PART TWO: Parent to Child Exclusion From Reassessment

California Parent to Child Exclusion From Property Tax Reassessment

California Parent to Child Exclusion
From Property Tax Reassessment

And yet, until these changes to property tax relief are repealed, let’s be thankful at least that, going forward, beneficiaries inheriting property directly from parents will still be able to retain Proposition 58’s parent to child exclusion from property tax reassessment (at full or current market value), as long as those direct beneficiaries move into an inherited property as a primary residence, within 12-moinths after the passing of the parent leaving  that property as a gift, a sale, or an inheritance.  

This is a difficult matter to overcome without some careful planning… and this is certainly one component of Prop 19 that was, shall we say, “under-played”, or actually hidden from voters, prior to Nov. 2020.  The prevailing thought is that this will perhaps be repealed in the near future once voters actually experience the reality of these changes to Proposition 58, whether they voted for change or not.

Yet, whether we like it or not, all of these revisions do unravel long-standing tax benefits protected by Proposition 58 concerning the parent to child exclusion as well as trust loan enabled sibling to sibling property transfer, buying out property inherited by siblings; or Proposition 193, with regards to the grandparent to grandchild exemption; passed overwhelmingly by voters in California in Nov. of 1986 and March 1996, respectively, allowing parents to transfer their property tax basis of a primary residence ) to their children; plus up to $1 million of assessed value of other property – namely $1million of the Proposition 13 values on rental properties or other investment properties passed to heirs, not based on fair market value; and effectively allowing far more than $1million of property value to transfer while retaining the lower tax bill.

Even though the California Legislature and California Association of Realtors may be more interested in funding unfunded local government pensions, footing the bill for a few school programs, and getting some more homes into the market for sale – it’s not in question to any reasonable person, without a financial or political axe to grind, that Proposition 13, Proposition 58 and Prop 193 have saved heirs thousands upon thousands of dollars every year, that they would have otherwise been spending needlessly on vastly over-priced property taxes.

Not to mention the truly  excellent sibling to sibling property transfer benefit, buying out inherited sibling property – which is always Proposition 58 & trust loan enabled, to buyout property inherited by co-beneficiaries.  Noted attorney Devin Lucas, one of the most knowledgeable proponents of Prop 13, Prop 58 and 193, and California property tax relief in general, which he summed up brilliantly in Oct. of 2020.  Mr. Lucas offered some real-world examples to illustrate the practical importance of these tax breaks for families, as follows:

“Due to the tremendous benefits of Proposition 13, many long term owners continue to pay property taxes based upon their original purchase price (or price as determined when the proposition was enacted), with annual increases not to exceed two percent, regardless of current value. This can be especially beneficial in areas such as Newport Beach, Laguna Beach, Costa Mesa, Orange County and other coastal communities that have seen incredible growth in property values.

For example, assume a parent’s home in Newport Beach is currently worth $2,500,000. They purchased the home long ago for low a low six-figure amount and due to the enormous benefits of Proposition 13 are paying about $3,500 a year in property taxes. If the child were to purchase a home for $2,500,000 today, that would equate to a $25,000 annual property tax bill (assuming one percent, not including various municipal bonds and other taxes commonly found on property tax bills). Transferring the property tax basis of the parent’s home, and therefore that $3,500 a year bill, just saved this hypothetical child $21,500 a year in property taxes. $21,500 a year, for as long as they own the home.

Principal residences have no cap in value, all other property, such as investment properties or second homes, have a benefit cap of $1 million, in which case a mother / grandmother and father / grandfather can combine their exclusions for a limit of $2 million. If the property is worth more than said caps, then a new blended property tax basis will be configured by the county…”  

Other property tax breaks, Propositions 60 and Prop 90 (allowing homeowners over the age of 55 to sell their home and purchase a replacement home of equal or lesser value and maintain the property tax basis of their original home) cannot be combined with a gift or sale of the original home to a child under Proposition 58, which thankfully still works well in concert with a trust loan, buying out inherited sibling property.

