California Proposition 58 – Transferring Property Taxes On An Inherited Home and Avoiding Property Tax Reassessment.
Proposition 58 grants California property owners with the ability to transfer real estate between a parent and child and avoid property reassessment. This effectively allows a child to inherit the a low Proposition 13 property tax base from a parent and save potentially thousands of dollars each year in property taxes. There are requirements to qualify for the benefits of Proposition 58 and limitations to the benefits granted.
With the assistance of Michael Wyatt, a California Property Tax Consultant who worked in the Orange County Tax Assessors office for nearly 25 years, we have compiled a list of important information about Prop 58 and some of the most common mistakes made when filing for an exclusion from property value reassessment. The following information is not legal advice. Every situation is different and some can be very complicated. We suggest that you contact an attorney or property tax consultant before taking any action. If you require assistance, please call us at 877-484-1066 and we can help place you in contact with a qualified Attorney or Property Tax Consultant.
Commercial Loan Corporation is one of just a few California mortgage lenders that will provides loans directly to a trust. In fact Commercial Loan Corporation specializes in providing these types of trust mortgages. Our trust loans allow for a Proposition 58 parent to child transfer to be granted by providing the cash needed for the trust to make an equal distribution to all beneficiaries.
If you or a client would like more information on our trust and estate loan programs, please call us at 877-464-1066 and we can answer any questions you may have and also provide you with a free Trust Loan Benefit Proposal. The proposal will calculate how much you may be able to save by taking advantage of the California Proposition 58 Parent to Child Exclusion for Property Tax Reassessment.
Proposition 58 Information & Most Commonly Made Mistakes
1. A father or mother owns a home. He or She creates an LLC in which they and their two children equally own 33.33% of the LLC. He or She then transfers the real property to the LLC.
The Board of Equalization has very specific requirements for how the transfer of real estate must occur and the order it must occur in if a Prop 58 parent to child exclusion is to be granted and an exclusion from property tax reassessment is to be provided. In this situation the parent must first add the children on to title and then apply for the parent to child exclusion prior to placing the home into the LLC.
2. Choosing to sell a property held in a trust to speed up the distribution process.
A trust loan can actually be completed in as little as 7 business days; as opposed to selling a property which can take several months depending on the real estate market. Taking out a trust loan enables beneficiaries to receive their trust distribution much more quickly than selling a home. A trust loan is also typically far less expensive than selling a home. So it is very likely that each beneficiary will receive considerably more money when the trust is distributed. Not to mention, one of them may be eligible to receive their Proposition 58 exclusion from reassessment and save on their property taxes.
3. A person over 55 sells his/her long-time original residence to his child. He/she first applies for and is granted the Parent-Child Exclusion. That person then buys a replacement residence and applies to transfer the base year value under Proposition 60 to his or her replacement property.
After transferring an interest in the property to the child, the parent no longer qualifies for the California Proposition 60 property tax benefit. CA Proposition 60 requires that his original residence be “sold” to qualify. By previously qualifying for the CA Prop 58, the County views the property as a transfer and not as a sale.
4. Failing to include subsequent amendments and restatements with a copy of the trust when submitting a request for a California Proposition 58 parent to child transfer exclusion.
When submitting trust documentation to the County, it is important to include the entire set of trust documents. Not including any existing amendments or restatements may result in a rejection of the request.
5. Not keeping track of each eligible transferor’s $1 million limit
Exceeding the $1 million limit can trigger a tax reassessment on a property. The million dollar limit is associated with the transferor and not with the property.
6. Filing a claim where the transferred property will be assessed at its current market value where its market value had fallen below the transferor’s original Proposition 13 factored base year value.
It is very rare in California, but in some extreme situations of declining property value, it may not be of benefit to file for an exclusion from property reassessment. If you would like a detailed assessment of the benefits that you may receive by utilizing a trust loan to qualify for Proposition 58, please call us at 877-464-1066. We can help you determine if filing for your Property 58 exclusion or taking out a trust loan is beneficial for you and how much you may be eligible to save in property taxes.
