Please join us this November 13th for the Virtual 46th Annual USC Gould Trust and Estate Conference. We are sponsoring the event again this year and will be available to answer any questions you have on Lending to an Irrevocable Trust or Probate Estate. Our loans assist clients in qualifying for the California Prop 58 Parent to Child Exclusion from Property Tax Reassessment on an inherited home.
Tanis Alonso, one of our Trust & Estate Loan Senior Account Executives will be available for Zoom meetings during the Conference or available by phone at (877) 464-1066 to assist you and provide you with more information on our specialized lending programs. Commercial Loan Corporations is one of the only lenders in California who will lend to an Irrevocable Trusts, allowing our clients to meet the California Board of Equalization requirements to qualify for their Exclusion from Reassessment.
This years USC Gould Trust & Estate Conference Features Information on the following
Keynote Presentation: Bending the Arc of History with Terrence Franklin Practical Topics: Annual Updates, Trustee and Beneficiary Harmony, Anti-SLAPP, Divorce, Stretching Retirement Savings, and Sub-Trust Allocations CE Credit: MCLE, CPE, CFP, PFB, and CTFA (Pending)
8:30 AM – 8:35 AM (PST) Welcome and Introductions 8:35 AM – 10:05 AM (PST) Annual Update: Recent Developments in Probate and Trust and their Practical Applications 10:05 AM – 10:20 AM (PST) Break Sponsored by Professional Fiduciary Association of California 10:20 AM – 11:20 AM (PST) Love in the Time of COVID-19: Trustee and Beneficiary Harmony in Years Like 2020 11:30 AM – 12:30 PM (PST) No-Contest Clauses and the Anti-SLAPP Statute: Traps for the Unwary 12:40 PM – 1:20 PM (PST) Keynote Presentation Sponsored by Signature Resolution: Bending the Arc of History Towards Justice in the Probate Court 1:20 PM – 1:40 PM (PST) Break Sponsored by Jack Barcal, Esq. 1:40 PM – 2:40 PM (PST) Tales from the Dark Side: HELP, My Client Is Getting Divorced (or Married, or Remarried). What Do I Do? 2:50 PM – 3:50 PM (PST) How to Stretch Retirement Savings with a CRUT 4:00 PM – 5:00 PM (PST) Better Late Than Never? The Looming Implications of Late Allocations to Sub-Trusts
For more information on our loans to irrevocable trusts and probate estates, please call us at 877-464-1066. We can provide you or your client with a free cost benefit analysis and let them know exactly how much property saving can be attained by taking advantage of a parent to child property transfer and exclusion from property tax reassessment.
Loans to Trusts and Estates for the Prop 58 Parent to Child Property Tax Transfer
An Interview with Abraham Ordaz regarding Loans to Trusts and Estate to equalize a distribution in order to qualify for the California Proposition 58 Exclusion from Property Tax Reassessment.
Recently Abraham Ordaz, Account Executive for Commercial Loan Corporation was interviewed by PropertyTaxTransferTrusts.com. The interview focused on how Abraham assists clients with financing for Irrevocable Trusts to provide liquidity so that an equal distribution can be made and a child inheriting a home can keep their parents low Proposition 13 protected property tax base. The full interview can be found here.
Here are some highlights from that interview:
Property Tax Transfer: Abe, thank you so much for sitting down with me today to chat about your work at Commercial Loan Corp and how you assist clients when it comes to using California Proposition 58 to transfer a parents low property tax base to a child who is inheriting a home.
Abraham Ordaz: Sure, my pleasure.
Property Tax Transfer: Abe, who do you generally speak to when it comes to taking calls from prospects?
Abraham Ordaz: I speak to a variety of involved parties when it comes to helping a client transfer a parents low Prop 13 property tax base from a parent to a child. Often times the conversation begins with a Trust Administrator or a Trust Beneficiary who is interested in using Prop 58 to transfer a property tax base from a parent to a child on an inherited property. After that initial conversation it is common for me to also have a conversation with the Trust & Estate Attorney who is assisting them with the distribution of the trust or estate. On occasion they do not have an attorney who is currently working with them and I am able to refer them to one in their area who is familiar with the Proposition 58 Parent to Child Property Tax Transfer process and who can help them secure their property tax transfer benefit. At Commercial Loan Corporation we have helped hundreds of clients by providing them with a loan to an irrevocable trust so that an equal distribution can be made and they can meet the requirements set by the California Board of Equalization to qualify for the Proposition 58 property tax transfer benefit.
Property Tax Transfer: Are your clients and attorneys usually familiar with trust loans, and how they work with the California Proposition 58 process?
Abraham Ordaz: Many of the Attorneys that I work with are familiar with the Proposition 58 process, as well as Proposition 13 and the need for a trust loan to equalize a distribution when a trust or estate does not have sufficient liquid assets. In fact, many of my clients are referred to me by their trust and estate Attorney. We are one of the only California Trust and Estate Lenders who will lend directly to an Irrevocable Trust with no personal guarantee from the acquiring beneficiary and we are the only California lender that I am aware of that specializes with these types of transactions to help clients secure their Proposition 58 property tax benefit. That is the reason why I receive so many Attorney referrals. The Attorney wants to make sure that their client is in good hands and that the process is done correctly so that the client will qualify for the Prop 58 parent to child exclusion from property tax reassessment. Often times we help clients save more than $6,000.00 per year in property taxes on an inherited home.
