the realtor community in California – using the Bridges family as their one and only singular example of inheriting CA property taxes from a wealthy parent, in this case a luxury beach- front property being used as a lucrative investment property; saving a great deal in taxes – while renting out to wealthy vacationers for $15,000 per month.

For whatever reason, critics of property tax relief have as yet produced very few specific examples of this type of inherited property used for “rental revenue” purposes, as opposed to “primary residential” purposes.  Incredibly, the property tax law removing Prop 13 and Prop 58 property tax breaks from investment properties is apparently based on this one oft-told, tired tale of the Bridges family!

As you probably also know – as an inheritor, you have only 12-months in order to establish your inherited property as a principal or primary residence, to avoid property tax reassessment. However, if your inherited property value is more than $1,000,000 over the original tax basis, you are most likely still facing property tax reassessment – and this can hit the pocketbook hard. This may encourage you to sell out, if that’s the case.

Help From Property Tax Specialists

If you don’t want to sell your inherited home, you may be inclined  to enlist the help of a property tax consultant like Michael Wyatt Consulting, or Devin Lucas Real Estate for example (great proponents of property tax breaks, and supporters of Propositions 13 and 58); or a trust lender like Commercial Loan Corp, with a loan to an irrevocable trust – and buyout your siblings, if you have siblings, who prefer to sell their property shares from the same inherited property you have received from your parents. 

You can establish a permanent, low Proposition 13 tax base this way, and take over 100% of the inherited property equity, with the trust loan paying off anything owed on the inherited home.   Plus, your siblings will end up with a good deal more cash from the trust loan than if they had sold out to an outside buyer.

Proposition 19 Changes  to the CA Parent-Child Exclusion

Let’s say a parent owns a home that is his or her primary residence plus a rental property (such as an apartment building or commercial building) in California. The home has an assessed value of $500,000 and a fair market value of $3,000,000. The rental property also has an assessed value of $500,000 and a fair market value of $2,000,000. Even though these properties have different current market values, their property tax liability is similar because they have the same assessed value. The combined annual property tax of both properties with a property tax rate of 1.25% is $12,500.

Prior to Proposition 19:  Let’s say the parent in this example wanted to transfer both properties to his son. There was no reassessment on the transfer of either the home or the rental property from father to son. The home before Proposition 19, under Proposition 58, could be transferred to the son irrespective of its’ value, since it was the father’s primary residence, and the assessed value of the rental property falls below the $1,000,000 threshold.

Therefore the combined annual property tax stays at $12,500. Moreover, there were no restrictions on the son’s usage of either property – therefore the son might have used both properties as investment properties if that is what he wished to do. 

Outcomes Under Proposition 19: Let’s say new assessed value of a house is $2,000,000 since the current market value is larger than the assessed value by more than $1,000,000 (i.e., the new assessed value has a current market value of $3,000,000 minus $1,000,000). The new assessed value for the rental property is its fair market value of $2,000,000 because no exclusion or exemption from reassessment at current market rates applies to transfers of property from parent-to-child other than a primary residence.

Yet if it is indeed a principle residence that beneficiary or heirs  are moving into, in keeping with the 12-month inherited property move-in deadline – all the bells and whistles really are still there to be taken advantage of – such as inheriting CA property taxes from parents,    having the right to continue transferring property taxes while avoiding property tax reassessment, while being able to use a Proposition 19 loan to an irrevocable trust to keep a parents low property tax base as well as buying out siblings’ inherited property shares – formerly a Proposition 58 transfer of property between siblings…

By the same token, heirs or beneficiaries of inherited property can make full use of any property tax transfer as long as these new restrictive requirements are met…  an inheritor can transfer parents property taxes and likewise keep parents property taxes thereafter upon inheriting CA property taxes from ones’ father or mother – and complete the process with a parent-to-child transfer and parent-child exclusion.  Californians are still able to successfully avoid property tax reassessment by inheriting CA property taxes from parents, in the final analysis, keeping a low property tax base when inheriting a home. The key to property tax relief in all 58 counties in California.  

