Blog Feed: Property Tax Transfer & Trust Loans – Transferring Property Taxes While Avoiding Property Tax Reassessment

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Property Tax Transfer

California Property Tax Transfer

There are, as we all know, numerous reasons that California property owners support Proposition 13 and California Proposition 58.  Proposition 13, passed by voters on June 6, 1978 protects individual consumer and corporate owners of residential and commercial real property from current property tax reassessment, with the exception of completion of new property construction and/or a change in property ownership.  Proposition 58  was approved as a California constitutional amendment by voters on November 6, 1986 – to exclude transfers of real property between parents and children from property tax reassessment.  Moreover, CA trust loans keep parents property taxes low, insuring that an even distribution can be made.

Generally, this gives adult offspring the ability to keep parents property taxes – in other words, to retain a parent’s lower Proposition 13 protected property tax rate. This frequently results in families saving literally thousands of dollars every calendar year. Moreover, these activities open up opportunities for  companies like the Commercial Loan Corporation to help  California beneficiaries and heirs who are middle class, not particularly wealthy, to qualify for Proposition 58 property tax benefits, by providing bridge loans to trusts and probate estates in order for an even distribution to be made for these heirs and beneficiaries. This is precisely how trust loans keep parents property taxes low in California.

Since 1978, Proposition 13 has saved California taxpayers over $528 billion – which has saved every taxpayer in California more than $60,000.  The 1978 Proposition 13 tax shelter finally provided residential and commercial property owners in California with tax relief that has proven, year after year and decade after decade, to be reliable, predictable and secure.

California home owners and renters all enthusiastically support Proposition 13, being able to reliably avoid  property tax reassessment at current tax levels; as well as Proposition 58, with respect to parent to child transfer of property, and parent to child exclusion from property reassessment…  and Proposition 193, involving grandparent to grandchild property transfers, when inheriting property taxes – which has collectively enabled families to comfortably transfer real property from parent to child, and keep parents property taxes, without being reassessed with constant  property tax increases.

Renters in California support Proposition 13, due to the fact that most residential and business renters are aware that as long as their landlord’s property taxes remain low, their rent is likely  not to go up.  Whereas if landlords’ taxes in California go up – we can predict with mathematical certainly that business  rents will follow.  Landlords will more or less have no choice but to increase their tenants’ rents.

Naturally, this would affect stores, gas stations, offices, industrial facilities, and so on – and that would ultimately affect the cost of food, of business goods and services; of gas;  so forth and so on.  Everything would go up.  And consumers would be hit hard.   Which is basically why renters in California support Prop 13, even if they’re not property owners themselves. In fact — why mostly everyone in California with a sense of community and fairness wholeheartedly supports California Proposition 13, 58 and 193.

CA Proposition 58 & the Trust Loan Process: An Interview With Trust Loan Specialist Ken McNabb

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Loans to Irrevocable Trusts in California

Loans to Irrevocable Trusts in California

Kenneth McNabb is an Account Representative at the Commercial Loan Corporation in Newport Beach, California. We began the interview by asking Ken to address a central issue in this field, namely communicating a rather complex process in very simple terms:

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, to give potential clients a solid overview… And try to determine exactly how urgent the the financial issues are, that are driving the folks I’m talking to.

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 conducted. Plus I make sure I know who wants to sell an inherited property, and who wants to keep the property… and nail down their low Proposition 13 tax base. Everyone wants that low property tax base to be intact forever, of course. Most people do not realize that they can actually save a considerable amount of money by taking out a trust loan to keep a home as opposed to having to pay realtor fees, closing costs and repair costs involved with selling a home.  In fact we save our clients on average more than $40,000.00 when compared to selling a home. That does not include the annual tax savings of over $6,200 by taking advantage of California Proposition 58!


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: What is the most important thing in an estate situation like that, that comes to you all mixed up and in conflict?

Kenneth McNabb: The most important thing is the loss of a parent. That’s number one. But also, they all generally agree right at the beginning that they all want to lock down a loan to a trust, to buyout a sibling… to keep an inherited property, and most importantly to make sure they nail down that low Proposition 13 tax base their parents had. Those items are always in the picture as important, even critical, elements. 

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! As usual, I keep everything as simple as possible. I explain Proposition 58 and securing a low CA Proposition 13 property tax base in very, very simple terms… Letting them know, in plain English, without a lot of confusing technical jargon, how an exclusion functions for the property – from parent to child… I always ask them, in simple language, “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 loans to trusts to help our clients utilize Proposition 58 to 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. Together, we 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. 

 

PART SEVEN: Coronavirus Crisis in California Motivating Certain Politicians to Push Harder for New Proposition 15 “Split-Roll” Property Tax

Property Taxes During the Pandemic

Property Taxes During the Pandemic

So let’s wrap this discussion up with a brief recap… and summary.  It  is completely obvious to any reasonable person that even though the new, proposed Proposition 15 commercial & industrial property tax on landlords and business property owners is not aimed at consumers per se – at the end of the day, it is consumers who will pay for this new property tax; paying significantly higher prices for normal everyday goods and services. 