Property Tax Transfer: Abe, that is fantastic that you have developed such great relationships with Trust & Estate Attorneys. Do you usually provide them with an estimate on how much you would be able to save their clients when it comes to property taxes?
Abraham Ordaz: Yes, we provide a free cost benefit analysis for each client. It tells them exactly how much we expect their client to save in property taxes each year as opposed to if their property were to be reassessed. At that time we also provide them with a free quote for the trust loan so that we can make sure it is in their best interest. In most cases it is of great benefit…
Property Tax Transfer: Do you get into the various particulars with Proposition 58, and how that works in concert with loans to trusts?
Abraham Ordaz: Yes, we break everything down into very simple terms so that the Proposition 58 property tax transfer and trust loan process are all easy to understand. That is one of the reasons why so many Trust and Estate Attorneys who deal with California Proposition 58 love to work with us.
Property Tax Transfer: Got it. Abe, how do you help your clients who are interested in keeping a parents low property tax base on an inherited home understand how the trust loan and Proposition 58 parent to child transfer benefits work, keeping the initial inheritance property transfer taxes down, buying out siblings’ property ownership shares, and so on? Yet keeping it very simple.
Abraham Ordaz: I start with the basics of Proposition 58 and the California Board of Equalization requirements for a Parent to Child Property Tax Transfer. I then help them determine how much their trust or estate will need in order to make an equal distribution. After that we review all the numbers together and I answer any questions they may have on the process. Next we get their Attorney involved so that they can handle all of the legal aspects of the Proposition 58 parent to child exclusion and provide us with all of the required information for the trust or estate. Lastly, we provide them with the funds needed so that an equal distribution can be made in order for them to meet that qualification requirement for Prop 58. The Attorney or Property Tax Consultant then helps them submit their property tax transfer request to the County Assessors office so that they can secure their parents low property tax base.
Property Tax Transfer: Got it. Abe, do you get into the customer service aspect at all? I understand that a very special kind of customer service is critical to this process, to be successful, so to speak, with each family.
Abraham Ordaz: Yes… Customer service is the most important aspect to our business and we try to be our best version of ourselves for every client regardless of the size of the loan. Everyone is treated equally and respectfully. Everyone that joins the Commercial Loan Corp family, as it were, is a V.I.P. client!
Property Tax Transfer: That’s very interesting and a rare thing to find these days in this business climate. Well, we want to thank you so much for sitting and chatting with us today. We really appreciate it.
Abraham Ordaz: It’s my pleasure. Thanks for having me.
If you, a family member or a client is interested in California Proposition 58 and the ability to transfer a parents low Prop 13 property taxes on an inherited home, please call Abraham Ordaz at 877-464-1066. He or one of our other Trust and Estate Loan Account Executives can assist you and answer all of your questions.
Parent Child Exclusion From Property Tax Reassessment
Commercial Loan Corporation specializes in helping clients qualify for California Proposition 58’s Parent to Child Exclusion from Property Tax Reassessment with our Trust and Estate loans. You may be wondering what the parent to child exclusion from property tax reassessment is. When a parent passes and leaves a child real estate in California, Prop 58 grants the ability for a child to also inherit the parents low property tax base on the property if certain conditions are met and the appropriate documents are submitted correctly to the county tax assessors office.
How does Commercial Loan Corporation help in that situation?
Often times when there are multiple children involved and one of those children want’s to inherit the property and keep the parents low property taxes, the county assessors office will require an equal distribution of assets be made to all children. Unfortunately most Trust & Estates do not have sufficient cash assets for an equal distribution to be made and that may result in the inherited home being reassessed. Commercial Loan Corporation can assist clients in that situation. Unlike most California lenders, we specialize in assisting customers with the California Proposition 58 parent to child exclusion from property tax reassessment. In fact, we are one of the only California lenders that will lend directly to an Irrevocable Trust with no personal guarantee from the acquiring beneficiary which is often a Board of Equalization requirement when the property is held in an irrevocable trust and multiple beneficiaries are involved.
If you, a family member or a client of yours is inheriting property and are interested in transferring a parents low property tax base please give us a call at 877-464-1066. We can answer any questions you may have and provide you with a free analysis of how much your might be able to save by taking advantage of the California Proposition 58 Parent to Child Exclusion From Property tax Reassessment.
Here is a recent interview with Kenneth McNabb (Commercial Loan Corporation Trust & Estate Loan Account Executive) and PropertyTaxTransferTrusts.com. In the interview Ken discusses how Commercial Loan Corporation assists clients with Proposition 58 by using a Trust Loan to infuse a Trust with the funds needed to make an equal distribution and qualify.
Property Tax Transfer: Hello Ken, how do you disseminate the information you want to get across to prospects and new clients? In order to address financial issues that beneficiaries need to know, to resolve what are often complex financial concerns?