The new combined annual property tax will be $50,000. In addition, the son has to use the inherited family house as his primary residence or that property is sure to be reassessed at the current market value of $3,000,000, which will increase the combined annual property tax for both properties to $62,500.

You see the difference? This accounts for the growing push-back on Proposition 19…despite all the positive elements that come with this property tax measure.

Propositions 58 & Proposition 19 Trust Loan

Proposition 19 Trust Loans How To Keep a Parents Low Property Tax Base On An Inherited Home In California

Proposition 19 Trust Loans
How To Keep a Parents Low Property Tax Base On An Inherited Home In California

Trust Loans: Keeping a Low Property Tax Base

California trust loans are commonly used to establish a low property tax base for beneficiaries inheriting a parent’s home, working in conjunction with California tax break Proposition 58 and California Proposition 19. 

This process, often involving a loan to an irrevocable trust, also sometimes resolves inherited property conflicts between siblings by providing needed cash for a trust distribution. In case you didn’t know, after Feb 2021 the popular Proposition 58 parent to child exclusion (from property tax reassessment at high, current market tax rates) is now essentially the Proposition 19 parent to child exclusion. It has basically morphed into the new  Proposition 19 property tax measure – yet still enabling most  beneficiaries to buyout their co-beneficiaries’ shares of inherited property and avoiding property tax reassessment for themselves, retaining a parents low property tax base going forward.

In other words, it’s still possible to buyout  a siblings portion of an inherited home and keep a parents low property tax base using California Proposition 19.  The process is sometimes refer to as “a transfer of property between siblings” or “sibling to sibling property transfer” – funded by an irrevocable trust loan – from a trust lender specializing in the trust loan and CA Proposition 58, Prop 19, and Prop 13, process. 

Moreover, it’s still possible, thankfully, to transfer parents property taxes when inheriting property.  The ability to continue inheriting property taxes, to keep parents property taxes basically forever on any property tax transfer through the parent to child transfer and parent-child exclusion, is still intact and protected by Proposition 13 and to a more limited degree by Proposition 58  and now Proposition 19.  Exactly for how long, we’re not sure — which is why voters must keep a close watch on critics of property tax relief in California, on the realtor community, and on the CA Legislature.

If you are interested in taking advantage of your California Proposition 19 property tax benefit and avoiding property tax reassessment on an inherited home, we suggest calling Commercial Loan Corporation at 877-756-4454 when a third party loan might be needed to provide the funds needed to equalize a trust distribution and buyout siblings. You may also complete the online California Proposition 19 Parent to Child information request form located here.

When a child is inheriting a home from a parent and would like to use Prop 58, or Prop 19 to keep a parents low property tax base it is still entirely possible to do so!  You may be inheriting a home from a parent, in trust, yet if there are not sufficient cash assets in the trust to make an equal distribution, then a loan against real estate in the trust will be needed to qualify for the parent to child transfer to avoid property tax reassessment – and this can still easily be done, with the right property consultant or trust lender, such as Commercial Loan Corp in Newport Beach, CA or Michael Wyatt Consulting in Corona, CA; despite some imposed limitations from California Proposition 19.

Strengthening Proposition 19 Property Tax Relief During a Pandemic

California Prop 19 Property Tax Transfer

California Prop 19 Property Tax Transfer

In the midst of a relentless Pandemic, causing untold economic carnage, unemployment and financial damage  to middle class Californians, it would be advisable for the state to provide middle income and working class residents with the ability to not only make more money, if that were to be possible,  but to be able to spend less.

One proposed solution to accomplish this – proposed by respected real estate analysts and property tax consultants – would be expanded property tax relief; despite certain limitations and obstructions from special-interest groups and changes to Proposition 58.   Proposition 19 property tax breaks should most likely be strengthened in favor of property owners, with a robust initiative led by the Governor – rather than an unhelpful deferred property tax payment plan, such as he has already suggested.