Consumers that have for some time already been struggling with the high cost of living in the state of California… as have residents in, for example, other states at the top of the list of “most expensive states” list…  most expensive American states – such as Hawaii, New York, Washington DC, and Oregon.  States that are this costly to live in do not, and we should repeat do not, need property tax hikes, especially at a time like this when state economies are literally crumbling under the weight of a Coronavirus Pandemic, a tsunami of unemployment, now surpassing 42 million jobless claims nationwide, plus a host of other issues. 

These costs, in California, encompass some of the steepest taxes in the country, including some of the highest gas, income, and sales taxes. In fact, the California Legislature just passed policies that have resulted in residents paying 48% more for electricity than the rest of the nation.  Fact, not opinion.

Adding a new property tax on top of these existing costs will only exacerbate the affordability issue for many Californians. The downside (ironically, there is no upside) of the Proposition 15 business property & industrial facility property tax that Secretary of State Padilla and other powerful political critics of property tax relief in California are not looking at.

We suggest they had better remember we are in the throes of a national Pandemic, with California running particularly high infection rates, and they would do well to start looking at a potentially massive downswing of middle class and working class personal income descent if landlords, business and commercial property owners   abruptly lose their ability to use Proposition 13 to avoid property tax reassessment. At the same time, if business properties have been passed down through family members, countless businesses will be impacted in this fashion, losing their ability to keep parents property taxes and parent to child exclusion in California, when  taking advantage of Proposition 13 and Proposition 58, working through a loan to an irrevocable trust… a Prop 58 transfer of property. 

The great fear is that the next step politicians who oppose Proposition 13 and Prop 58 will take, after opening the door to unraveling property tax relief for businesses, will be to go after property owners’  ability to take advantage of property tax transfer, or the transfer of parents property taxes upon inheriting property taxes in general.  The anxiety running through the state concerns fear that critics of 1978 Proposition 13 now pushing a property tax measure called Proposition 15 (formerly entitled Proposition 13 “Split-Roll” tax) will feel free to go after the right to avoid property tax reassessment, or parent to child transfer and parent to child exclusion in California, if Proposition 15 actually passes in November, 2020.         

Obviously, this will impact all Californians, raising rents, throwing prices of goods and services throughout the state completely off the map of normalcy.  If these folks do not begin looking at this issue more realistically, they are going to step into a deep statewide quagmire of economic quicksand, if this property tax passes in November.

Although politicians on the state level claim that a revised Proposition 15 property tax includes a “small business exemption” that will fix everything… don’t believe it.  We suggest you don’t drink the Cool-Aid!  This new property tax on commercial property owners in California will be crippling, to most  businesses and commercial entities, including landlords, in California.  The revised measure supposedly expands the “reassessment exemption” to small business owners with property valued at $3 million or less, up from the initial $2 million threshold.  Sounds like double-talk to most of us. 

One of “us” being the talented, courageous Rob Gutierrez, President of California Taxpayers Association. Mr. Gutierrez says that these supposed “protections” for small businesses aren’t even close to being strong enough to allow these folks to survive – with thousands of jobs for Californians not able to survive in the bargain! More people on the Unemployment Line.

“Because so many small businesses rent as opposed to own their commercial space… higher property taxes on the buildings they rent space in will of course result in more expensive rent for them”, says Mr. Gutierrez… “What that translates into is higher prices for consumers and brick-and-mortar stores. Dry cleaners, grocers, companies that cannot move, will have to find a way to pass these costs on.”

And as usual, who does this get passed on to? That’s right. Us. The consumers.

Faced with higher property taxes, commercial property owners with leases will assuredly be motivated to pass these increased costs on to their tenants.  They’ll have no choice.  For example, the owners of shopping centers or strip-malls, with numerous commercial tenants, if unable to avoid property tax reassessment or parent to child exclusion in California, will without question be compelled to increase rents on their commercial and industrial tenants. Next step, prices on goods and services go up literally overnight.  

So we can only further assume that adding a new property tax to the already heavy burden carried by residents of this great state will only serve to make current economic challenges only more challenging   for regular middle class Californians.  There’s no doubt about it.  Hence the need for California to keep the property tax system as is… Leaving the status quo alone. 

PART SIX: Coronavirus Crisis in California Motivating Certain Politicians to Push Harder for “Split-Roll” Property Tax

The Property Taxes In California

The Property Taxes In California

The infamous Split-Roll property tax is naturally unpopular with most Californians… Of course, when did popular preference ever convince politicians of a certain stripe to do anything!  They typically do what will benefit them

At any rate, most Californians realize this new property tax, initially titled “Proposition 13 / Split-Roll Property Tax” and now called “Proposition 15” will end up raising prices of goods and services all across California… Not to mention increasing industrial and commercial rents, not only causing their prices to go up, but worse case scenario forcing many middle class companies to simply close their doors! Or to move out of state… if they’re lucky.  And it’s definitely worth mentioning that minority owned businesses, and other concerns that are bravely holding on without tremendous cash reserves, will be particularly hard hit and negatively impacted.

The fact that (as Jon Coupal, President of the Howard Jarvis Taxpayers Association, says) “tax-hungry public sector labor interests” are determine to strip away genuine Proposition 13 property tax relief protection from business properties and industrial facilities, to bank what they believe will be something in the neighborhood of six to twelve billion dollars per year from property taxes. 