Kenneth McNabb: I tend to give general information at first and provide our clients a solid overview. I then determine exactly how urgent the the financial issues are.
Property Tax Transfer: What do you do with a family that appears to be at an impasse, for example cannot agree on the value of an inherited home?
Kenneth McNabb: When no one in a group of siblings can agree on what the value of a home should be I typically suggest we create a Cost Benefit Analysis and have an appraisal done. The appraisal is conducted by an independent third party and will show the true value of the home in question. Plus I make sure I know who wants to sell an inherited property, and who wants to keep the property. Typically everyone wants that low property tax base to remain intact. Usually at the root of the issue is that some beneficiaries do not realize that they can actually save a considerable amount of money by taking out a trust loan and having a sibling keep a home as opposed to selling it and having to pay realtor fees, closing costs and the repair costs. Selling an inherited home can be quite expensive. In fact we save our clients on average more than $40,000 when compared to selling a home. That does not include an average annual tax savings of over $6,200 by taking advantage of California Proposition 58! One other benefit is that a trust loan takes far less time that it takes to sell a property; so everyone receives their funds much more quickly.
Property Tax Transfer: When in the estate or inheritance timeline do these siblings tend to contact you, contact the firm you work for?
Kenneth McNabb: Some are urgent to get the money right away to buyout siblings…. Some even call us before anyone even passes away! Sometimes it’s a week after the death of a parent… Sometimes it’s a year after someone passes away.
Property Tax Transfer: And the next most important thing?
Kenneth McNabb: Well, I suppose that would be – what it means to inherit property from a parent. As maybe a once-in-a-lifetime, singular event.
Property Tax Transfer: Yes, it’s definitely a profound event. Tell me, who do you primarily deal with in your average family group? Typically.
Kenneth McNabb: Not counting the exceptions… Typically, I’m generally dealing with “the captain of the team”. The trust administrator, the person who wants to retain the parents home or oldest sibling. On occasion one of the siblings in an attorney and I will deal with them.
Property Tax Transfer: What does that person, that spokesperson, typically want, most of all?
Kenneth McNabb: I’d have to say that they want to keep the low CA Proposition 13 property tax base. Plus be able to buyout the sibling or siblings who want to sell their shares in that property.
Property Tax Transfer: What about Proposition 58, getting approved, and how it all works in conjunction with a trust loan, besides securing a low CA Proposition 13 property tax base… How do you explain all that? As I see it, this is the key to success in this business. If they don’t “get it” the first time around, they usually just walk away, don’t they? People often push away what they think they can’t understand.
Kenneth McNabb: My job is to make sure they understand this process within the first 30 seconds of the conversation! I keep everything as simple as possible. I explain Proposition 58 and securing a low CA Proposition 13 property tax base in very simple terms. I Let them know, in plain English, without a lot of confusing technical jargon, how an exclusion functions for the property – from parent to child… I ask them “Would you rather pay property taxes based on the day their parents’ bought the property… Or get hit with a super high current tax base, and pay what would be reassessed now, today…” I suppose you can guess what their choice generally is.
Property Tax Transfer: Right. Doesn’t take a genius to figure that one out! Everyone wants that low CA Proposition 13 property tax base. Now, although you’re dealing with more or less non-conventional lending issues… How do you deal with non-conventional loan requirements? Where approval is concerned – along the pathway towards final approval for these folks.
Kenneth McNabb: Since we are lending to the trust and not to an individual in most situations, the loan process is very fast and easy. In fact, we can often close a loan in as little as a week; providing we have received all of the required paperwork.
Property Tax Transfer: What is the Continuing Legal Education all about? Is that for Trust & Estate attorneys only?
Kenneth McNabb:Commercial Loan Corporation specializes in providing loans to irrevocable trusts to help our clients utilize Proposition 58 and keep a parents low Prop 13 property tax base. After doing this for so long, we have become very knowledgeable on California Proposition 58 matters. We partnered with Michael Wyatt, a California Property Tax Consultant that worked in a California Assessors office for over 15 years and together created an authorized Continuing Legal Education course that Attorney’s may take to meet their California continuing legal education requirements.
Property Tax Transfer: Thank you for taking the time to speak with us Ken. If one of our readers needs assistance with California Proposition 58 or has questions about a loan to an irrevocable trust, how may they reach you?
Kenneth McNabb: They can either call us at 877-464-1066 or inquire right on our website. We are always happy to answer any questions that they are their Attorney may have on the trust or estate loan process. We can also provide a Free benefit analysis which shows how much each beneficiary will save by using a trust loan to keep a home as opposed to selling it.
We sat in with noted Proposition 58, trust loan expert – Tanis Alonso, at Commercial Loan Corporation in Southern California. Tanis has a uniquely profound, global understanding of the entire trust loan process; and applies a very human, not simply financial, viewpoint to the process ~ as does the entire team at the cloanc.com organization; with a strong, genuine focus on “helping people” not simply implementing financial transactions…
Property Tax Transfer: Thank you so much for agreeing to chat with us about Proposition 58 and trust loans today…
Tanis Alonso: Of course. It’s my pleasure.
