PART TWO: The CA Proposition 15 Split-Roll “Trojan Horse” Commercial Property Tax is Coming Up for a Vote!

2020 California Proposition 15

Gifting & Inheriting Property: Property Tax Relief Basics

Gifting your primary house, or secondary inherited property to your adult children – is it worth it?  We imagine for many it is, otherwise why would they do it?  And for others, well… what can you say, it’s simply a matter of subjective opinion.  And let’s never  forget that under Proposition 13 in California you can get the same low tax base benefits applied to your first primary residence inheritance to a secondary inherited property.  So there are built in benefits. 

Also, there are emotional reasons not just financial ones involved in all this…  It’s a real gift of love that often leads to an even closer relationship. And your offspring should realize that, and most probably do. In simple terms, it may be a principal residence, and that type of transfer may actually cause future tax appreciation of the value of that home, as a taxable item, when it might otherwise have avoided property tax reassessment if the property had remained in the decedent’s name with Proposition 13 transfer of property tax relief benefits. 

Nationwide Property Tax Relief Urgently Needed for Residential & Commercial Property Owners in a Severe, Pandemic Economy

This is the biggest problem for most beneficiaries, middle class  property owners and elderly home owners – i.e., property taxes; transfer taxes; etc.  This often forces folks to sell a beloved inherited property, as they simply can’t afford to pay the taxes on it every year, deal with utilities, upkeep, repairs, and so on.

We should all address the fact that, especially now, in the midst of an unprecedented Pandemic, with literally tens of millions of Americans out of work or  under-employed – with over 12 million people staring down the dark tunnel of foreclosure or eviction – every state in the union should be adopting, without delay, the same sort of property tax relief as California’s 1978 Proposition 13, as well as other critical property tax relief measures such as CA Proposition 58 property tax transfer benefits, voted into law in 1986.

At the risk of stating the obvious, it’s worth noting that these tax relief measures have become life-savers to property owners, as well as renters who enjoy lower rentals due to the ability their landlords have to avoid property tax reassessment.  We’re all aware of what things were like pre-1978, before Proposition 13 came about and began preventing the frequent foreclosures of the 1970’s, where we saw numerous elderly widows with fixed incomes being thrown out of their homes, literally onto the street, because they could not afford to pay egregiously high, unpredictable property taxes.

In fact, most middle class home owners at that time had trouble paying unusually high tax rates, and lived year to year with the shadow of the California ‘property tax guillotine’ looming over their heads.  In fact that is exactly what the situation looks like in many states now,  or in many expensive counties.  This is where the major problem is with most middle class estates, not with estate planning. Without property tax benefits, as in California, many beneficiaries inheriting property from parents simply can’t afford the upkeep and property taxes on an inherited home, and frequently are forced to sell their parents’ property right away. Often against their will.
 
We hear a great deal of chatter lately, among realtors and real estate attorneys in various states, about “adopting a property tax shelter” for all property tax transfers, when inheriting a home from a parent.  Or we can simply call it “property tax relief” similar to property tax benefits that are taken for granted in California; with Proposition 13, or during a property tax transfer or a sibling property share buyout; utilizing CA Proposition 58, and a trust loan – keeping property taxes much lower on a permanent basis, avoiding property tax reassessment basically forever.  

Beneficiaries who are inheriting property from a parent or step-parent  in any of the 58 counties in the state of California are generally protected from property tax reassessment. And have a low tax base to look forward to, not to exceed 2% as stipulated by California Proposition 13.

And let’s not forget having the ability to make good use of a loan to an irrevocable trust, working in concert with Proposition 58, something a lot of people don’t know anything about. With trust loans from trust lenders being used to equalize cash to beneficiaries looking to sell an inherited property held up by beneficiaries of the same trust, looking to keep the same inherited home and/or land… For once making scenarios like that a win-win situation for everyone associated with an estate or trust, with a trust loan from a reliable trust lender. Instead of experiencing problematic family conflicts revolving around property issues. 

Residential & Business Property Tax Breaks in All States

Beneficiaries and home owners, as well as commercial and industrial property owners of all types, all across America, should be getting familiar with the way they implement property tax breaks in California. How they handle having the right to keep parents property taxes, to transfer parents property taxes, when inheriting property taxes. If, by any chance you reside in California, and you happen to be a beneficiary inheriting property from your parents, consider yourself very lucky. This is why so many real estate lawyers in various locations these days strongly believe every state should have a property tax measure similar to Proposition 13 transfer of property and inheriting property taxes; and Proposition 58 property transfer tax benefits. 