Interestingly enough, even their gross property tax intake projection is tremendously inaccurate and uneven!  If their math is that volatile at merely the initial projection stage, at this point – what will it look like when taxation revenue wheels are turning for real?  Their Proposition 15 measure on the November ballot would apparently  need constant reassessment of business properties, revising the 2% cap in yearly increases; exactly to what degree no one really knows.

Fortunately, most of the public is either old enough to remember, or has older relatives that do remember, what life was like in California before the 1978 Proposition 13 property tax relief measure was passed… Ending up saving property owners and beneficiaries or heirs of estates thousands of dollars in property taxes every year, simply by being able to avoid property tax reassessment in CA. 

It’s fairly obvious to most of us that the new property tax entitled Proposition 15 is guaranteed to not accomplish what critics of property tax relief insist it will accomplish. The outcome is rather clear.  It will merely end up increasing consumer rents;  severely raising commercial and industrial rents; raising the cost of countless goods and services favored by consumers; and force who knows how many mid level companies to go out of business… all across the great Sunshine State.  A colossal disaster, with numerous tentacles, just waiting to happen.  

Californians can never lose sight of what Proposition 13 has accomplished for them, as well as property tax transfer benefits from Proposition 58 from parents; and Proposition 193, from grandparents.  Moreover, what that form of genuine property tax relief really looks like, and exactly what it provides Californians with!

Starting with the ability to avoid property tax reassessment in CA… and moving into the legal right, for the very first time, for beneficiaries and property owners in California to be able to transfer parents property taxes upon inheriting property taxes from inherited property; with the ability to keep parents property taxes, and to keep it at the usual Proposition 13 low 2% capped property tax base… For any property tax transfer from parent to offspring, or as they say “parent to child transfer” or “parent to child exclusion”. 

Exclusion, that is, from current property tax reassessment. The right to avoid property tax reassessment in CA is indeed unique, as no other state even comes close to providing this type of middle class property tax relief. And anyone who attempts to come up with  unrealistic reasons to destroy these tax breaks – claiming it’s only for wealthy Californians, or that it’s really all about seniors intentionally keeping their property off the market for this reason or for that reason – is, frankly, delving into fiction. These claims are either exaggerated, or just simply untrue.  

Faced with higher property taxes, commercial property owners with leases will most  likely be motivated to pass these increased costs on to their tenants.  For example, the owners of  shopping centers or strip-malls, with numerous commercial tenants, would be faced with  increased property taxes if the Proposition 15 / Split-Roll tax passes…   and will, without question, increase the rent of every concern you go into every week to purchase new  goods, as well as products you pretty much cannot do without.

As we’ve already indicated here, when faced with more expensive rents, business tenants will be forced to increase the pricing of their products or services, obviously to offset higher rents… The long and the short of it?  This supposedly “revised” Proposition 15 commercial & industrial property tax (cleverly devised reassessment exemption   or no reassessment exemption!)  will increase the cost of living across the board for all Californians, right down the line – as sure as we breathe oxygen and need clean air.  

>> Click Here: To Continue to Part Seven…

PART FIVE: Coronavirus Crisis in California Motivating State Politicians to Push Unpopular “Split-Roll” Property Tax

Property Taxes In California

Property Taxes In California

As we get close to wrapping up this six part report on the devastating affect the Coronavirus crisis has  had on the California economy, and the housing market throughout the state, let’s clarify one thing – not all the news is negative.  There are positives, or upsides, in view.

California, unlike most other states in America, still provides citizens with property tax relief benefits from Proposition 13 and Proposition  58 with loans to trusts (or loans to irrevocable trusts), the legal right to transfer parents property taxes when inheriting property and inheriting property taxes.

With Proposition 13 and Proposition 58, California gives beneficiaries and property owners the ability to keep parents property taxes no matter how low the base rate is — upon property tax transfer…. with parent to child transfer or, as estate lawyers refer to it, “parent to child exclusion”.  No other state gives citizens property tax breaks anywhere near this type of property tax relief.  So no matter how challenging things get as a result of the current health crisis, Californians can always turn to these property tax benefits for positive options when dealing with inheritance assets such as real property, trust loans, sibling property buyouts and related matters.

Aside from that, there are a series of objective, updated conclusions and assumptions that the California Association of Realtors has recently provided; that they want residential and commercial as well as industrial property owners, and beneficiaries, to be aware of:  

(a) Mortgage rates are expected to remain low, or even go lower, as Coronavirus outbreaks continue nationally, as well as in California.   Therefore, economists anticipate that this will most likely help lower the cost of borrowing money and this is expected to make housing more affordable over the short term, which, if this projection is accurate, will help mitigate some of the uncertainty and negative impact on housing demands in California.

(b) Potential home buyers might be discouraged by increasing uncertainty and fear of oncoming recession. However mortgage rates recently fell to an all-time low of 3.13%. Down from 3.80% at the beginning of the year, representing cost savings over the life of a 30-year loan. These anticipated short-term economic risks are genuine,  however they may be offset by the long-term benefits of lower rates for individual borrowers.