Property Tax Transfer: Great. Tanis, can we take a close look at how the basic trust loan process works in California, from your perspective, as a lender – and from the point of view of your average everyday beneficiary, many who need to keep parents property taxes… Some who want to sell a property they are inheriting from their parents – and of course the other beneficiaries to a trust or estate that are determined to keep that home, and fight that sale. But first, who is your typical caller? Who in the estate or trust scenario tends to reach out to you first?
Tanis Alonso: Basically, whomever is trying to not sell the inherited property – is generally the initial caller to my office. It might be the trustee, frequently at odds with certain beneficiaries… Or very often it’s a family member, one of the beneficiary’s to the trust that doesn’t want to sell that home.
Property Tax Transfer: Got it. So, what does an average Proposition 58 property transfer and trust loan scenario in California look like, contributing to peace of mind for property owners? There must be similar scenarios, that reflect average trust or estate outcomes all across the state.
Tanis: Absolutely. One of the most common scenarios we see, here at Commercial Loan Corp., are elderly parents, for example… who, sadly, pass away, leaving loved ones behind. So, let’s say there is an estate, or perhaps a trust, and there are three beneficiaries involved… And property is the only asset… Let’s say there are no cash accounts. And this is not uncommon these days.
Property Tax Transfer: Yes, we hear that it’s quite common to see a trust inheritance, or probate estate, where there is very little cash left at the end of the road…
Tanis: Exactly. Parents who pass away in their nineties let’s say, who basically have spent most of their cash assets that were in savings, or in stocks and bonds, and by the time they get into their mid or late nineties, those assets are mostly gone, cashed out or spent –
Property Tax Transfer: OK. So there isn’t much money left in many inheritances… So what do beneficiaries do? When do these conflicts we hear so much about begin, when a house is being inherited by several beneficiaries… some who wish to sell, and some who prefer to keep the property, and to keep parents property taxes?
Tanis: Well, here is a typical middle class inherited real estate scenario – let’s say, for example, there are three beneficiaries and no other assets being inherited except an older home. One beneficiary wants to keep the house, to keep parents property taxes; while the other two siblings prefer to get cash from an immediate house sale, probably through a nearby realtor. But – instead of selling to a buyer, here is where Proposition 58 and a trust loan comes into play, providing liquidity and compliance with the Proposition 58 tax system – furnishing the two siblings who prefer to sell, with enough cash liquidity as if they had sold their shares in the inherited property to a buyer…
Property Tax Transfer: So why not sell? Why the trust loan?
Tanis: Because with a loan to a trust there is the upside of less expense. Frequently, we’re talking about ten times less of an expense than would normally be involved in a house sale. Again, a process compensating beneficiaries through a trust loan, instead of a house sale or coming up with the cash yourself… versus a formal house sale through a realtor that would cost approximately ten times the amount to process the entire scenario, a house sale, with realtor commission and fees, taxes, ancillary costs, etc…
Property Tax Transfer: Paying off the beneficiaries who wanted the cash from a house sale in the first place, right?
Tanis (Commercial Loan Corporation): Exactly. And so the rest of the trust loan goes to pay for 100% of parents Proposition 13 tax base – and the Proposition 58 tax system makes it possible to transfer the property to the beneficiary or beneficiaries that did not want to sell – to keep parents property taxes at the low Proposition 13 tax rate – or involving Proposition 193 if it is real property, not left by the parents, but by grandparents.
Property Tax Transfer: You say ten times less on expenses versus paying for it yourself?
Tanis Alonso: Absolutely. It costs the families we help far less to get a trust loan from us, believe it or not, then it does if they were to dig into their own savings to complete the Proposition 58 property transfer process.
Property Tax Transfer: How does that translate in terms of real numbers?
Tanis Alonso: 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.
Property Tax Transfer: It sounds counter intuitive, doesn’t it. Tanis Alonso: I know, it does sound counter intuitive – yet it’s true. All you have to do is run the numbers yourself, and you’ll see what I’m talking about. It’s a better way to be able to keep an inherited house in the family, and to keep parents property taxes, when there is a dispute going on that pits the beneficiary who wants to keep a house against the beneficiaries that want to sell that home. A home that a family has so many memories associated with; with such strong emotional attachments to. There are so many wonderful family memories that are attached to each home. And every home is unique and different in that sense, just as every family member is different and unique.
Property Tax Transfer: You mean emotional memories you can’t replace with cash, in fact you can’t buy for any amount of money.
Tanis Alonso: That’s right. Anyway, this process allows families to keep that home in the family. And that’s the most important point!
Property Tax Transfer: It is the crucial point.
Tanis Alonso: Absolutely. And as a person on the front lines for this firm, neither I or Commercial Loan Corp. 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 property”. To us, this a “piece of family history” in the making. And the process a family decision, not a “transaction”. We see our clients as real families that we’re helping, financially and emotionally, not just as clients signing a contract for a trust loan. For us it’s much more than that.
Property Tax Transfer: It’s very obvious that you really enjoy helping people… getting them money when they really need it – and saving them on the cost side in the bargain, with trust loans.
