Trust & Estate Loan Information For Attorneys

Loans to Trusts and Exclusion For Reassessment Of Property Taxes

One of the most common loans we do at Commercial Loan Corporation are bridge loans to provide liquidity for the Non Pro Rata Distributions of family trusts. The primary goal of this loan is to keep the Proposition 13 tax rate in place by taking advantage of Proposition 58 (or Proposition 193) which allows the client to keep the property tax rate charged to their parents (or grandparents).

Commercial Loan Corporation works with attorneys and their clients to provide 3rd party funding to illiquid trusts.  Our clients are typically trusts with one or more child-beneficiaries taking real property as their share of the distribution of the trust. These beneficiaries want to take advantage of Proposition 58 and obtain exclusion for reassessment of property taxes on the real property being distributed.

The trusts do not have enough liquid assets to make an even distribution to all beneficiaries. Many of our clients have the funds to pay the other beneficiaries for their share of the real property in the trust or lend money to the trust necessary to make an equitable split of the assets. Unfortunately, one beneficiary cannot lend money to the trust if they want to gain exclusion for reassessment of the property taxes. Per the Board of Equalization website:

“…However, a loan cannot be made by any of the beneficiaries of the real property to the trust in order to equalize the trust interests. Such loan would be considered payment for the other beneficiaries’ interests in the real property resulting in a transfer between beneficiaries rather than a transfer from parent to child, which would disqualify the transfer from the parent-child exclusion.”

Board of Equalization website: http://www.boe.ca.gov/proptaxes/pdf/lta08018.pdf

The above link is a document on the Board of Equalization website that provides questions and answers regarding

REVENUE AND TAXATION CODE SECTION 63.1: PARENT-CHILD AND GRANDPARENT-GRANDCHILD EXCLUSION QUESTIONS AND ANSWERS.

Third party loans appear to be the best option for the beneficiaries that want to take advantage of proposition 58. A family friend or a relative that is not one of the beneficiaries taking the real property as a distribution would be the best choice. Finding that person may be as difficult as finding a lender willing to lend to a trust. Commercial Loan Corporation is ready and willing to be the 3rd party lender needed for these transactions. We are fast (7 – 10 calendar day funding) and make the process simple. We charge no prepayment penalties and have no minimum number of day’s interest requirement.

We prefer that the attorney be consulted throughout the process. Once we prepare loan documents, they are sent to the client and attorney before being forwarded to escrow for execution. This gives the client and attorney a chance to review the documents and make requests for changes.

If you would like to learn more about our loans for non-pro rata distributions of an illiquid trust, please call us at (877) 464-1066 or complete an inquiry form and we will call you within 1 business day.

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