Fortunately, Proposition 193 is also intact, allowing grandparents to transfer their current tax-basis to grandchildren. The wonderful thing, still, is that these property tax benefits can always apply to a gift, sale or hybrid of the two and can amount to enormous property tax savings.  And that is truly  what this is all about.

Inherit A Home And Keep The Property Tax Base

Inherit Property and The Property Tax base

Inherit Property and The Property Tax base

The Los Angeles Times, in their inimitable fashion, put it like this on Oct. 19, 2020:   

About 650,000 California homeowners over the last decade received a tax break that allows them to maintain their parents’ low property tax payments when they inherit their homes…

The provision has since been dubbed “the Lebowski loophole” after The Times found that “The Big Lebowski” actor Jeff Bridges and his siblings had advertised a beachfront home in Malibu inherited from their parents for nearly $16,000 a month in rent despite an annual property tax bill that’s a fraction of that amount.

Proposition 19 would eliminate this property tax break for investment homes and commercial properties, meaning that heirs who inherit their parents’ properties would pay taxes based on market value. With some limitations, children who move into homes inherited from their parents would be able to retain the tax break.

Interesting how the Times gives credence to deceptive wording, while confusing the so-called benefits of Proposition 19.  They parse the actual Prop 19 rules and regs, and purpose in fact…twisting the facts to read, “Proposition 19 would eliminate this property tax break for investment homes and commercial properties…”  Prop 19 does not now exist to eliminate investment homes and commercial properties.  It exists to eliminate the parent to child exclusion, or parent to child exemption… unless you change your life  and move into a new inherited home within a year. 

Interesting that The Times chooses to leave out the fact that inherited property  will be sold off at a loss by inheritors who may not be able to move into inherited property within a year… because middle class homeowners, 95% of the folks affected by this new tax law, won’t be able to afford the new property taxes without the parent to child exemption being utilized within that year one after mom or dad dies.

Instead of telling it like it is The Times tells us, “With some limitations, children who move into homes inherited from their parents would be able to retain the tax break.”  Sure, “some limitations” meaning those folks inheriting property must uproot themselves and set up a  new life within 12 months, plus sell the home they are living in, or give up their inherited home at a financial loss. And maybe they can’t just up and leave their current residence, sell it, and move to a new home that was owned by their parents, that perhaps does not suit them and their family. For a number of reasons. 

Proposition 19 doesn’t exist to eliminate greedy real estate investors… It exists to push middle class home owners out of the way, to force them to sell inherited property if they can’t uproot themselves and move into their inherited home within a year while figuring out a way to sell their own home. In a market hampered by Covid, where maybe it’s not so easy to sell that home they’ve been living in.  These are not investment sharks and real estate hustlers, as the Los Angeles Times is falsely hinting at.  These are regular middle class home owners.

This new tax law affecting property tax relief in California was put in place to generate more money for realtors and the CA Legislature.  Directly impacting consumers.  Regular folks, like you and I.  Not to eliminate “property tax breaks for investment homes and commercial properties”.   That is, we’re sorry to say,  a false characterization.

Abruptly, the entire state found out at the last moment, prior to the November vote, that C.A.R. had launched Proposition 19, along with the California Legislature, which passed by a few votes; due mainly to an extremely clever, albeit a bit deceptive, marketing campaign – confusing voters while hiding the fact that Prop 19 exists to kill parent to child exclusion benefits, bit by deceptive bit.  Don’t be fooled, completely unraveling the parent-to-child exemption is their eventual goal.  Not giving residential and commercial property owners the ability to avoid property tax reassessment every year.

This type of tax break frees property owners from chronic stress based on unpredictable property taxation that is typically high for middle class incomes. This form of property tax relief makes life in general more secure and more affordable for middle class and even upper middle class residents. Rich folks we don’t really need to worry about. They’ll be fine either way. This type of tax relief allows beneficiaries to keep parents property taxes, and of course gives them the ability to transfer parents property taxes when inheriting property; avoiding property tax reassessment, keeping their tax base low through CA Proposition 13.