Tanis Alonso: Correct. We see them as real people that we’re able to help in a time of need. For us it’s so much more than cash and property – we don’t view it that way. We’re talking about family history here. Not just “another deal”.
Property Tax Transfer: Tanis, let me ask you… Beneficiaries that call your company, desperate to keep parents property taxes; for any solution to their property transfer / Proposition 58 issue – is it a safe bet to assume that 99% of the time there are elements that come up again and again?
Tanis: Well, that’s true, to a point. With beneficiaries that call us, with a trust or estate situation, there is always real property being inherited, going to one or several beneficiaries… and little, if any, cash – and each family always has different dynamics. There are always differences, as regards the people and details involved. But, the one constant you can be sure of is that there is always someone who wants to sell… and always someone who wants to keep the property they are inheriting… dead set against selling.
Property Tax Transfer: And at the end of the tunnel, is it safe to assume that with your company it’s generally a win-win equation, for everyone involved. Everyone involved, more or less, get what they want, right?
Tanis Alonso (Commercial Loan Corporation): That’s right. 99% of the time. The beneficiary, or beneficiaries, that want cash from the sale of the property that they’re inheriting, get the cash they were looking for, from the trust loan…
Property Tax Transfer: And the beneficiary or beneficiaries that want to keep the house, get to keep that house, and keep parents property taxes…
Tanis: Yes! And let me say that, typically, this is a really, really big win for them – as the siblings that wanted to sell are usually very vocal, and very aggressive about their desire to do so! That beneficiary that wants to keep that property, that is also able to get the other siblings a large amount of cash for their shares in the inherited real estate – while still being able to keep the home they’re so attached to, and keep parents property taxes; keeping parents property tax rate. This would be practically impossible, were it not for our trust loan. And there’s your win-win equation!
Property Tax Transfer: And what about the cost factor? Costs involved in the equation… How does everyone benefit on that level, getting cash to the beneficiaries that wanted cash from a house sale? Versus coming up with property buyout cash themselves…
Tanis Alonso (Commercial Loan Corporation): OK, so cost involved, selling versus keeping inherited property. I’ll try to keep the equation simple. Costs associated with this property funding process through a trust loan, paying for everything, including beneficiary property shares buyout, taxes, etc. is, on average, 3.5% – So by someone keeping the family property everyone will receive more money than if they were to sell the property at approximately 6.5% in costs. The average trust receives $45,716 more to distribute than if they were to sell the property to some random buyer. Each beneficiary on average is receiving $16,652 more by someone keeping the property, instead of selling it. And our average annual tax savings is $6,043. We have already saved a combined amount just shy of 1 million dollars for our clients on property taxes. That is a significant benefit for all beneficiaries when someone keeps the property instead of selling it!
PropertyTax Transfer: So you’re saying those savings would have been completely lost, per beneficiary, if they had sold out to a regular buyer…
Tanis Alonso (Commercial Loan Corporation): That’s right. For example, say it’s you and your sister. A major conflict. You want to keep the house you’re all inheriting from your parents, plus keep parents property taxes. Why should I let my sister sell? The solution there is because you are going to get more cash in your hands than if you were to sell the property! That’s the bottom line. A trust loan transaction takes 7-10 business days whereas selling will take a few months. Everyone receives more money, more rapidly, then if they were to sell the property on the open market. Everyone benefits from this… it’s win-win all the way around.
PropertyTaxTransfer: So you let your sister sell, so everyone wins – is what you’re saying.
Tanis: Of course! Let her sell, let her get her way – and you end up getting your way… you get what you wanted, to keep your house with everyone paid off and happy. No more conflict. On a $500,000 property – do you want to spend 6.5% to sell that property, with a realtor, or 3.5% through our trust loan, in keeping with the Proposition 58 tax system? Which number would you want to give away, 6.5% or 3.5%?
PropertyTax Transfer: Naturally. So the long range picture looks like increases in taxes as well, so that’s not as affordable either.
Tanis: Absolutely right. In certain cases a property tax reassessment can add an extra $700 to $1000 per month to your property taxes. That’s an extra $1,000 per month – not per year! Month after month. That is affordability vs not affordability to many.
Property Tax Transfer: Going through the Proposition 58 tax system, with the trust loan paying everyone off… What would property taxes look like going down that road?
Tanis: OK so the question is, “why do I need a trust loan to buy out beneficiaries who want to sell our inherited house?” The answer is you can still keep the house you’re inheriting, and not spend any of your own money in the process. The importance of the trust loan is that you can buy out your siblings and still keep parents property taxes. You keep 100% of the low Proposition 13 property tax base that was originally paid by your parents. If you were to use your own money to buy out your siblings, the State Board of Equalization would see that as a sibling buying out a sibling – and that would definitely trigger a property tax reassessment. Naturally, the result of that would be higher taxes. So you need the trust loan to buy out your siblings in order to take advantage of Proposition 58, and keep the low property tax base.