Forward thinking tax consultants such as property tax consultant, Proposition 13 specialist, Michael Wyatt Consulting have proposed property tax breaks that save homeowners, commercial property owners, and beneficiaries inheriting property more money from property tax breaks than are currently in place.   

Well known Trust and Estate Lender  Commercial Loan Corp, furnish trust beneficiaries with irrevocable trust loans, working in conjunction with Proposition 19 benefits, can establish a low Proposition 13 property tax base for homeowners, and save inheritors thousands of dollars every year in property taxes.

These property tax reduction measures – as long as homeowners make good use of them and keep inherited property, or allow other siblings or co-beneficiaries to buyout their shares  of inherited property through a trust loan working with Prop 58 tax breaks – will avoid property tax reassessment.  This process will, in fact, create a low property tax base for the singular owner or owners of this shared inherited property.  And there indeed is one solution to enable homeowners to spend less.  

This helps middle class property owners and working families to not only spend less, but also to retain more cash in  their bank and investment accounts. Most importantly, this type of trust loan financing also helps trustees and beneficiaries resolve disputes  over assessor stated property values – as well as resolving often heated conflicts over whether they should sell to an outside buyer, or profit more by allowing a co-beneficiary to buyout their property shares while avoiding property tax reassessment of this family property altogether. As realtors call it, “transfer of property between siblings” or “sibling to sibling property transfer” – lending money to an irrevocable trust, for trust loan financing  – can resolve various squabbles and infra-family problems between estate heirs and trust beneficiaries. 

Noted originator of trust loan financing, Commercial Loan Corp President Kerry Smith; and other outspoken supporters of property tax breaks for the middle classes, such as Property Tax Relief Consultant Michael Wyatt,  Jon Coupal, President of the Howard Jarvis Taxpayers’ Association; and Paramount Property Tax Appeal President Wes Nichols, have all stated, repeatedly, that Proposition 13 and Prop 58 should be better protected and expanded; That Proposition 19 should be expanded to better serve homeowners; and at the same time strengthened in the courts so Amendments that can potentially wipe out property tax breaks like Proposition 58 for example, in a single vote, will be impossible to advance without a great deal of trouble and expense.

California, since 1978, is the only state where you can avoid property tax reassessment at current rates; but the state does need to better protect, not water down, residents’ property tax relief options; to keep parents property taxes… and to transfer parents property taxes as well as inheriting property taxes at a low base rate for even a secondary inherited property.

Avoiding property tax reassessment is a crucial tax relief element, and therefore should be better  protected, for new homeowners and beneficiaries inheriting a home and/or buying out a sibling’s share of inherited property   the transfer of property between siblings, sibling to sibling property transfer, the right to transfer parents property taxes when inheriting property taxes – so beneficiaries can keep parents property taxes at its’ original low base rate… which applies to every  property tax transfer,  meaning every parent to child transfer and family parent to child exclusion.

Helpful information on Proposition 13 & Prop 58 as well as property tax appeals and property tax reduction solutions can be found at niche Websites like the CA State Board of Equalization and here at Property Tax News.  Or look carefully at various sections and articles at Loan to a Trust or at  detailed, more sophisticated trust loan info-websites.  Every property owner should know what’s involved with inheriting property taxes at a low rate, or a beneficiary buyout of sibling property shares, or “transfer of property between siblings” – with new, revised Proposition 19 basic property tax relief opportunities that are available to Californians, come rain or shine.