(c) Economic volatility in California may lower demand for luxury housing, as overall household wealth declines; however this volatility may also create unique opportunities for luxury home buyers. With less luxury buyers in the market, there could be opportunities for price discounts for buyers who remain in the high-end market.

(d) Demand from foreign home buyers could be vastly reduced. As domestic buyers generally finance homes in much larger proportions to their foreign counterparts, low rates could be stimulating more domestic demand in California – offsetting the negative impact that typically goes hand-in-hand with foreign buyer demand.

(e) Much of California’s Building Industry materials are purchased from Asian countries such as Japan and China or Malasia. As the Coronavirus crisis disrupts these supply chains, the cost of these materials may increase over the short-term and become limited, thereby increasing cost of construction and reducing the pace of already tightening residential development in 2020 – 2021.

(f) Improved affordability may emerge from lower rates plus fewer new homes being constructed – as the material supply chain is impacted. This may lead to an upward pressure on home prices in California. Unsold inventory is already at low levels, so reduced construction means that is likely to continue – especially if buyers respond to lower rates.

(g) The situation in California remains fluid, and conditions could deteriorate beyond the current severity of the virus outbreak. Yet if   current economic forecasts of modest declines in GDP growth are realized, the effects of lower rates should help offset the effects of a slow economy with increased economic uncertainty so  California could still experience improved home sales and prices this year.

It’s clear that the Coronavirus is having, and will continue to have, a material impact on the California economy, and in particular the housing market through 2020 on into 2021… However, it is also safe to say that this is not necessarily the right time to panic.

The effect of lower rates will help to offset some of these movements in the housing market, and forecasts of economic growth by the California Association of Realtors and other organizations have been revised in a  downward direction, but only by tens of basis points – not hundreds.

The situation in California remains fluid; therefore C.A.R. along with attentive and realistic economists at the Public Policy Institute of California or Howard Jarvis Taxpayers Association, and other responsible organizations, will certainly be closely monitoring all of these property matters and financial issues… and will be providing all of us with accurate data, as updated information continues to develop and surface.   

>> Click Here: To Continue to Part Six…

PART FOUR: Coronavirus Crisis in California Motivating State Politicians to Increase Efforts to Pass “Split-Roll” Property Tax

California Property Taxes and Covid

California Property Taxes and Covid

We’d like to take a closer look here at how The California Association of Realtors (aka, C.A.R.) and others continue to monitor and forecast the affect that the Coronavirus crisis is having specifically on the fluid  2020 California housing market – on the overall demand for middle class housing, and on the adverse affect the crisis is having on the cost and process of new home construction, fixer-uppers, and so on.

Taking into account over 42.1 million people in America now out of work, having signed up for Unemployment benefits – and 3,018,000 working people in California now jobless, as of May 2020, as official government statistics tell us – this obviously has had, and continues to have, a significant affect on estates and inheritance distribution scheduling, as well as the housing market throughout the entire state.

As we all know, or should know, the Coronavirus health crisis, and economic disaster are intertwined, and cannot be separated in order to “fix” one or the other, contrary to what certain political figures currently believe. One cannot “open” the economy and “fix” that – without first resolving the health issues, as infectious disease experts such as Dr. Fauci and others have stated repeatedly over the past four months.

The health crisis has had an an adverse affect on live viewings concerning residential properties, as well as commercial and industrial facilities and buildings that, if the Split-Roll property tax were to pass in November 2020 and be imposed on these property owners, landlords, and even renters, we would see the effective unraveling of 1978 Proposition 13 property tax relief benefits for non residential properties and facilities.

Supposedly not affecting home owners and beneficiaries’ right to transfer parents property taxes when inheriting property taxes from parents; Supposedly not having any affect at all on Californians’ ability to keep parents California property taxes upon property tax transfer; and supposedly no obstruction of parent to child transfer or parent to child exclusion.  Supposedly.  And are we to believe all this, sight unseen? It’s questionable… to say the least.   

If passed, and ones ability keep parents California property taxes is taken away, Californians all know that this new ill advised property tax will cause a substantial increase in rents across the board concerning both business and residential rentals – an outcome that many Californians do not yet seem to be fully aware of.

If the proposed property tax is passed, it’s a given that there will be a massively unpopular increase in prices of goods and services throughout California, strictly due to more expensive rentals imposed on businesses that are renters. Businesses that own their own property will be paying higher property taxes and so will assuredly be charging more for their goods and services.

This is bound to affect retail stores, supermarkets, and properties that house these retailers as well as restaurants, multi-tenant and single-tenant stand-alone buildings; shopping centers, strip-malls, banks, pharmacies… affecting the price of goods at popular stores such as Target, Walmart, Best Buy, movie theatres, Casinos, Resorts and Hotels… Multi-tenant and single-tenant office buildings; Medical office buildings and facilities.

And lest we forget, so critical to the California economy, agricultural and manufacturing facilities.  Plus the numerous research and development facilities that are typically associated with those business categories.