What is truly incredible to many of us is the ability for a beneficiary in California to use Proposition 58 to get a special loan providing cash to co-beneficiaries through an irrevocable trust, for middle class beneficiaries who want to smooth out cash obstacles (often referred to as “equalizing liquidation”) when it comes to conflicts between siblings who want to sell property versus family members who prefer to keep inherited real property… an invaluable property tax benefit.  Which is exactly why it’s so important to understand how and why Prop 19 exists to kill parent to child exclusion benefits at some point in the future… This is the C.A.R. and CA Legislature’s first baby step in that direction.

All states, forever grappling with this Covid crisis, should be heading towards tax breaks for regular middle class people, and not wasting the country’s time with absurd tax law benefiting a few wealthy corporations, a couple of hundred billionaires and multi-millionaires, with huge tax cuts they do not really need; and corporate welfare for immense companies that would be just fine without it. While a couple of hundred million Americans struggle by generally without tax breaks or tax loopholes of any kind to help them put away some extra cash in the bank every year.

In fact, all states need a Proposition 13 and Proposition 58, to help middle class families get by every year. That’s why beneficiaries or heirs in every state who are expecting real property, or are leaving real property to their own heirs, should conduct some careful research on blogs and Websites that focus on inheritance matters, to get more familiar with Proposition 58 and trust loans, on beneficiary issues and CA Proposition 13.  They should study informative niche blogs like this one…  as well as other niche  Websites that cover property taxes in depth… that delve into California Proposition 13, 58 and 193, as well as how trust loans can help beneficiaries.

All resident should learn more about why Prop 19 exists to kill parent to child exclusion benefits, bit by bit; how to keep parents property taxes and how to transfer parents property taxes, inheriting property taxes, or property tax transfer, parent to child transfer and parent to child exclusion – for residential properties of course; however, also for business oriented sites and commercial properties… that take full advantage of Proposition 58 — making use of trust loans to buyout inherited property from siblings, such as simply to get the facts straight on the transfer of property between siblings, how to buy out siblings share of a house; what makes sibling to sibling property transfer work; and how loans to irrevocable trusts help co-beneficiaries get cash while avoiding the necessity to sell their share of the inherited property.

Then, once they get your pitch together, folks in all states can tell their congressional representatives to get moving on passing property tax law for middle class home owners, not just rich folks that live in lovely upscale neighborhoods!

Many of us wonder when it got to this point in this country, when virtually the only way you can have a genuinely comfortable, safe, secure life is if you are fabulously wealthy – and nothing below that or in between.

PART THREE: Property Tax Relief Fights for Its’ Life in California…

As we all know, the Coronavirus crisis is not abating in many states – causing severe and consistent unemployment, and overall economic uncertainly.   Certain states are floundering more than others, without any federal support of any kind, even PPE – thereby costing tens of thousands of families the lives of loved ones. 

With millions of jobs initially put on hold – jobs that were placed on  “furloughed”  status or were standard “lay-offs”… are still in question, as far as resurgence is concerned.  Regrettably, it’s impossible to determine the exact number of jobs lost, as some return: whereas others do not.  Therefore, constant fluctuations make permanent calculations difficult to nail down. 

Making matters even more challenging, the federal government historically calculates “unemployment rates” by adding up the number of workers signing up for unemployment checks;  and deduce an unemployment rate in this fashion. However, once workers stop getting  unemployment checks they somehow magically disappear off the grid.  As if they somehow were never in the system.

It would be safe to say that unemployment, nationally and statewide, remains at critical levels.   And yet California is still the only state in the union that provides middle class residential and commercial property owners with genuine property tax breaks.  

And this is exactly what every state in America needs right now, with unemployment and Covid still spiraling out of control.  Lowering property taxes would surely loosen up some cash to help working families buy food and maintain some decent health coverage, plus put some money away for emergencies. 

If we were able to get property tax measures passed in most states, similar to the mega-popular tax breaks California home owners and commercial property owners enjoy, the overall positive cumulative affect on American tax payers would be significant. Folks would be able to easily transfer parents property taxes, and keep transfer parents property taxes, or buyout while inheriting property taxes at a low base rate. 