Getting the Most Out Of Prop 13 and Prop 19 Property Tax Breaks

Getting the Most Out Of Prop 13 and Prop 19 Property Tax Breaks

Getting the Most Out Of Prop 13 and Prop 19 Property Tax Breaks

Residents in California that Benefit from Proposition 19

Focusing on senior residents and of course wildfire victims in the promotion of Proposition 19 was an extremely clever move by the CA Legislature. The state has been in the midst of another catastrophic series of natural fire storms  at the same time that voters were being introduced to the Proposition 19 tax measure; and voters certainly were personalizing what it might feel like to lose their home, in a matter of minutes, to fire… and of course this connection did not go unnoticed by the folks promoting Prop 19.  

Proposition 19’s backers ran sentimental, heart-tugging ads and even poured cash into the firefighter’s union.  Nonetheless, Proposition 19 only just passed with a little over half of the vote, 51%.
 
Prop 19 is a positive financial opportunity for seniors, victims of natural disasters and fire storms, and for homeowners with disabilities; or residents that happen to be grandparents that are looking to relocate from one area to another in California, to purchase a house nearer their family, specifically their children. And it’s a positive opportunity for older married couples looking to downsize, or to upgrade to a retirement home. 

On the other hand, it is a challenge for many middle class families, that are trying to avoid property tax reassessment; that are keen on establishing a low property tax base; to take advantage of Proposition 13 transfer of property, that wish to transfer parents property taxes when inheriting property taxes. It’s important to most families when inheriting property taxes from a parent, to keep parents property taxes, on any property tax transfer with a parent to child transfer or parent to child exclusion. 

Moreover, beneficiaries looking to buyout co-beneficiaries, siblings, are always looking for help in the transfer of property between siblings, to make sure nothing goes wrong — that you can keep your parent’s low Proposition 13 tax base and properly establish a low property tax base when buying out a siblings’ share of a house.

Easy Mistakes to Make, and to Avoid, with Proposition 13 & Prop 19

A few mistakes single homeowners, beneficiaries and property owning families  can fall into quite easily:

1) Some families forget to execute a property LLC in order to protect their  property from property tax reassessment when they pass away.

2) Some heirs or beneficiaries are not aware that they must file a claim for a “reassessment exclusion” or “exemption” under Proposition 13 inside of three years after the passing of a decedent, and therefore may lose their exclusion from property reassessment.  This can be an extremely expensive mistake.

3) Some homeowners mistakenly believe that they are passing on a “principal residence” or “primary residence”  but in fact have not resided full time in that home for many years.  This will cause expensive reassessment issues for any beneficiaries.

4) Some families believe they can pass on an exclusion from reassessment regarding a multi-unit residential property, even though they only reside in part  of the property.  This will cause serious issues for any beneficiary or heir.  

5) Some heirs or beneficiaries may not understand that they must reside in an inherited property only as a primary residence, under Proposition 19, in order to take advantage of a “parent-to-child” exclusion from reassessment, establishing a low property tax base; once a parent passes away.  Non primary residence could trigger reassessment at current market rates.

6) Some families revise the title of their home without consulting their tax lawyer or property tax specialist, possibly triggering property tax reassessment.

7) Some families will include numerous beneficiaries in a living trust, along with  listing their home.  If some of the beneficiaries are not offspring and some are, your actual children, i.e., heirs, may lose their ability to avoid property tax reassessment.

8) Some families may shift an industrial facility they have inherited into an LLC for business purposes, while renting it out; triggering a property tax reassessment by not  filing the proper forms in a timely fashion.

9) A property transfer may occur without proper registration paperwork filed   with the state.  Twenty years later the new property owner may owe twenty years worth of back property taxes at vastly increased rates. This can be a devastating event, causing the current owner to lose their home.

These laws are complicated and different scenarios can be confusing. Mistakes with paperwork or filing procedure errors can trigger reassessment at current market rates; even resulting in the loss of a home.  Another reason why estate lawyers have become so important as of late!