>> Click Here: to continue to Part Five…

PART THREE: Coronavirus Crisis in California Motivating State Politicians to Push Unpopular “Split-Roll”Commercial Property Tax

California Property Tax

California Property Tax

A Split-Roll property tax would force many California businesses, owned by business property owners and renters alike, to literally go out of business, or relocate to a state that actually  welcomes business investment and doesn’t believe in stifling businesses with egregiously high commercial property taxation.   

The California Legislative Analyst’s Office has repeatedly warned state and local politicians that if this new property tax ballot initiative passes the entire state will most likely experience increases with respect to business operating costs all across California… and that this is also likely to influence business owners in terms of deciding whether or not to spend good money after bad in this state, or to simply pack it up and call it a day… and relocate to another state.   This is, one might say, not an attractive picture to envision for such an important state as California. 

This Split-Roll tax that California politicians want does not include any form of accountability or watchdog measures to protect California taxpayers…  There are no cost controls, no fixed requirements to produce transparency in order to avoid corruption or illicit over-spending while no one  is minding the store! 

These Split-Roll property tax supporters, typically critics of property tax relief at all costs, even removed a stop-gap on administrative expenses — so government management staffers can waste this new tax cash on overhead such as salary increases, lavish benefits and vacations, and such… with no limits or checks and balances whatsoever.  Let’s face it, something is entirely wrong with this picture.

Moreover, this property tax initiative will change the official tax assessor’s process of review for all types of properties — from a solid objective system to an arbitrary up and down mess, as we had prior to 1978 in California.  That sort of arbitrary, unpredictable tax system will lead to subjective, unpredictable property assessments. Endless, expensive legal appeals; and a rising tide of overspending on the bureaucratic side.

Let’s face it, additional property tax revenue at this level is not even needed… California taxpayers have payed into and built a Mount Everest high mountain of state and local tax cash since Proposition 13 began.  More than $240 billion just this year alone!  Next year, our competent Governor Newsom predicts a budget surplus of $21 billion!

Since Proposition 13 passed in 1978, local tax revenue (adjusted for inflation) has gone up by nearly 55%. That equals approximately $90 Billion in new spending requirements, even after another 17 million residents are added to the mix, along with accelerated cost of living in California.

These property tax revenues are not needed to accomplish what must be accomplished in this state.  California has all-time high revenues coming in, plus a significant surplus.  The type of surplus, for example, Bill Clinton would have solidified, were it not spent by the spendthrift administration that followed him.  A similar surplus formula is in motion in California as well, since the state’s local inbound government revenue is at a record high level. 

In fact, when Proposition 13 was passed into law in 1978, allowing heirs of estates and trust beneficiaries to transfer parents property taxes, with a parent to child transfer, upon inheriting property from parents, hence inheriting property taxes at a low base rate – local property tax assessments were over $6 Billion!  In fact, California state economists now confirm that local property tax has increased by over $19 Billion over the past ten years; starting at $50 billion in 2008–2009 during the  recession, to nearly $69 billion by 2019.

At any rate, beneficiaries and heirs of estates were all of a sudden   able to keep parents property taxes instead of suffering devastating tax hikes from arbitrary reassessment.  In fact, being able to avoid  property tax reassessment altogether.  While maintaining parents’ low Proposition 13 property tax rate and in 1986 with the advent of Proposition 58, being able to retain that low tax base forever after any property tax transfer from parents, which estate attorneys still refer to as a parent to child transfer or “parent to child exclusion” — which you are also most likely familiar with by now.       

Point being — an egregious property tax increase in California in Nov. 2020 from a Split-Roll tax, through the decidedly deceptive stripping down of  the 1978 Proposition 13 tax cap protection for commercial property owners — avoiding property tax reassessment for business and commercial as well as manufacturing facilities, office buildings, malls, multi-rental properties, so on and so forth — and this type of property tax unraveling is just simply not needed by local California government revenue collectors, in order to maintain a sound economy going forward, for the state of  California.

>> Click Here: to Continue to Part Four…

 

PART TWO: Coronavirus Crisis in California Motivating State Politicians to Push Harder for “Split-Roll” Property Tax

California Property Tax Changes

California Property Tax Changes

Even without California’s ill-advised Split-Roll property tax measure looming over every renter and residential as well as commercial property owners’  head throughout the sunshine state — California has already been grappling with lopsided expenditures such as over-spending on state & local government  salary increases, healthcare benefits, and lavish vacation time… Rather than budgeting properly for public works that would actually be beneficial for regular every-day Californians rather than folks with elite government positions.

Residents of this state are already dealing with unusually high taxation (other than property taxes), and other challenging regulations that make it difficult as it is for California businesses to compete effectively in a number of important and popular industrial and commercial playing fields.  

Let’s face facts… an $11 billion Split-Roll property tax increase  on business and commercial property owners would, without question, prevent businesses based in California from hiring new employees;  and would make it more difficult to retain existing employees.  

And you can forget about Christmas bonuses and/or timely raises, not to mention maintaining proper levels of health coverage!  It’s obvious that stability and predictability provided by 1978 Proposition 13 property tax relief has helped businesses in California to compete on a national level regardless of the fact that doing business in California is expensive to begin with!