Especially in times like this – shouldn’t we all have access to property tax relief like this?  An intra-family loan to a trust, using Proposition 13 and Proposition 58 type of property tax transfer benefits and tax breaks, with parent to child transfer or as law firms refer to it – parent to child exclusion, or exemptions.

Do some research and push your Beltway representatives in Congress to put together some bills like California has passed to help home owners and commercial property owners.  And you can use the Covid crisis for added motivation.  This is covered on  informative, accurate niche Websites such as Commercial Loan Corp.  

An intra-family loan to a trust in conjunction with Proposition 58, or Prop 193, makes it possible to maintain a low property tax base basically forever upon a beneficiary buyout of sibling property shares, or as realtors call it, “the transfer of property between siblings”, and “lending money to an irrevocable trust“ – typically from an irrevocable trust loan lender.

While you’re at it, take a look at the CA State Board of Equalization to find out how all this works, or research niche info blogs such as  this one, Property Tax Transfer…  Plus other sites focused on property tax breaks for Californians. And let’s be frank… Living in that state, although there are great benefits, is admittedly expensive – in relation to many other states. 

States like New York, Texas, New Jersey, Connecticut, Massachusetts… are all expensive states to reside in.  With zero property tax relief or significant tax breaks of any kind – unless you’re a multi-millionaire or billionaire.  Then you get nothing but legislated V.I.P. tax cuts. However,  firms like Commercial Loan Corp, or Paramount Property Tax Appeal,  provide V.I.P. property tax breaks or V.I.P. personal business and  property tax reduction to everyone…. regardless or income or overall net worth. 



PART TWO: Surviving CA Proposition 19 – Losing The Parent to Child Exemption

Surviving California Prop 19

California Prop 19


Let’s be clear.  Critics of property tax relief in California are typically well educated, bright, and articulate… and write awfully convincing Op-Ed’s in the San Francisco Chronicle and the Los Angeles Times. 

Yet, for whatever reason, these critics of property tax relief never produce  examples of how or why Proposition 13 is “so unfair” – with the exception of shifting sand anecdotal evidence, without genuine case study data or specific historical events to point to.  Other than the rather deceptive Lloyd and Jeff Bridges family tale of their one beach- front property used as a secondary property to rent out to wealthy tenants.

In fact it’s almost laughable that the Bridges family story is approved by supposedly responsible editors repeatedly, in numerous high-profile California newspapers. Always without backup evidence or case study data pointing to other examples of this type of usage of Proposition 13 and Proposition 58, by other wealthy or middle class Californians.  They can’t seem to come up with a credible follow up example, or any example, of this  sort of rental activity. 

Yet critics of property tax relief did manage to come up with Proposition 19, to take down the parent to child exclusion, associated with the parent to child transfer, that is the foundation of property tax relief for home owners in this state.  Those same home owners, and  beneficiaries inheriting property from parents are wondering how this Proposition 19 measure will affect Proposition 58, in terms of establishing a low property tax base, as well as getting a trust loan to buyout siblings inheriting the same property. 

There is a great deal of anxiety in California in terms of how Proposition 58 will stand if Proposition 19  is voted into law, with respect to locking down a long-term, even lifetime, low property tax base when receiving an intra-family trust loan associated with the transfer of property between siblings or  sibling to sibling property transfer.  If Proposition 19 does pass, most current beneficiaries want to know if getting a trust loan to buyout siblings will be the same, in terms of process; or will the process be different, more difficult, or perhaps even easier.  Buying out a siblings’ share of a house, getting a trust loan to buyout siblings post Proposition 19, is an important issue for most residents of  California.

Meanwhile, despite these nuts and bolts details, we’re still forced to listen to these relentless critics of Proposition 13 and Proposition 58, dispensing non fact-based anecdotal narratives to convince the public how “one-sided” and “massively abused” property tax relief is in California. How it’s only for rich, mainly elderly, home owners.  Or for the rich and famous… like the Bridges. 