Beneficiary Property Disputes Resolved by Loans to Irrevocable Trusts

Loans to Irrevocable Trusts

Loans to Irrevocable Trusts

Over the past several years, since 2016, we have seen a fair amount of estates, or inheritances in trust, that are embroiled in a dispute or infra-family trust battle over who should be receiving the larger share of cash assets or the largest percentage of an old home left a Mom or a Dad. And we see this pattern repeated over and over again; the same words, the same playbook, similar arguments and similar claims.

Several US firms that provide inheritance loans and cash advance assignments for estate heirs and trust beneficiaries receiving inheritance assets and property have all confirmed, when asked, that up to 75% of the families they have provided advance funds to were mired in infra-family squabbles and disputes over inheritance funds or inherited real estate. 

In California a simple trust loan solution involving Proposition 58, as well as specific tax breaks within Proposition 13, resolve certain beneficiary property disputes.  Only in California is it possible for family members to buyout a co-beneficiary, usually a sibling or several siblings, with the help of established property tax breaks…

Therefore, family disputes caused by sibling disagreements over whether or not they should sell or retain shared inherited property; or what that inherited property value should be, if the assigned tax assessor value is mistrusted, can easily be minimized… Generally, these conflicts are resolved rapidly and satisfactorily if a large loan to an irrevocable trust (working in tandem with CA Proposition 58) is implemented effectively through an experienced trust lender.

If this trust loan process is not implemented properly, the wheels trend to come off the estate wagon, so to speak, and these particular estates typically do not end well.  Whereas, if this trust loan & Prop 58 process is executed correctly beneficiaries end up owning their  inherited property securely, while siblings who insist on selling their inherited property shares end up receiving more money through the trust loan process than if they had received a direct non-trust cash payment from an outside buyer.

Residential and commercial property owners in every single state in America need to research benefits provided by trust lenders furnishing loans to trusts, specifically loans to irrevocable trusts and CA Proposition 13 transfer of property establishing a fixed low base rate in conjunction with a Proposition 58 transfer of parents’ property and transfer of parents property taxes. 

All property owners, for their own good, will eventually have to understand what inheriting parents property, inheriting property taxes, property tax transfer and what the ability to  transfer parents property taxes is really all about.  Plus how to keep parents property taxes at the lowest base rate possible.  Moreover, they must understand why a parent to child transfer, or parent to child exclusion, is so profoundly important and creates the core of property tax relief in California… And we can only hope in other states as well.  If homeowners in other states begin calling and sending emails to their often invisible representatives in Washington DC, this might actually become a reality in the near future – and should, given the economic challenges middle class families are facing, and will continue to face for some time to come.

Goods and services as well as real estate can be incredibly pricey in states like Connecticut, Texas, California, New York, New Jersey, Massachusetts… these are all expensive states, in terms of day to day living… However, decreasing property taxes down to a more manageable level can change people’s entire outlook on their life, helping middle class families to function more effectively with financial struggles, at least to some degree.

Moreover, the concept of paying yearly taxes on something you purchase and then keep for many years, might be flawed to begin with. What other large purchase you may make continues to charge you fees for ownership, for the rest of the time that you own that item?  Other than insurance, do you continue to pay taxes on a boat you own? An airplane? A car? A motorcycle? None. Only real property.  Perhaps the whole concept of taxing real estate after the initial purchase could use some fresh, new examination.

At any rate, California is still the only state in America where you can avoid property tax reassessment at current market rates; capped at 2% taxation,  as long as you own property inherited from parents… thanks to 1978 CA Proposition 13 enabling the ability to  transfer parents property taxes.  These issues are covered in detail on the California State Board of Equalization, that covers Proposition 58 at great length.  Or you can look at business oriented sites that focus on property tax relief,  such as Michael Wyatt Consulting, or trust loans and Proposition 58 at sites like Commercial Loan Corp;  or go take a look at resource info blogs such as Loan to a Trust, or even a blog like this one,  Property Tax News for information on Proposition 19, Proposition 13, and support or opposition to property tax relief in California, in the present as well as in years past for an accurate historical perspective.