Let’s say you’re inheriting an aging but beautiful home from your parents, with a terrific pool, and fireplaces everywhere… with a wooden deck the family has conducted so many marvelous surf & turf barbecues on – with that brand new grill, with your favorite smoked hickory-flavored charcoal… And plenty of ice-cold drinks.
Just walking around the backyard near the grill brings back wonderful emotional family memories when you and your siblings inherited the entire property from your parents and – as your lawyers referred to it – the property was “transferred” to a new owner – in this case you…. despite the fact that your siblings are determined to sell out their property shares. While you are determined to avoid triggering crippling property tax reassessment! At all costs. So you talk to your family lawyer, and call a reliable trust lender to discuss your ability to transfer property taxes to children… Like the well known Commercial Loan Corp in Newport Beach.
In which case a parent-to-child exclusion is secure, and makes a lot of sense – working with an irrevocable trust loan, in conjunction with Prop 19, which has basically replaced the Proposition 58 parent-child exclusion. And simply requires a careful, but determined, step-by-step process – to reach the desired outcome – to avoid current property reassessment; while buying out property shares inherited by siblings, and nailing down sole ownership of that wonderful old inherited home with all those lovely old dreamy family memories!
How to Avoid Triggering Property Tax Reassessment
It’s terribly important to pay attention to good advice from your attorney, and your trust lender, on mistakes to avoid when transferring a property tax base… In most cases, your inherited property is generally reassessed by your friendly neighborhood CA County Assessors Office; while the new owner pays a higher property tax. The parent-child exclusion was voted into law on Nov 6, 1986… enabling beneficiaries to inherit property from parents, smoothly and quickly – avoiding property tax reassessment and keeping a low property tax base when inheriting a home.
Thankfully, new rules for property tax transfers in California are still giving parents the ability to transfer property taxes to children without any issues – and enables a family/parent oriented beneficiary (usually the favorite child!) to buyout siblings’ share of inherited property and transfer parents’ property taxes through a standard property tax transfer – getting a transfer of property between siblings accomplished without a miserable property tax hike slamming you out of the blue.
Transferring a Family Home to Beneficiaries
As most of us know by now, given the publicity Proposition 19 has received – at the root of all this, it’s simply a matter of inheriting property taxes at a profoundly lower rate from parents… with the ability to transfer smoothly from parent to child, and keep parents property taxes basically forever – for that inherited family home at least. And possibly more, if you have the right lawyer, and the situation merits it.
In other words, as estate and real property attorneys used to put it, “Avoiding property tax reassessment is why people take advantage of exclusions from tax reassessment under Proposition 58 .” And as they phrase it now, “Avoiding property tax reassessment under Proposition 19 property tax exclusions ”. C’est la vie.
Skipping a generation, if property transfer is managed from a grandparent to a grandchild, as long as the the beneficiary’s parent is not alive, inheriting or transferring property will thankfully not increase property taxes.
For a free benefit analysis on transferring a property tax base from a parent to a child on an inherited home, you can complete the following form, in just a few minutes….
Despite Critics, CA Property Tax Relief Is As Popular As Ever
What all homeowners, property owners and working families inheriting property in California want to know – is whether or not property tax breaks from Proposition 13 and Proposition 19 are guaranteed, during our lifetime, to all California homeowners and beneficiaries inheriting property.
Naturally, this encompasses the ability to transfer parents property taxes, with a protected property tax transfer; the right to keep parents property taxes when inheriting property property taxes, most frequently through a parent-child transfer, otherwise known as a parent-to-child exclusion. Always to avoid property tax reassessment, even when it involves a loan to an irrevocable trust, in conjunction with Prop 19 for the transfer of property between siblings, commonly called an “inherited property buyout”, which is often implemented in concert with the right to keep parents property taxes.
So after 44 years of capping property tax increases at 2%, Prop 13 continues to be wildly popular with Californians. And due to the fact that Proposition 13 is a CA Constitutional Amendment, it can only be revised by voter approval.
Howard Jarvis Taxpayers Assoc president Jon Coupal tell us:
“Without the two-thirds vote requirement, one of these second-mortgage bonds can now be passed by people who won’t pay the tax and in fact are getting more from the government than they pay in taxes.
After Proposition 39 took away the two-thirds vote protection for these bonds, localities quickly passed almost $30 billion in such bonds — debt that homeowners will be burdened with long after they’ve paid off their homes. Since then, the two-thirds vote has been repeatedly attacked by a pro-tax coalition that wants to eliminate this protection for more and more kinds of bonds and taxes.
