CA Property Transfer Benefits Expanded by Proposition 19

Prop 19 Property Tax Breaks

Prop 19 Property Tax Breaks

As most of us know by now, yet it does merit repeating – a parent-child exclusion is not the only key tax break offered by Proposition 19.  California homeowners age 55 plus, or  who are victims of a validated natural disaster such as an earthquake or heavy flooding, or who are extremely disabled – who are looking to transfer their property taxes to a new home now have direct access to additional tax relief options. 

Proposition 19 Popular Property Tax Relief Expansion

Some previous tax benefits are now expanded. A transfer by homeowners when purchasing a new, higher priced primary residence, with adjusted numbers to update values, no longer has to be a home of equal or lower value; and a property transfer like this can be implemented up to three times, not merely once as with previous limitations.

Victims of natural disasters verified by the Governor of California no longer have any limits, as far as counties are concerned. There tax breaks can now be used in any of California’s 58 counties, no longer limited to ordinance approved counties as before – and may be utilized between any two counties, from original home to new property.

New Proposition 19 Property Tax Relief Opportunities 

As long as Californians qualify for, and file, their Homeowner’s Exemption or Disabled Veterans’ Exemption inside 12 months of transfer of ownership; plus make an inherited home their principal residence, as opposed to an investment property – they can avoid property tax reassessment.

Moreover, they have plenty of time – 12 months, to move in. Also, family farm transfers are permissible under this exclusion – without having to move in as a primary residence.

However, due to the possibility of triggering reassessment and being hit with current tax rates, it’s critical to enlist the assistance of a trust lender like the Commercial Loan Corp in Newport Beach for instance, to determine if a loan to an irrevocable trust, in conjunction with Proposition 19 tax breaks, will serve as a reliable means to keep an inherited home from parents with a low Proposition 13 protected property tax base. 

There is also a superior financing solution available to buyout siblings who wish to sell their inherited property shares… at a much higher price than an outside buyer would offer, thanks to the elimination of a realtor managing the process, and their 6% fee, plus pricey legal costs; etc.

Keeping a Low Property Tax Base With an Irrevocable Trust

It’s crucial to enlist the help of a tax attorney, or a property tax consultant, or a trust lender, to find an alternative tax avenue –     to avoid egregious tax hikes at current reassessed rates.  For example, a CA family home assessed today at $50,000 – with a yearly property tax of $600 – could actually be re-assessed today at $750,000 – with an annual tax burden of $9,000!

An experienced trust lender can help middle class families with an irrevocable trust, working in conjunction with Proposition 19 and Prop 13, to establish a low property tax base, and even buyout property shares from co-beneficiaries.  We’re talking about homeowners that have on average less than $700 in the bank at any given time; who don’t  have deep pockets… who need to avoid severe property tax increases, with the danger of possibly losing a beloved house due to an inability to pay for such yearly taxes.

Even a regular trust, like a Qualified Personal Residence Trust,  permits  a parent to transfer a primary residence to a trust that allows that residence to be occupied by that parent for a set amount of years. At the close of that set number of years, the residence transfers back to the heir and when that heir becomes the sole owner, they qualify for a parent-to-child exclusion, as a primary home owner.

CA Property Tax Relief Options With Trust Lenders

Besides assisting beneficiaries with a parent-child exclusion and a low parental property tax base, a trust lender will help sibling co-beneficiaries looking to sell inherited property with trust loan funding that will provide them with far more cash than an outside buyer would offer – otherwise known to realtors and attorneys as “buying out a sibling’s share of inherited property” or a “sibling to sibling property transfer” as well as a “transfer of property between siblings”.

A seasoned property tax consultant or a trust lender specializing In loans to trusts and estates such as Commercial Loan Corp, for example, can help families inheriting real estate in California to fully understand how to safely avoid property tax reassessment, plus how to transfer parents property taxes on a standard Proposition 19 property tax transfer when inheriting property taxes.  Likewise, how to keep parents property taxes basically forever, utilizing a parent-to-child transfer and a parent-child exclusion under Prop 19. Prior to 2021, a parent-child exclusion was strictly under the auspices of the wildly popular Proposition 58.

