The California Parent to Child Exclusion From Property Tax Reassessment

Parent Child Exclusion From Property Tax Reassessment

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.

Parent to Child Property Tax Transfer

California parent to child property tax transfer

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.

Loans to Trusts To Avoid Property Tax Reassessment

Trust Loans, Probate Loans and Estate Loans

At Commercial Loan Corporation we specialize in providing our clients with trust loans and estate loans. These trust loans are mortgages on real estate in a trust that provide liquidity to an otherwise illiquid trust at the time of distribution. This allows our clients to utilize Proposition 58 or Proposition 193 to transfer the property from a parent to child or grandparent to grandchild to avoid a property tax reassessment and maintain the existing low Proposition 13 protected tax rate. The following trust loan blog article provides information on California Proposition 13, Proposition 58, Proposition 193 and how Commercial Loan Corporation can assist you. For additional information or to begin the process of receiving a loan for your trust, please call us at 877-464-1066 or complete the trust loan information request form located here.

Proposition 13

Proposition 13 was passed by California voters on June 6, 1978. Property values were escalating in the 1970’s due to inflation. Property taxes were going through the roof because people were re-assessed annually at current market values. Proposition 13 froze property tax rates at 1976 levels and limited the increase in tax rates to 2% per year. Once a property was sold, the new tax rate was established at approximately 1% of the sales price and could go up no more than 2% per year.

Proposition 58 (and 193)

Proposition 58 became effective on November 6, 1986. It is a constitutional amendment approved by California voters which excludes from reassessment transfers of real property between parents and children.

Proposition 193 became effective on March 27, 1986. It is a constitutional amendment approved by California voters which excludes from reassessment transfers of real property from grandparents to grandchildren, providing that all the parents of the grandchildren who qualify as children of grandparents are deceased as of the date of transfer.

Why is this important?

Prop 58 and Prop 193 allows a child receiving a property from a parent (or grandparent) to avoid property tax reassessment. The child receiving the property will preserve the Prop 13 tax rate paid by their parents (or grandparents). The property tax savings for the child receiving the transfer of real property can be significant. Let’s say Mom and Dad has owned the family house for 20 years. If the parents bought the property for $200,000, their property taxes would probably be $2,900. That property could be worth $700,000 today. The property taxes would probably be $7,000. The difference is $4,100 per year.

What if the property being transferred is in a trust?

It doesn’t really matter that a property is in a trust. The transfer from a parent to a child will be viewed that same as a property not in a trust. The tricky part is when both parents have passed and there is more than one child (beneficiary). If the trust has assets other than the real property being transferred and those assets can be split among the other beneficiaries so that everyone gets an equal share; the child (beneficiary) taking the real property can probably qualify for the parent-child transfer exclusion afforded by proposition 58.

In the event that there are not enough other assets in the trust to equally divide the trust assets among the beneficiaries, the trust will need to borrow money so that there are enough assets to distribute equally to all the beneficiaries. This is called a 3rd party trust loan. This is where Commercial Loan Corporation comes in. CLC is a California Trust Loan provider and CLC loans help preserve a low property tax rate when taking a property out of a trust.

Even though the child beneficiary taking the real property may have enough cash to lend to the trust so an even distribution can be accomplished, it is viewed as a buyout of the other beneficiaries and the real property will probably be assessed at the current sale price. The trust is required to borrow from a 3rd party in this situation.

Pro Rata Distribution versus Non Pro Rata Distribution

A pro rata distribution of an estate is when each heir receives an equal portion of each asset in the estate. A non pro rata distribution of an estate is when each heir receives an equal proportion of the entire estate but not necessarily of each asset.

$1 million exclusion limit

There is no limit on the transfer of a personal residence.

There is a $1 million dollar limit for all other real property. This is based on the assessor’s value of the other properties as opposed to current market value. A parent may have used part of this exclusion in the past. The State Board of Equalization keeps track in a state-wide database. This can be checked by writing to:

State Board of Equalization
County Assessed Properties Division, MIC: 64
P.O. Box 942879
Sacramento, CA 94279-0064

For additional information on trust loans, probate loans and estate loans or to begin the process of receiving a loan , please call us at 877-464-1066 or complete the trust loan information request form located here.