So if every state in the United States had a Proposition 13 and Prop 58 type of property tax relief system… and could make good use of ancillary tax breaks such as buying out inherited property shares from siblings intent on selling out — through a loan to a trust, from a specialty trust lender; using a trust loan in conjunction with Proposition 58 to permanently solidify a low property tax base, made possible by Proposition 13; given the legal right (in every state, not just California)  to avoid property tax reassessment.

Therefore, every property owner in America dealing with inherited property in trust or in an estate; perhaps also addressing sibling conflicts revolving around who wants to keep inherited property versus who insists on selling, and who can buyout whom, using a trust loan, in order to keep inherited property in the family; avoiding property tax reassessment basically forever.  Everyone with these types of sibling property conflicts or property tax issues of any kind, even just the ability to pay them – would walk away happy… and for once all estate or trust family related conflicts would wind up as a win-win inheritance scenario, every single time these property tax measures were employed.

>> Click Here for Part Three…

PART TWO: Coronavirus Crisis is the Last Thing the California Real Estate Market Needed!

California Real Estate

As the Coronavirus crisis worsens and deepens month after month,   the death toll rises, crunching up the economy in every state, like a giant invisible lawn mower, paralyzing the real estate market, and shredding other businesses, throughout California and the entire country… With millions of Americans filing for unemployment every week – property owners in every state in America should be looking closely at how property tax relief is accomplished in California, inheriting property taxes from parents; how these types of tax breaks would benefit folks in other states.

At least in California there is a cure for conflicts between sibling  beneficiaries – usually revolving around who wants to sell an inherited home, versus who insists on retaining that property, given emotional and sentimental ties.  And these sibling conflicts can get very, very ugly. 

However, when you mix these “sell or keep” inherited property issues with normal up & down sales cycles in the real estate market as a whole… with shrinkage in home sales being blamed on seniors retaining property, supposedly “all elderly and wealthy”,  and with Proposition 13 taking the lion’s share of the blame – with the focus on avoiding property tax reassessment, taking advantage of parent-to-child transfer of property, inheriting property taxes from parents; or parent-to-child exclusion as realtors refer to it (meaning exclusion from present-day tax rates).  Clearly, these illogical allegations do not add up. 

It’s clear to most Californians (with the exception of the folks that write for the San Francisco Chronicle and the Los Angeles Times; and the special interest politicians that they support) that the 1978 Howard Jarvis supported CA Proposition 13 property tax relief serves the wealthy and middle class alike – and might be just the thing American home owners need right now, floundering in the throes of an unprecedented Pandemic, to take some financial pressure off most Americans, who obviously are not wealthy.

Property tax relief would be especially important and helpful to  residents of other states who have been furloughed at zero, or 50%, salary due to the Pandemic… Or who are unemployed, yet still must pay property taxes on time, with no payment plan allowed, under duress, without a Proposition 13 or Prop 58 type of tax break to help them out in a time of great need.

In states other than California, home owners whose property is not free and clear, who are paying off a mortgage right now plus paying off high property taxes – are particularly in severe trouble as the virus rages across America and the world.  With a lack of federal leadership in the United States causing even greater economic difficulties  and personal tragedy.   

Naturally, from the point of view of California home owners and business owners, keeping their property tax rate at a low and  predictable 2% maximum cap is as American as apply pie – and most property owners questioned will agree this type of tax relief should be passed into law in every single state in America.  No questions asked. 

Moreover, it’s obvious to most Californians that renters in California also benefit from Proposition 13… And agree that if the Split-Roll property tax were passed  in California and business property owners including landlords lost their property tax breaks  afforded by Proposition 13, we’d see rents go sky-high all across the state, from San Diego and Los Angeles, up to San Francisco and Santa Barbara.

And despite what various  newspapers in California say in Editorials about Proposition 13 – this is not a rich person’s tax shelter.  It’s strictly an “everybody” tax relief measure. 1978 Proposition 13 (not to be confused with the “coincidental” Proposition 13 Split-Roll business and commercial property tax) holds property taxes down every year to a 2% cap, thankfully, or  a great deal of Californians would not be able to afford to hold on to inherited property from parents. 