Even if correctly managed, tax assessments will mirror the ups and downs of  the real estate market in  California— resulting in volatility, the way things were prior to 1978 when Proposition 13 was passed into law.  During low economic times this would most likely end up leading the state into an even more severe loss of revenue. 

If you think back… during the 2008— 2009 recession, commercial property values dropped by over 35%, mainly due to the economic recession.  These abrupt and  unpredictable economic shifts are what motivated unease and unhappiness among California property owners before 1978, and ultimately led to the big win pushed by the Howard Jarvis Taxpayers Association and others, leading ultimately to the passage of  Proposition 13 in the first place. 

Proposition 13 stabilized the property tax revenue system by capping property taxation at 2% plus nailing down property owners’ right to avoid property tax reassessment… with other stabilizing influences,   rules and iron clad regulations favoring the taxpayer for the first time.

Much to most beneficiaries’ surprise, it also became possible for estates to entertain certain options, where none existed previously; such as beneficiaries who were intent on retaining inherited property from parents now being able to buyout siblings that wanted to sell their property shares… Through a loan to an irrevocable trust, working alongside CA Proposition 58. 

Trust loans have become popular throughout California, to resolve heated sibling “inherited-property conflicts”, working in tandem with CA Proposition 58,  once those beneficiaries looking to keep inherited property actually qualified – enabling their co-beneficiaries to buyout siblings’ shares of a home usually… typically called a “beneficiary buyout of sibling property shares”.

While at the same time the siblings keeping the home were now able to legally avoid property tax reassessment, by using a trust loan to buyout a sibling’s share of an inherited house – or, as realtors call it, “a transfer of property between siblings” or “sibling to sibling property transfer” – whereas regular middle class folks simply refer to the process as “getting cash from a trust loan to buyout siblings’ shares in inherited property”.  Most people prefer to keep things simple.  As we do.

It  was unthinkable that the bad old days would even have even a remote chance of returning…  Until now. 

>> Click Here: to Continue to Part Three…

PART ONE: Coronavirus Crisis in California Motivating State Politicians to Push Harder for “Split-Roll” Property Tax

California Property Taxes

California Property Taxes

The Coronavirus crisis is having a profound effect on various social-economic facets in California, however we will be focusing to a large degree on the real estate market, residential and commercial property issues, and property tax relief.

Moreover, the Coronavirus Pandemic has also apparently infused new support for the Split-Roll property tax in California, to pursue what would without question (if passed) be a “Pyrrhic victory”.  For those of you who might not know what that means, it’s a victory that results in such devastation to the so-called “victor” that the outcome may as well be an actual defeat! Named after King Pyrrhus of Epirus, his army suffered irreplaceable casualties in defeating the Romans at the Battle of Heraclea, in 280 BC.

At any rate, if this misguided property tax measure wins by vote in November at the ballot, many politicians and newspaper editors falsely believe that this revision to the commercial property tax code will “raise billions of dollars for cash-strapped schools and California counties”… with no negative downside. 

Now there is where they are taking the wrong turn in the road.  They even have California Secretary of State Alex Padilla drinking the Cool-Aid, and  taking a stand as primary cheerleader for this tax on middle class small business property owners, modest landlords, and so on. 

Yes, some large cash-rich corporations and wealthy business property owners and landlords will be impacted, of course.  But the critics of Proposition 13 and Proposition 58 tax relief still are continuously attempting to convince  all of us that everyone affected by a business or commercial property tax will be super rich, and therefore it won’t really matter.  

Not so. Not even close to being so.  Sure, a Split-Roll property tax will affect some wealthy commercial property owners… but many  commercial properties are owned by middle class landlords, or even upper middle class commercial property owners basically leveraged to the hilt.  But wealthy?  No.  

In fact, many of these property owners and landlords are just “getting by” – and a property tax like the one these anti property tax relief politicos and newspaper editors want to impose on commercial property owners with the falsely named “Proposition 13” property tax (“coincidentally” with the same title as the 1978  genuine Proposition 13 tax relief measure… simply to confuse voters) would surely serve to destroy hundreds if not thousands of these modest or small business property owners.  With the end result being widespread foreclosure and bankruptcy, obviously.

Not to mention business tenants having to deal with increased rents they will no longer be able to afford… and so all of these goods and services from one end of California to the other will increase virtually overnight!  And we’ll discuss these disastrous side effects later on in this six-part article.

Interestingly enough, none of these critics of the authentic 1978 Proposition 13 tax relief measure acknowledge that any of these negative and dangerous outcomes are a realistic possibility.  They dance around the fact that small businesses and most landlords  in California will not be able to absorb immediate rent increases due to property tax reassessment. 

On the other hand, if small businesses in California aren’t able to raise prices – they will most likely be forced to cut internal costs, which will include cutting employee compensation and benefits, and/or laying off employees.  So we’ll have even more people out of work.  And some of these small businesses, and perhaps larger businesses as well, will have to relocate, or worse case scenario will go completely out of business – creating an oversupply of commercial space AND higher vacancy rates, which would cause commercial property rents and values to actually decline.  Yet another hidden problem. 

This will end up decreasing  job opportunities in California, due to decreased economic activity overall throughout the state. 