Again, this is where a trust lender comes in very handy (frequently referred by a property tax consultant or an estate lawyer – to insure that each critical step along the way is taken correctly, keeping a low property tax base; avoiding property reassessment.

Popular Reasons Why California Beneficiaries Get a Trust Loan

California Trust Loans

California Trust Loans

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

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

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

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

Buying Out Property Shares Inherited By Co-Beneficiaries

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

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

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

Avoiding Property Tax Reassessment

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

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

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

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

Paying Trust Expenses

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

Renting or Selling Inherited Property

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

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

PART ONE: Parent to Child Exclusion From Reassessment

Parent to Child Exclusion From Reassessment

Parent to Child Exclusion From Reassessment

Although trust beneficiaries, estate heirs, and homeowners in general hear more and more these days about “trust loans” and “intra-family trusts” used in conjunction with Proposition 58, which has graced Californians with its’ parent to child exclusion from property tax reassessment at current market value… there are, however, a good deal of misconceptions and a fair amount of confusion about this process that we should try to clear up a bit.

With recent changes to property tax relief surfacing, we don’t fully know what the effect these changes will have on Proposition 58 on Prop 13 property tax relief benefits, including the wonderful benefits trust loan funding provides, in terms of buying out property shares inherited by co-beneficiaries, or “sibling to sibling property transfer”, as realtors and tax attorneys like to refer to this process.

Middle class residents are getting more interested in this type of transaction, as it is moving the lending process away from more conventional, credit-based, hard money loans replete with high-interest charges and fine-print fees, piles of invasive personal-info paperwork… monthly payments that go on for years; so on and so forth.

So starting February 16, 2021, if you transfer your property to your children (or, grandchildren, if the parents have passed away), by way of inheritance, gifting, a sale, any hybrid sort of property transfer; estate planning outcomes; etc. – inherited real property taxes will be reassessed at yearly current market value.

Due to changes to the CA Proposition 58 parent to child exclusion benefit, heirs in the future will no longer be privy to inheriting property taxes, your Proposition 13 low tax base or “Proposition 13 Basis” has been California tax law for decades. With Proposition 58 protected rights such as sibling to sibling property transfer, or transferring parents property taxes inexpensively since 1986… with homeowners being able to continue inheriting property taxes, while having the right to keep parents property taxes on pretty much all property tax transfer scenarios.

However, if this property tax issue involving the watering down of Proposition 58 tax relief benefits is in fact a trend… and it does keep going in the direction is appears to be going – beginning with Proposition 19, with the possibility of Proposition 15 re-surfacing again with a more effective marketing plan the next time around – property tax transfer, parent to child transfer of property and the ability to keep parents property taxes may continue to be unraveled to a point where genuine property tax relief in California may be rendered virtually inactive. 

Most Californians certainly hope this will not be the case, since California is the only state with property tax relief programs that really count, so therefore we trust voters will be more circumspect next time, and perhaps pay closer attention the next time a political measure looking to unravel property tax relief in California comes up for a vote – to help the CA Legislature pay for unfunded pensions as well as assisting the California Association of Realtors in getting more homes up into the market for sale!

Let’s hope that does not occur… and keep sending emails and letters, plus phone calls, to our state political representatives, now that it looks like voters are waking up to what they have been manipulated into voting for – not realizing what actually lurked in the details, under the hood of Prop 19 – with heartstring-tugging provisions, cleverly giving Californians something to vote for, with titles such as Property Tax Fairness for Family Homes, Property Tax Fairness for Seniors, the Severely Disabled, and Victims of Wildfire and Natural Disasters. 

The CA Association of Realtors  and the CA Legislature was clearly not going to be able to engender support  for a property tax measure entitled Prop19, Removal of Parent to Child Exclusion & Unraveling Your Right to Avoid Property Tax Reassessment…

A limited version of the parent to child exclusion, or parent to child exemption, does still seem to be secure for beneficiaries; that is to say moving into inherited property as a primary residence within a year after a parent passes away is a safe way to retain Proposition 58 benefits, with, additionally, the valued ability to buyout property inherited by siblings through a trust loan; as long as one is able to  move ones’ residence over the course of a year – essentially turning ones’ life upside down after the death of a parent – which is hopefully not so inconvenient or troublesome as to be paralyzing or traumatic.  And time will tell how this will play out.