Currently, several proposals are active in the State Legislature to change the state constitution to eliminate the two-thirds vote requirement for other kinds of bonds, and for certain sales and property taxes. If enacted, it will become far too easy to pass all kinds of tax hikes, so the Howard Jarvis Taxpayers Association is actively fighting this legislation.”
Special Interest Groups Intent On Unraveling Tax Relief
Wealthy special interest organizations are out there scheming and planning, especially like-minded people in the realtor community that are secretly, and not so secretly, aiming to unravel California property tax breaks – such as the CA Associations of Realtors, who bankrolled Proposition 19, replacing Proposition 58 in 2021.
The CA Associations of Realtors donated $40.4 million to their crusade; and $47.57 million total bankrolled this effort to convince Californians with deceptive yet clever public relations and marketing. Naturally, there were other organizations that chipped in, that do well with state government cash and don’t want homeowners to save big on property taxes, as property tax revenue feeds those organizations and their financial interests.
Proposition 15, the property tax measure, also promoted by the realtor community, was designed to overturn Proposition 13’s commercial property tax protections, and was defeated by a hair. Had it passed, most residential rentals and business rentals, thanks to inflated commercial property taxes from an unraveled Proposition 13, would have gone sky high – taking prices of all goods and services in California with it…and would have carried the future of California with it…. downhill!
Special interest groups such as the Realtor organizations pushing these anti property tax relief efforts, have got to learn that you can’t weaken and in many cases destroy the lives of millions of the 39,538,223 citizens residing in California – simply to benefit 131,551 real estate brokers. Weakening the financial life of millions just to make some realtors and real estate brokers a little wealthier just doesn’t even out.
CA Property Tax Relief Heroes ~ Fighting the Good Fight
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.
California is the only state in America that provides genuine property tax relief, as opposed to deceptive tax deferment, to residential and commercial property owners and middle class families – specifically in the form of Proposition 13, and now Proposition 19 – for instance a Prop 19 (Prop 58) parent-child exclusion – along with capping yearly property taxes at 2%… when transferring a parent’s low property taxes to an inherited home, moving into their old family home as a primary residence, with a comfortable 12-months to settle in.
The problem is, critics of property tax relief in general continue claiming that these tax breaks are mainly helpful to homeowners that are well off… as they out it, “elite homeowners”. With no statistics to back up this often repeated claim. We hear quotes such as, “Instead of helping the middle class, property tax relief in California allows a wealthier class of citizens to take greater advantage of their predecessors investments.” This simply is not accurate.
First, as we all know, wealthy folks make up a small percentage of the general public – and the same simple equation applies to homeowners. In microcosm, the majority of families that take advantage of property tax relief in California, that avoid property tax reassessment, are in fact middle class or upper middle class… Not millionaires as the LA Times or San Fran Chronicle would have you believe.
The same 2% to 3% of ‘haves’ versus the 97% to 98% ‘have-nots’ equation – reflecting stark wealth disparity among homeowners all across California holds true when it comes to using property tax breaks to avoid property tax reassessment – to save money… that middle class and upper middle class residential and commercial property owners do not have to throw around on unnecessary tax hikes!
Can you picture genuinely wealthy families that own multi-million dollar homes (that the press continues to inform us are the only property owners gaining genuine benefit from Proposition 13 and Proposition 19) – taking the time to go through property tax break processes, simply to save a few thousand dollars every year? Families with 7 and 8 or 9 figure incomes?
We can cast serious doubt on that one. Yet newspapers like the LA Times and San Fran Chronicle still continue to pitch this in Op-Eds as a realistic scenario.
Yes, there are wealthy investors out there who did take advantage of Proposition 13 tax breaks, for investment properties that would rent out to tourists.. However, this is a fraction of the general home-owning public, and the bulk of folks using these tax break are middle income and even upper middle income residents. They’re not famous, wealthy celebrities like, for instance, the Bridges family…
The Bridges family. The one and only tale of a rich and famous family “taking advantage” of property tax relief to rent out fancy homes on the beach to upscale vacationers. Repeated over and over and over again as a cautionary tale, in the press, curiously without any similar stories bring referenced about any other wealthy family in California. It is curious that not one other family has ever been named or blamed for this type of inheritance / tax break activity, over 3 decades.
To the sheer joy of County Tax Assessors – Californians without proper counsel from a trust lender or a property tax consultant, or estate attorney, stumble into anticipated property tax mistakes. Generally caused by not filing deadlines properly, or not comprehending complicated legal subtleties; or by not claiming an exclusion or exemption from property reassessment which is staring them right in face.