Property Tax Transfer: Most people don’t have that kind of cash on hand nor do they want to use all of their cash for this just to buy out beneficiaries in an estate setting. Especially if the numbers go higher…
Tanis Alonso (Commercial Loan Corporation): Beneficiaries who want to keep their inherited property still put a lot more money in their pocket, still save a lot more, by not using their own funds… by buying out beneficiaries that want to sell by going the trust loan route. Staying within the discounted Proposition 13 tax base, being able to keep parents property taxes … taking advantage of the Proposition 58 property tax system, or tax shelter. Using this tax shelter that we looked at before, if you recall – would be around $1,200 per year on a million dollar property. Saving thousands of dollars annually on property taxes by taking advantage of Proposition 58; keeping their parents low property tax base.
Property Tax Transfer: Yes, the difference in the numbers are stunning.
Tanis Alonso (Commercial Loan Corporation): Yes it is. So if you use your own money to buy out your siblings you will trigger a reassessment… if that was reassessed normally, without doing the property transfer and beneficiary payoff with our trust loan – you’d be looking at an $11,000 tax hit per year on the same million dollar property! If reassessed at the current, present day, base rate – that tax hit goes up 10 times. A significant difference in cash back in your pocket after it’s all done and said. Trust loans are a huge benefit for all of these families and that’s how we’re able to really help people in a significant way.
Tanis Alonso: Absolutely. And helping people in this way is what it’s all about! That entire viewpoint is the basis for this whole company, from the top down – starting with the CEO, who is a truly terrific guy, who genuinely loves helping people, with money, memories, and time. And you can’t replace memories and time!
Property Tax Transfer: You can’t replace memories and time… Very well put! That is a concept to remember.
Tanis Alonso: It is so important to remember, when you truly care about what happens to the people you’re helping.
Property Tax Transfer: Very true. Your clients are lucky to have you folks working for them. Thanks so much for speaking with us today.
Tanis Alonso: Thank you. It was a great pleasure chatting with you.
If you have questions about a loan for an Irrevocable Trust, or about California Proposition 58, please call Tanis at 877-464-1066.
Recently there has been debate in California if Proposition 13 and Proposition 58 still make sense. Without hesitation, the answer is yes. In June of 1978, California voters passed Proposition 13 with 65% of the total vote. Still, to this day, interestingly enough, 65% of “likely voters” in California still support the Proposition 13 this tax relief initiative.
California Prop 13 stabilized property taxes for Californians and gave a great incentive that encouraged Californian’s to become homeowners. The Proposition 13 tax break made property tax increases more affordable by limiting them to a maximum of 2% annually. Californians are fortunate enough to still be benefiting from this same formula 42 years later.
Proposition 58 works in conjunction with Proposition 13. Prop 58 allows a parent to transfer their Proposition 13 protected property tax base to a child. This is especially important when a child inherits a home from a parent. Prop 58 allows the child to inherit the home without having the property taxes reassessed, saving potentially thousands of dollars annually. This can make a home that may otherwise be unaffordable for the child, now affordable.
Matters pertaining to Trusts and Estates can be complicated, especially if you are unfamiliar with the terminology. The following is a glossary of terms that are commonly used in Trusts and Estates and loans made to trusts.
Administration: Trust administration refers to the trustees management of trust property according to the terms of the trust after the settlor’s passing.
Beneficiary: A beneficiary is the person who derives advantage or benefits from something. There can be multiple beneficiaries in a trust. Beneficiaries are names in a trust or will to receive something.
California Proposition 13: Prop 13 is a California Constitutional amendment enacted in 1978. California Proposition 13 limits the tax rate increase that can be charged annually on real estate. The proposition decreased property taxes by assessing property values at their 1975 value and restricted annual increases of assessed value of real property to an inflation factor, not to exceed 2% per year. Prop 13 also prohibited reassessment of a new real estate property tax base year value except for in cases of either change in ownership, or completion of new construction.
California Proposition 58: Prop 58 became effective in November of 1986. With certain limitations, California Proposition 58 allows for the exclusion for reassessment of property taxes on transfers between parents and children. Prop 58 is codified by section 63.1 of the Revenue and Taxation Code. In the State of California, real estate or real property is reassessed at market value if it is sold or transferred. Property taxes can sometimes increase dramatically as a result. If the sale or transfer is between a parent and their child, under limited circumstances, the property will not be reassessed if certain conditions are met and the proper application is filed in a appropriate amount of time. Prop 58 allows a child inheriting a home to avoid property tax reassessment when acquiring property from a parent.
California Proposition 193: Effective March of 1996, California Prop 193 is a constitutional amendment approved by the voters of California which excludes from reassessment transfers of real property from grandparents to grandchildren. Prop 193 requires that all the parents of the grandchildren who qualify as children of the grandparents are deceased as of the date of transfer. Prop 193 is also codified by section 63.1 of the Revenue and Taxation Code.
Change in Ownership: Ownership of real property transferred from one person or entity to another.
Conventional Lender: A conventional lender is a lender that provides loans that meet the lending criteria of the Federal National Mortgage Association (FNMA “Fannie Mae”) or Federal Home Loan Mortgage Corporation (FHLMC “Freddie Mac”). When it comes to lending to a property held in a trust, a conventional lender will not provide a loan to a trust. They require that the property first be removed from the trust and placed in the name of an eligible borrower. Commercial Loan Corporation is one of the only California lenders that will lend directly to a trust.