Now that the Covid 19 virus crisis is on the rise again, then off, then on again… unpredictable and burning through the job based economy like a giant Los Angeles brush fire gone out of control – it’s obvious that every state in the  union needs to have property tax breaks like the CA Proposition 13 parent-to-child exclusion, as realtors call it… as well as property tax transfer tax-relief made possible by the 1986 California Proposition 58 tax shelter, where  beneficiaries of trusts and heirs of estates inheriting property taxes from parents will often opt for a loan to an irrevocable trust to buyout siblings who wish to sell off their inherited property shares, and end up paying low taxes on property tax transfer from parents – having the right to transfer parents property taxes to themselves, upon inheriting property taxes from their Mom or Dad. With that incredible ability, basically forever, to keep on paying low yearly property taxes for as long as they retain that inherited property, as well as a secondary inherited property, if that property is inherited from a parent as well. 

What other state makes property tax relief like this possible?  In a word… none.  Why is property tax relief available in California, and  yet nowhere else in America?  This is exactly what Americans need right now, in a recession that looks more and more like a depression that is a direct byproduct of a Pandemic no one was prepared for, and that leaders were late in the game to address.

>> Click Here for Part Three…

Part Four: As Attacks on Proposition 13 & Proposition 58 Falter and Weaken, Critics Continue On – Despite Growing Popular Support for Property Tax Relief

Proposition 58 and Proposition 13 in California

Even as property tax transfer increases in popularity, and Californians continue to take advantage of Proposition 13 and Proposition 58, for residential and commercial property tax relief, critics of these property  tax shelters continue to be rabidly, and in many ways irrationally, irate with the same basic tax relief afforded to agricultural and industrial facilities, as well as other commercial properties, throughout California.

Moreover, all tax shelter benefits made possible by California Proposition 58 and Proposition 193 are equally unpopular with critics, with respect to parent to child exclusion (from property tax reassessment, Prop 58) and grandparent to grandchild transfer rights (avoiding  property tax reassessment, Prop 193).

On the other hand, countless property owners across California with different levels of income and property values, all enjoy the same ability to avoid property tax reassessment; so naturally property tax transfer increases in popularity, as Californians never have to pay property taxes based on present day property evaluations.

California home owners and business property owners are equally thrilled with Proposition 13 and 58 tax shelter protection… and frequently take advantage of these tax benefits by engaging with a trust lender, for a trust distribution loan, a trust loan made only possible by this type of tax relief. Loans to trusts, loans to irrevocable trusts in many cases, under protections afforded by Proposition 58, with parent to child, property tax transfer, tax relief; and Proposition 193 tax benefits, covering grandparent to grandchild property tax transfer.

Despite critics working off opinions, bias, and a lack of data other than purely anecdotal evidence,  they frequently claim to the media that property tax relief is the sole cause of state and local government tax revenue shortages, local California  government pension under-funding, the shrinkage of homes being available in the real estate market… and several other related items.

However, economists working off of verified data and statistics have looked this issue from a local and state tax-revenue-to-government perspective, and have stated repeatedly that the reason for any real estate market shrinking is largely due to economic trending; although they also concede that some shrinkage in the home market  is also somewhat affected by property tax shelters, although to a lesser degree.

Analysts and  economists, addressing claims of government revenue shortages, note that California city municipal workers, and state government employees, are actually at a higher salary rate than equivalent government workers in other states are. They say many California government jobs base rates, bonuses, raises and pension plans are way above national averages… and that this is the cause of any under-funding or shortages in government public funding and spending.

Some California economists have said, in compiling studies on the subject, that California government employees are the highest paid state and city employees in the country, with the most comprehensive benefits, as well as retirement benefits, and the most expensive pension plans in the country.

California state budgets, year after year, consistently surpass state spending records – and the California educational system is now enjoying a 66% increase, reportedly over the next six years. Public services are inferior in California, not because of Proposition 13 property tax decreases and tax relief for residential and commercial property owners – but because of political preferences, special interest groups and internal over-spending. Over-spending is the realistic cause of any problems arising from under budgeting and under-funding.