This is the guaranteed downside of the Split-Roll tax that, believe it or not, Secretary of State Padilla and other political critics of property tax relief in California are not looking at.  They would do well to start looking… or they are going to step into a disastrous quagmire of their own making, if this property tax actually passes in November. 

Another key point to consider, while we’re on the subject.  Even though politicians on the state and local level claim that a “revised  Prop 13 with Split-Roll tax” includes “a small-business exemption” – it would be advisable to not buy into these vague promises from local politicians whose word is highly suspect at best!  A suspect Split-Roll tax with a reassessment exemption that is highly questionable is only for the most naive of us to believe. 

A Split-Roll tax, supposedly only imposed on commercial property owners in California will be deeply crippling for many if  not all businesses and commercial entities that own business property in California.  The revised property tax measure supposedly expands the “reassessment exemption” to small business owners with property valued at $3 million or less, up from the initial $2 million threshold.  Frankly, this sounds like double-talk to most of us.

One of “us” being Rob Gutierrez,  President of California Taxpayers Association. Mr. Gutierrez says these supposed “protections” for small businesses, a Split-Roll tax with a reassessment exemption that isn’t even close to being strong enough to allow these business owners to survive… with thousands of jobs that would have been for Californians, down the drain!  More people on the Unemployment  Line.  A Split-Roll tax with a reassessment exemption, that is basically worthless. Next, when we’re not looking, they’ll target consumer property tax relief, as well as Proposition 58 property transfer tax breaks and trust loan tax benefits from trust lenders… That’s their playbook.

“Because so many small businesses rent as opposed to own their commercial space… higher property taxes on the buildings they rent space in will of course result in more expensive rent for them”, Mr. Gutierrez says… “What that translates into is higher prices for consumers and brick-and-mortar stores.  Dry cleaners, grocers, companies that cannot move, will have to find a way to pass these costs on, plus lay workers off…” 

And as usual, who does this get passed on to?  You and I.  The consumers.

>> Click Here: to Continue to Part Two…

PART FOUR: Irrevocable Trust Distribution Loans

Irrevocable Trust Distribution Loans

Irrevocable Trust Distribution Loans

Stronger Family Security With Lower Property Taxes

As beneficiaries and heirs in California inherit family real estate, they are also inheriting property taxes. They generally transfer parents property taxes; taking advantage of property tax transfer – which attorneys often refer to as parent to child transfer or parent to child exclusion… thanks to Proposition 13; and Proposition 58 which also enables beneficiary buyout of sibling property shares.

Regrettably, siblings in California who are trying to keep property left to them by parents, frequently find themselves involved in emotional and financial conflict with co-beneficiaries who wish to sell their inherited property to an outside buyer.

Fortunately, many siblings looking to retain that type of emotionally based property for their family will often be able to buy out beneficiaries looking to sell their property shares with the help of a trust lender providing a loan to an irrevocable trust, typically referred to as a beneficiary buyout of sibling property shares. 

As many Californians know by now, a trust loan, working in concert with CA Proposition 58 tax relief, makes it possible for beneficiaries to sell shares of their inherited property, also called a “beneficiary buyout of sibling property shares”, which is typically just buying out a sibling’s share of an inherited house, maybe with an acre or two of land – or, as real estate lawyers refer to it, “the transfer of property between siblings” or “sibling to sibling property transfer” – by lending money to an irrevocable trust – typically from a seasoned California irrevocable trust loan lender, commonly called trust lenders, simply specializing in trust loans of all sizes.     

Property tax transfer benefits furnished by CA Proposition 58, provides a parental property transfer tax break typically called “parent to child transfer”… whereas CA Proposition 193 provides the same type of tax relief, only for grandparent to grandchild property tax transfer – while California Proposition 13 maintains their parents low property tax base, capped at 2% for beneficiaries, thankfully avoiding property tax reassessment at current tax rates basically forever, which adds up to significant numbers over the years and decades.

Beneficiaries, with these sort of inherited property conflicts, are usually motivated to save on property taxes, and generally enlist the help of a known trust lender in California that is experienced with loans to irrevocable trusts, plus utilizing California Proposition 13 and the Proposition 58 property transfer tax break. Exactly as the O’Neil family wished to do, as it happens with the help of a company called Commercial Loan Corporation.

If qualified, and over 55 years of age, many property owners involved in this exact process can also apply a significantly lower tax rate to a secondary dwelling, as long as they own the initial inherited property for 2 years or longer.

Rules, Regulations and Critical Steps for Irrevocable Trust Loans – in Concert with California Proposition 58 or Proposition 193:

1. Deciding who will keep the property
2. Determining final trust loan amount
3. Loan to trust/estate is executed
4. Trust lender equalizes cash distribution to beneficiaries
5. Property is transferred to acquiring beneficiaries name
6. Parent child exclusion is filed, avoiding property tax reassessment
7. Five to seven day trust funding turnaround is expected
8. The trust loan is repaid, finalizing a win-win family agreement
9. No Hidden Fees

An Alternative Lending Solution for Heirs and Beneficiaries

Both beneficiaries featured here, of the O’Neil family, discovered the Commercial Loan Corp with the help of their real estate attorney. They were both extremely motivated to get a $267,000 trust loan underway as quickly as possible.