Co-Tenants: Co-Tenants or tenants in common share a specified proportion of ownership rights of real property.
Disproportional Distribution: A disproportional distribution is a trust or estate distribution where one or more heirs or beneficiaries receives a larger portion of the distribution of an estate / trust.
Encumber: To create a claim, limitation on, or liability against real property.
Equal Distribution: An equal distribution is a trust or estate distribution where all heirs or beneficiaries receive an equal portion of assets in the trust or estate.
Equity: The difference between the value of real property and anything owed against the real property.
Estate: All the assets owned by a particular person (less debt) at death.
Executor: A person or institution appointed by a testator to carry out the terms of their will.
First Right of Refusal: A contractual right that gives its holder the option to buy real property.
Guarantor: One that guarantees the repayment of a loan.
Irrevocable Trust: Type of trust where its terms cannot be modified, amended or terminated without the permission of the grantor’s named beneficiary(ies).
Letter to Assessors: Board of Equalization’s summaries of court rulings, legal opinions, highlights of enacted legislation, Property Tax Rules and technical bulletins for assessment problems.
Non-Pro Rata: Each heir / beneficiary receives an equal portion of the entire estate / trust, but not necessarily of each asset.
Option to Purchase: Opportunity to purchase a piece of real property.
Per Stirpes: An estate / trust is distributed “per stirpes” if each heir / beneficiary is to receive an equal share of the estate / trust.
Pro Rata: Each heir / beneficiary receives an equal portion of each asset in an estate / trust.
Probate: The official proving of a will.
Promissory Note: A signed document containing a written promise by one party to repay a stated sum to another party.
Proportional Interest: The interest of one heir / beneficiary divided by the total number of heirs / beneficiaries.
Revocable Trust: Type of trust where its terms can be modified, amended or terminated dependent on the grantor.
Security Interest: Enforceable legal claim or lien on real property.
Settlor: The settlor is the entity that established the trust. The settlor goes by several other names in matters related to trusts; you may also see them described as the grantor, or trustor. The settlor’s role is to legally transfer control of an asset to a trustee. The trustee then manages it for one or more beneficiaries.
Share / Share Alike: Each heir / beneficiary receives an equal portion of the estate / trust.
Statutory Powers: Legal powers given by a statute.
Testator: The person who made a will.
Trust: An arrangement whereby a person or entity (trustee) holds assets as its nominal owner for the good of one or more beneficiaries.
Trust Distribution Worksheet: The final accounting of the assets & liabilities for the distribution of a trust.
Trust Residue: All of the property that is left after specific gifts are distributed from a trust.
Trustee: An individual or entity given control or powers of administration of assets in a trust.
Trustor: The person(s) that created a trust (aka “settlor” or “grantor”).
If you have any questions, please call us at 877-464-1066 and we will do our best to assist you.
Information on the California parent to child property tax transfer
Parent to Child Property Tax Transfer on California Real Estate
Did you know that in some situations California property owners can transfer a property tax base to another person? It is possible, but there are some limitations. California Proposition 58 allows parents and children to pass property to one another and avoid property tax reassessment in some cases.
Why is a parent to child property tax transfer important for Californians?
Simply put, it allows you to keep your parents low Prop 13 tax base on an inherited home. This can make the cost of keeping the home more reasonable. Here is an example of how it works. Say a parent purchased a home in 1982 for $125,000. The parent passes away in 2018 and the property is then worth $800,000. Because California Proposition 13 limits the amount that property taxes can increase to just 2% per year; the parents annual property tax payment may be only $2,000 per year when they pass. If that home were to have its property taxes reassessed, the taxes would jump to around $8,000 per year.
California Proposition 58 allows the child to avoid property tax reassessment on the home inherited from the parent. That means a savings of around $6,000 per year in property taxes for the person inheriting the home. This makes the home more affordable for the child and may allow them to keep the home as opposed to having to sell it. If you have specific question on if you may be eligible for a California Prop 58 exclusion from property tax reassessment, please call us at 877-464-1066.
Can a child inheriting a home avoid property tax reassessment if the home is held in a trust?
Yes, California Proposition 58 does allow a parent to transfer a property held in a trust to a child and avoid property reassessment. That being said, doing so can be complicated when multiple trust beneficiaries are involved. An equal distribution is required in most situations. If there are not sufficient funds in the trust to equalize the distribution, the trust will need to borrow the funds needed. In that situation, the County Assessors office will require that an equal distribution was made with funds provided by a third party loan to the trust in order to grant a Proposition 58 exclusion for reassessment.
Typically at the time of passing, a Family Trust, Living Trust or Revocable Trust becomes an Irrevocable Trust. When the trust becomes irrevocable the ability to make changes to the trust is restricted. The trustee or trust administrator may have few options when it comes to receiving a third party loan on a home held in the irrevocable trust. Most California lenders are not willing to lend on a home or provide a mortgage to an Irrevocable Trust. Even fewer have the experience and proper loan documents to provide a Proposition 58 compliant loan.
Proposition 58 compliant loans to trusts.