7. A person owns several lower valued small condominiums. He or she also owns several high value apartment complexes. He or she transfers these condominiums to a child, applies for and is granted the Parent-Child Exclusion, thereby reducing the $1 million limit for the apartment complexes.
California Proposition 58 places limits on how much real estate can be transferred from a parent to child while still avoiding reassessment. In a complicated situation where several pieces of real estate are involved with multiple child beneficiaries; it may make sense to consult a property tax consultant. Doing so may help you maximize the benefit received from a parent to child transfer while adhering to the Proposition 58 transfer regulations.
8. A couple owns real properties through the medium of their trust. The father dies in 1993. The mother dies in December 2018. The successor trustee files the Parent-Child Exclusion claim, and only reports the mother’s $1 million. The trustee forgets to also include and report the father’s $1 million, to get a total of $2 million.
California Proposition 58 permits each parent with property ownership to transfer $1 million in property value, while allowing their child beneficiary to avoid property tax reassessment.
9. A trust agreement specifies that after a mother passes away, her trust shares are to be distributed equally to her three children. The children decide that one will receive the home while the other two will receive cash. The trust does not have equal portions of real estate and cash for the children. The children contact a conventional institutional lender. The loan officer says they don’t lend to a trust and advises them to take the home out of the trust. The lender will then loan money to the child taking the home, so that the other two can receive cash.
Unfortunately, once the home has been taken out of the trust, the distribution has been made. With out an equal trust distribution occurring, the child keeping the home will only be eligible for a 33% exclusion. In order to get the full exclusion, a 3rd party loan must be made directly to the trust with no personal guarantee from a child beneficiary. Once the trust has received the funds from the loan, an equal distribution of equity in the real estate to child A and cash to child B & C can be made allowing for a 100% exclusion. Commercial Loan Corp is one of the only California lenders that will lend directly to a trust with no personal guarantee from a beneficiary. This can allow a child inheriting a property from a parent to qualify fro a Proposition 58 exclusion from reassessment and keeping a parents low Proposition 13 property tax base.
10. Filing a claim for a Prop 58 exclusion from property tax reassessment too late.
Filing for a Proposition 58 benefit is a time sensitive and may be an urgent matter. You have three years; or six months from a Supplemental Notice of Assessment or Escape Assessment to file.
11. Not including a copy of a death certificate for a child or heir listed in the trust agreement who has died prior to distribution.
When submitting documentation to the County for an exclusion from reassessment, it is important to include all supporting documents as well. The County will require evidence to support your claims made in the request form. Some of these documents may include death certificates, proof of a third party loan and complete sets of the trust documents.
12. Sending an incomplete request package to the Assessor, delaying the granting of Parent-Child benefit.
Depending on the complexity of a trust or estate, the County may require a variety of supporting documentation in order to grant a Proposition 58 parent to child transfer property tax reassessment exclusion. If the submitted package is incomplete or not filed correctly, the request is likely to be rejected. In order to help insure that you receive your Proposition 58 benefit, we advise that you contact a California Property Tax Consultant such as Michael Wyatt or Attorney. Call us at 877-464-1066 and we can assist you in finding a qualified attorney or property tax consultant in your area to assist you.
13. Choosing not to take advantage of Proposition 58 because of the expense.
A loan to a trust or estate to take advantage of the benefits of Prop 58 is almost always less expensive than selling a home. That does not even take into consideration the property tax benefits received over the long term. On average our trust loans allow for an additional $42,000 to be distributed among beneficiaries when compared to selling a home.
Navigating and qualifying for California Proposition 58 can be complicated and sometimes intimidating; especially when a legal instrument like a trust is involved. If you have additional questions, please call us at 877-464-1066 and we will do our best to assist you or direct you to a property tax consultant or attorney who can.