The personal issue that appeared to motivate the initial call to the trust lender, besides saving money on property taxes, is the fact that both beneficiaries have wanted to keep this property in the family for a long time – to pass the property on to a daughter, enabling that daughter to keep the property as well. She wouldn’t be able to afford this property if the taxes went up, so it was essential that they reserved a low Proposition 13 driven property tax base.

Accepted assessed value of the inherited property was $400,000. Annual property tax savings was estimated to be $1,970. One beneficiary wanted to keep the property, with the other beneficiary looking to sell to an outside buyer, however both siblings appeared to get along well and basically agreed on all key points, of both minor and major importance – and after no time at all agreed to keep the property, as soon as Senior Account Executive Tanis Alonso from Commercial Loan Corporation explained the tax savings and the trust loan and Proposition 58 combined process to them, in simple easy-to-understand terms.

Both siblings agreed that their positive childhood memories were attached to the house they were inheriting, and this was important to retain, and maintain, for both siblings emotional and financial well being.

Bottom line, the cost of selling the property outright to an outside buyer would have been $24,000. Cost to the O’Brien family using the Commercial Loan Corp loan-to-trust process (i.e., not having to sell the property), while happily being able to keep their parents beloved  home forever, at a low yearly tax rate, which is only $10,602. Savings for the O’Brien siblings was a significant $13,398.

If you have questions about a loan to an irrevocable trust, you can reach Tanis Alonso at 877-464-1066.

PART THREE: Loans to Irrevocable Trusts and Equalizing a Trust Distribution

Lenders for Irrevocable Trusts

Lending to an Irrevocable Trusts

Improving Family Security With Low Property Taxes

When beneficiaries in California are inheriting real property and looking to transfer parents property taxes, it’s typically a house possibly with some land from parents… and yet when they are involved in emotional and/or financial conflict with co-beneficiaries, generally siblings – revolving around the issue of retaining an inherited property, or selling it to an outside buyer, one or more beneficiaries who prefer to keep the property in question frequently will attempt to buyout the beneficiaries looking to sell their shares in an inherited property.

One increasingly popular method of being able to transfer parents property taxes, while accomplishing an inherited property buyout, involves the hiring and collaboration of a trust lender that is experienced in loans to irrevocable trusts, as well as the expert use of California Proposition 13 and the Proposition 58 property transfer tax break measure. As is the case in this particular account involving the Smith family in Southern California, and the Commercial Loan Corporation.

If qualified, and over 55 years of age, many property owners involved in this exact process can also apply a significantly lower tax rate to a secondary dwelling, as long as they own the initial inherited property for 2 years or more.

Rules, regs and steps regarding the trust loan process – in conjunction with California Proposition 58:

1. Determination of who will keep the property
2. Determination of the loan amount
3. Loan to trust/estate is implemented
4. Trust lender equalizes cash distribution to beneficiary or beneficiaries
5. Property is transferred into the acquiring beneficiaries name
6. Parent child exclusion is filed, avoiding property tax reassessment
7. Five to seven day funding turnaround
8. The trust loan is repaid, concluding a win-win family arrangement
9. No Up-Front Costs
10. No Hidden Fees

An Alternative Financial Solution for Beneficiaries

One member of the Smith family found the Commercial Loan Corp firm on Google.com, while the other three family members were referred to the trust lender by their attorney. Interestingly enough, all members of the Smith family ended up finding and calling the trust lender at their Newport Beach office separately on the exact same day. They all were extremely motivated to get this transaction closed as rapidly as possible.

The personal issue that appeared to motivate the call to the trust lender, referred by the Smith family’s attorney, was concern that all four Smiths had for tax savings derived from applying a trust loan; involving their inherited property valued at $900,000 – in conjunction with tax breaks made possible by California Proposition 58. Only one of the siblings was interested in selling their inherited property, as it happens. The amount of the trust loan applied was for $675,000. Estimated Annual Tax Savings for the Smith family was calculated to be $6,064.

Fortunately, the Smith family got along well, and all agreed their main interest was to retain the low tax base their parents had paid yearly, thanks to California tax break Proposition 13, which makes it possible for folks to keep parents property taxes, transfer parents property taxes at the low rate they used to pay, and basically enjoy the benefit of inheriting property taxes that are as low as they should be.

The Smiths wanted to avoid property tax reassessment… and to take advantage of Proposition 13 and Proposition 58 protected property tax transfer and parent to child transfer; commonly known as parent to child exclusion (from present day property tax reassessment).

The three siblings looking to keep their parents’ home all agreed they should buy out the one sibling looking to sell as quickly as possible. Buying out a siblings share of house, or buying out a sibling’s property shares is also referred to as sibling to sibling property transfer, which is where an estate loan working with Proposition 58 comes in to play. Beneficiary buyout of a sibling’s property shares was made possible in this scenario by the Smith’s $675,000 trust loan.

Bottom line outcome is that the cost of actually selling the $900,000 property to an outside buyer would have been $54,000. Not selling the property and using the loan to a trust to buyout the one sibling, and process entire transaction, cost the family only $20,764, This meant an extra $33,236 in cash to the trust in savings for the Smith family.