Commercial Loan Corporation is one of California’s leading providers of loans to Irrevocable trusts. Unlike other lenders, this is what we specialize in. While the majority of lenders are unable to lend to an Irrevocable Trust, this is our focus. Every month with assist clients qualify for their California Proposition 58 exclusion from reassessment with our Prop 58 compliant loans to trusts. If you, a client or a family member are interested in obtaining a mortgage to an irrevocable trust, please call us at 877-464-1066 and we would be happy to assist you.
When it comes time to distribute the assets of an irrevocable trust, a trust loan may be needed if an equal distribution is required or desired. A trust loan provides the trust with liquidity; supplying cash so that assets do not need to be sold off or converted to cash. The trust loan is a mortgage placed against a piece of real estate held in the trust. Unlike a traditional mortgage, a trust mortgage loan is typically a short term loan. Once the assets of the trust are distributed, the beneficiary who inherited the real estate with the trust mortgage placed on it would refinance the trust mortgage with a conventional mortgage or payoff the mortgage.
Why Is An Equal Distribution Important?
When it comes to a trust distribution, an equal distribution can be important for a variety of reasons. Often times there is language in the trust that requires an equal distribution of the assets in the trust be made to beneficiaries. If the trust only contained cash, it would be easy to accomplish this. Unfortunately, most trusts that contain real estate do not have cash or other assets sufficient to create an equal distribution. In this situation, either the real estate must be sold or a mortgage must be taken out on the real estate to infuse the trust with cash. A trust loan is almost always the least expensive of the two options. Sometimes, more importantly, it also allows a beneficiary to keep a family home in the family.
Another important reason for the equal distribution of a trust is to meet the requirements of California Proposition 58. Prop 58 allows a child who is inheriting a home from a parent to avoid property tax reassessment on that home. This passes the low proposition 13 protected tax base from a parent to a child. Often times when the home is held in a trust, an equal distribution is required if a Proposition 58 exclusion from reassessment is to be granted by the County Tax Assessors office. In fact, the majority of trust loans that we provide are specifically for this reason. Our clients save on average over six thousand dollars per year in property tax savings by avoiding reassessment.
Do All Lenders Loan To Irrevocable Trusts?
No, in fact very few lenders are willing to lend to a trust, let alone an irrevocable trust. Typically when a home is held in a trust, a conventional lender will require that the property first be removed from the trust before they will lend on it. When a trust is revocable, this may not be an issue since the home can be added back into to trust once the mortgage process has been completed. Once the trust becomes irrevocable, often times the ability to do so is no longer possible and a lender who can lend to Irrevocable Trusts will be required.
When the requirements of Proposition 58 need to be considered, the situation can become even more complicated. Proposition 58 requires that the acquiring beneficiary of the real estate makes no personal guarantee on the trust loan or trust mortgage. Doing so would be perceived as a sibling to sibling transfer of real estate as opposed to a parent to child transfer and would likely jeopardize the exclusion from property reassessment. Commercial Loan Corporation is one of the only lenders in California that provides Irrevocable Trust Loans with no personal guarantee requirements. We work directly with Trust Administrators, Trustees, Beneficiaries, Attorneys and Property Tax Consultants. If you require a Trust & Estate Attorney or Property Tax Consultant to assist you with Proposition 58, we can refer you to an expert to assist you.
Is A Trust Loan Less Expensive Than Selling A Home?
Yes, in almost all cases a trust loan is far less expensive than selling a home. Additionally a trust loan takes less time to complete than it takes to sell a home. We can complete a trust loan in as little as 10 business days. That means beneficiaries can get more money and get their funds more quickly. When you consider the ability to take advantage of the Proposition 58’s exclusion from reassessment, the savings grow even further.
We specialize in loans to Irrevocable Trusts. If you or a client are in need of a trust loan or have questions about loans to an irrevocable trust, please call us at 877-464-1066. We will provide you with a free benefit analysis and answer any question you may have.
If you are attending the USC Trust & Estate Conference on 11/22/2019, please stop by our booth an speak with Tanis Alonso, our Senior Account Executive. She will be on hand to answer any questions you may have on Trust Loans and their role in the Proposition 58 exclusion from property reassessment.
This years USC Trust & Estate Conference has over 500 registrants. The conference is tailored for trust, estate planning, probate and elder law professionals. Attorneys, paralegals, trust officers, accountants, financial institution executives, private professional fiduciaries, wealth management professionals, fiduciary officers, underwriters and insurance advisers will all be on hand.
The Featured Sessions Include:
Annual Update: Recent Developments in Probate and Trust and their Practical Applications
Probate Code §2580, et seq. Whose Judgment Is It Anyway?
To Decant or Not Decant…That is the Question
Mystery in a Mumu: What Makes Your Judge Tick?
Tips and Tricks for Taming Basis
Assessing Capacity on a Sliding Scale: A Look Into Retrospective and Contemporaneous Evaluations
Attorneys and Other Advisors as Counselors: What They Don’t Teach You in Law School
If you are currently working with a client that might benefit from a trust loan, probate loan, estate loan or has questions about lending to an irrevocable trust; please stop by our booth and Tanis can answer any questions you have. You may also call us at 877-464-1066.