Without advice from a property tax consultants, or life-saving legal counsel from an extremely experienced trust administration / property tax relief attorney like Partner Rachelle Lee-Warner, Esq. — at the Cunningham Legal law firm. Or a reliable lender specializing in loans to trusts and estates, like Commercial Loan Corp for example, led by inspirational president Kerry Smith, in Newport Beach… Helping heirs inheriting property with a Prop 19 (Prop 58) parent-child exclusion to establish a low property tax base when inheriting a home – also frequently buying out inherited property shares from siblings (co-beneficaries); or helping with the transfer of property between siblings, with a loan to an irrevocable trust… working in conjunction with Prop 19.
Experts like this specialize in helping beneficiaries and homeowners save on property taxes, avoiding property tax reassessment with Proposition 13 and/or Proposition 19; mainly focusing on Property tax transfer, the right to transfer parents property taxes and keep parents property taxes basically in perpetuity, when inheriting property taxes through a parent-child transfer, typically the popular Prop 19 (Prop 58) parent-child exclusion.
It’s worthwhile contacting a trusted expert, rather than accidentally triggering property reassessment that may increase your property taxes five-fold or ten-fold. A significant tax hike to say the least!
Let’s use the North Bay area in northern California as an isolated microcosmic example of how it is chiefly middle class and upper middle class property owners that have responded to property tax relief measure Proposition 19, for example…
The North Bay Business Journal informs us:
California’s Proposition 19 has prompted a seven-fold increase in requests to county assessors to transfer property throughout the North Bay. Barbara Green, the Change-of-Ownership Supervisor in the Sonoma County Tax Assessor’s office, tells us, “It’s crazy! We’re just catching up….”
“….[Thanks to Proposition 19] middle class homeowners in Sonoma, Napa and Marin counties flooded County Tax Assessors with a load of filings. Sonoma County has taken in 917 filings through Feb. 5. The usual rate is 193 for the three-month period when compared to the previous year. Although a smaller jurisdiction, Napa County’s government offices are in the same boat. Residents put in 175 of the forms to pass down their properties within the family. Marin County has received 600 more property transfer applications than its usual 54 parent-to-child transfers of property….
Proposition 19 allows homeowners over age 55 to keep a better tax rate when they sell one house and buy another. It took effect on April 1 and applies to anywhere in the state. It’s about as far reaching as the housing tax revolt of Proposition 13 that passed 1978. There is a fever pitch of reaction within North Bay counties… for filing the parent-to-child property transfer.”
North Bay banking, accounting & law firms have all been experiencing a huge increase of calls over the past few months from prospects and clients. And we’re not talking about millionaires calling in or strolling into those offices.
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!
Establishing a Low Property Tax Base ~ Who to Turn to in 2022
It’s always interesting, with respect to estate funding and inheritance financing, how different schools of thought come up with different solutions for saving money on property taxes, for out-of-the-box funding solutions against inheritance assets, and for mortgage capitalization.
Name brand name lenders, setting the tone for most lenders in California, such as Quicken Loans, e-Loan, Wells Fargo and Bank of America – are admittedly all high-end, reliable finance-information and lending sources. Yet – when it comes to important income tax or property tax matters, or inheritance funding solutions – their editors and writers, talented as they may be, still only nibble around the edges on anything but the most conventional, largely ineffective solutions.
For example, where tax relief is concerned these firms typically dance around the critical issues associated with property tax exemptions, establishing a low property tax base, or avoiding property tax reassessment – when inheriting a home in any of the 58 counties in California. So who do we turn to for help?
Many property owners embrace basics, and enlist assistance from established property tax experts such as Rachelle Lee-Warner, Esq. — well known Partner, Managing Attorney & Trust Administration / property tax relief expert at Cunningham Legal. Or a reliable trust lender like Commercial Loan Corp, led by inspirational CEO, Kerry Smith in Newport Beach – specializing in irrevocable trust loans, avoiding property tax reassessment and establishing a low property tax base – for middle class California families… guiding them through while showing them all the new advantages that Proposition 19 offers. Perhaps not as generous as Proposition 58 might have offered… however, lowering property taxes to a greater degree than you might think.
Avoiding Poor Solutions and Time-Wasters
With regards to lowering property taxes — these are typical solutions from “expert websites” that homeowners might not want to take very seriously, or avoid completely…
Limiting your “home improvement” projects;
Researching nearby neighborhoods for pricing and home values;
Asking uninformed young attorneys or relatives (to save money) if you qualify for tax exemptions;
Walking around your neighborhood with your Tax Assessor;
Checking your tax bill for inaccuracies;
Getting a second, third and fourth opinion from unproven Assessors and property tax consultants;
Meeting with your local Tax Assessor to convince him/her to revise your tax bill;
Researching and filing a property tax appeal challenge with your County Tax Assessor without a professional property tax appeal firm – on your own, simply to save money.
