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 Alonso: 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 Alonso: 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: You mean, simply spent on living… no frills, no traveling around the world, staying in fancy hotels, eating out in 5-star restaurants…
Tanis Alonso: Oh no, nothing fancy… just simple day to day living. Food, rent, medical expenses – normal expenses that eat up plenty of cash.
Property Tax Transfer: Certainly. Medical expenses can eat up an entire estate… and leave a house, and that’s all that is left in so many trusts, in so many estates, left by decedents. At least it’s usually paid for.
Tanis Alonso: Yes, many older homes being inherited by beneficiaries in these scenarios are not carrying any debt. Which is fortunate. So let’s say in many of these middle class or even upper middle class families there is a house, maybe some land, and possibly a few valuables…
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 Alonso: 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 Alonso: 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 Alonso: 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”.
Continued in Part Two…