Checking for inaccuracies, or getting a second opinion isn’t a bad suggestion. But walking through your house with your local Tax Assessor? Researching prices around your neighborhood? With all due respect to the financial websites that hand out this kind of advice, these suggestions would be laughable – if they weren’t so serious. Limiting your home improvement projects – to lower your property taxes?
Effective Solutions with a Tax Professional or a Trust Lender
We will never be free from property taxes while we own our own home, but one does need to be on the there are a few simple “tricks” you can use to lower your property tax bill, as certain websites claim.
We can investigate comparable homes in our neighborhood for “discrepancies”. Never making any changes to our property exterior right before a tax assessment, as this can increase the value of our property; hence increase our property tax bill.
Or, we can stroll around our house and chat with our Tax Assessor during our yearly assessment. That makes a lot of sense. Lastly, we can look for local and state exemptions, and, “if all else fails, write up and file a tax appeal to lower our property tax bill” so suggests a well known financial site. Listen, if we’re going to file a property tax appeal with a County Tax Assessor, we’d be a lot better off doing it through a professional property tax appeal firm.
If we want to address this issue seriously, and not simple throw silly and unrealistic suggestions out there simply to see what sticks – we have to look at realistic opportunities to take advantage of.
For example, if we’re an heir of an estate, or a trust beneficiary inheriting a house from our Mom or Dad – and the house is in an irrevocable trust – a loan to an irrevocable trust from a trust lender is likely required if the trust does not contain sufficient cash to make an equal distribution to all of the co- beneficiaries looking to sell off their inherited property shares. This is frequently taken advantage of by beneficiaries, perhaps like yourself, who intend to keep a home inherited from a parent at the original low property tax base.
A loan to an irrevocable trust makes it possible to buyout inherited property shares from co-beneficiaries and greatly speeds up the trust distribution process. A trust loan also saves a great deal of money when you compare selling the family home through a realtor or broker receiving a 6% commission, plus legal fees, and other closing costs.
Inheriting Parents’ Home While Keeping Their Low Property Tax Base
Bottom line, avoiding property tax reassessment and establishing a low property tax base by transferring property taxes, are property tax relief benefits available to all property owners in California, protected by Proposition 19 & Proposition 13. This should always be taken full advantage of. You can transfer parents property taxes when inheriting property and inheriting property taxes – and keep parents property taxes basically forever, establishing a low property tax base with Prop 19 benefits as well as taking advantage of a trust loan buyout of property inherited by siblings. Why not? It’s your right. Plus, there is no better time than the present to become better acquainted with the parent to child property tax transfer.
This type of property tax transfer is at the foundation of property tax relief for all Californians, generally through a parent to child property tax transfer on an inherited home – usually referred to as a Prop 19 parent-child transfer or parent-to-child exclusion… all the way to a transfer of property between siblings through a loan to an irrevocable trust, in conjunction with Proposition 19 – with an entire year to settle in to an inherited principle residence, or multiple residence (although only one heir is actually required to lock this tax relief benefit in). As long as the parent leaving that property to heirs resided there as a principle residence as well – which is usually the case anyway.
Using a Trust Loan to Establish a Low Property Tax Base
Buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base is a popular avenue for many families. Not only that, if your siblings are receiving funds from an irrevocable trust to sell their inherited property shares, they would receive far less money getting cash from an outside buyer, as opposed to funds from an irrevocable trust. The costs associated with preparing a home for sale, expensive realtor fees, and potential closing costs associated with selling an inherited home can be incredibly expensive.
When a trust loan is used to facilitate a trust distribution, each beneficiary receives an average of an additional $15,000.00 in distribution when compared to selling the home. The person keeping the family home also benefits – saving $6,200+ per year in property tax savings – simply by avoiding property tax reassessment on a nice old inherited home from Mom and/or Dad.
Voters passed CA Proposition 19, just squeaking by with a handful of votes from confused voters in Nov of 2020, and the tax measure became active on April 1, 2021. If you want to intake good advice and avoid mistakes, have property tax experts carefully walk you through Proposition 19, and Proposition 13.
Most middle class and upper middle class California homeowners probably have heard about Proposition 19, the new property tax law that allows seniors and disabled homeowners to keep their current property tax rate when they sell their home and buy a new one. But they may not know how to apply this new law when moving to a new home.
It’s the state’s largest expansion of property tax benefits in decades, basically allowing qualified homeowners to take their Proposition 13 tax base with them anywhere in the state, no matter the price of their new home.
Helping California Middle Class Homeowners Avoid Property Tax Reassessment
Under Prop. 13, tax hikes are capped at 2% a year, meaning the longer you own your home, the lower your property taxes relative to the market value of your home. But some homeowners lose their Proposition 13 tax break when they sell their old home and see their new tax jump to the full market value of their new one.
If you are 55 years or older, a person with a severe disability or a victim of wildfires or natural disasters, you can move to any home in the state, regardless of the home’s price. Your tax is unchanged up to the value of your old home. If your new home costs more than your old one, you pay an additional amount based on the market value over your old home’s price.
When you’re used to a low property tax bill, it can be a shock to your monthly expenses when buying a replacement home includes a huge property tax increase – especially if you have lived in your current home for many years.
Some older middle class homeowners feel trapped because they can’t leave their current home, even if it no longer fits their needs, because they are on a fixed income like Social Security, or a modest pension or military retirement, and can’t afford to move. Taking advantage of Proposition 19 may appear challenging. But as time passes, more and more tax assessors are providing online links to forms and resources to help homeowners understand how to benefit from these new property tax rules and regulations.
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.
The Parent-to-Child Exclusion (from paying current property tax rates) applies to any real estate purchases or transfers between parents and children, which occurred on or after November 6, 1986…
CA Parent-to-Child Exclusion Benefits
This exclusion prevents an increase in property taxes when real property is transferred between parents and their children in California. Formerly a crucial component of the wildly popular Proposition 58 parent to child property tax transfer, or parent-to-child exclusion, is still a key tax break in the tax relief bundle under California Proposition 19, as of Feb, 2021.
As we all know, this tax relief bundle works with property tax break components such as Proposition 13 transfer of property, the parent to child property tax transfer on an inherited home, or a fast 5, 6 day loan to an irrevocable trust under-pinning a transfer of property between siblings when buying out inherited property shares from co-beneficiaries.
These tax benefits mainly revolve around property tax transfer – namely the inheritance based ability for heirs to transfer parents property taxes, to keep parents property taxes long-term after inheriting property taxes as long as it’s California real estate… Making good use of the Prop 19 parent-child transfer working in conjunction with Proposition 19 parent-to-child exclusion benefits and related tax breaks.
What is the definition of a “child” for the purpose of this CA exclusion? Natural children, children adopted before the age of 18, step-children (as long as the parents are still married), foster children, and sons- and daughters-in-law are considered children under this exclusion program.
Avoiding Property Tax Reassessment in California
In other words, property that will avoid a tax hike would be the transfer of property value from a “principal residence” to another primary residence – plus any other property valued up to $1,000,000 going to children. Properties will not be reappraised if the Claim for Exclusion from Reappraisal form is filled out properly, filed and approved by the Tax Assessor’s Office.
Grandparent-Grandchild Exclusion
Real estate can be excluded from excluded from reappraisal when transferred between grandparent and grandchild, as long as a Claim for Exclusion from Reappraisal form is filed and approved by the Tax Assessor’s Office. And only if both parents of the grandchildren are deceased prior to property transfer to grandchildren.
Proper Claim Filing
Residences do not receive this type of property tax exclusion automatically. A completed “Claim for Exclusion from Reappraisal” is required. This form has to be finalized and filed with the Tax Assessor’s Office for approval.
Conversely, if you don’t file this claim the outcome is likely to be reassessment of your property taxes at fair market (i.e., current) rates. To avoid a supplemental tax bill, this claim has to be filed within 3-years of property transfer or the date the decedent passed away, prior to sale or transfer to a third party. A claim can be filed within 6-months after the mailing date of the supplemental notice or “escape assessment”.
If this claim is filed late, the exclusion can still be granted but no refunds will be received for prior years. It will be granted for the year the claim is filed as long as the property has not been sold to a third party.
Filing a Claim if Property Inherited From Parents is Sold
Reappraisal will occur for the period between the date of the death and the sale to the third party. A supplemental bill will be issued unless the heirs or beneficiaries apply and qualify for this exclusion.
Filing a Parent-to-Child Exclusion & Reappraisal for Seniors
Reappraisal Exclusion for Seniors is a one-time only tax exemption for residents age 55 and older to sell their primary residence and transfer its’ low property tax base to a replacement home. Since the sold property has to be reassessed or reappraised, heirs would not get a tax break from the Prop 19 parent-child transfer benefit.
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.