Yet we still don’t hear any actual names attached to this supposed “long list of abusers of Proposition 13” to back up these claims behind the push to pass Proposition 19.     Obviously, this is a false representation of a proven property tax relief system that benefits more middle class home owners than anyone else in California.  Which makes perfect sense, if you think about it, as there are so many more middle class people in California, and elsewhere, than rich people! 

Although lately, to backup Proposition 15, to take away property tax breaks from business and commercial property owners, we are occasionally hearing about corporations, not people, always trotted out as, “…companies like Chevron and Disneyland…” (never mentioning any other company) “…that sit on valuable property, generating a huge profit every year – yet never paying taxes on their land in terms of present day reassessment”.  OK, we’re willing to listen.  But never with any actual figures or data to backup the claims. 

So even if a few corporations take advantage of Prop 13 tax relief measures that have  been in place in all 58 counties in  California since 1978, millions of middle class home owners will see their rents sky-rocket if Prop 15 passes… and commercial property owners, and apt. landlords just getting by, as well as family-run industrial businesses that own modest income bearing facilities – all use Proposition 13 fairly and properly, and benefit greatly from it.  Just as it should be.  So we’re going to punish these few perhaps greedy companies by crippling all business property owners in California? 

Without these tax breaks from Proposition 13 and Prop 58, without people like Howard Jarvis and Jon Coupal; Kerry Smith and Michael Wyatt who have fought for these tax breaks for California residential and business property owners…  very few middle class Californians, which is most of the state, would have been able to keep inherited property.  Landlords have been able to keep rents at moderately reasonable rates due to low commercial property taxes. So on and so forth. And this business about schools desperately needing funding – is yet again another half-truth.

Sure, some of the revenue from new, accelerated property taxes will go to schools… but nowhere near what is being promised, or rather vaguely indicated. The lion’s share we are told would go to pay for unfunded state-govt. pensions. And probably other state government purposes such as pay raises, generous benefits and vacations, and so on… plus special interest public works and building projects, no doubt.  And schools will pick up what’s left on the table after all that. 

Intended… and unintended… consequences.

>> Click Here to go to Part Three…

PART TWO: Trusts, Intra-Family Loans & Property Tax Benefits in California

Beneficiary Loans California Proposition 58

Beneficiary Loans California Proposition 58

Beneficiary Trust Loans in Concert with California Proposition 58

The use of trusts  and trust loans by trust attorneys and real estate professionals, other than the process that is  popular in the state of  California, where Prop 58 enables inherited property buyouts —  we see a different yet similarly unique trust loan process described in summary by financial magazine Barrons in the following way: “With interest rates at historic lows—for the time being—wealthy families are turbocharging their estate-planning strategies by pairing intra-family loans with trusts.”  It’s a great concept; a great outcome to save on property taxes.  And it’s nice to see estates paired with trusts and intra-family loans welcomed into the higher-end oxygen at Barrons. There’s just one problem. Only for “wealthy families”.  There is the catch.

It’s not the same as financial visionary Kerry Smith’s brilliant tweak to the trust funding process, at Commercial Loan Corp in California;  with the final outcome showing us that California Prop 58 enables inherited property buyouts plus a low Proposition 13 property tax base for ever.  Mr. Smith’s visionary trust loans are not simply for the wealthy.  This top of the line trust financing process enables inherited property buyouts, largely for middle class beneficiaries, as well as upper middle class heirs, plus wealthy property owners looking to save a great deal of money on property taxes.  No one likes to give the Government their precious cash, that was hard to make, and easy to lose.

As property tax specialist  Michael Wyatt once said, “The Government had plenty of money – they don’t need our property tax cash to survive!”   ge along with locking down a low Proposition 13 driven property tax base, capped at 2% max – and most importantly… for all home owners.  For all beneficiaries, for middle class families, for working class families, and for rich folks… Not just for the wealthy – as the lenders featured in Barrons view the trust loan process – only for folks in the 7 or 8 figure class.

So, clearly… States other than California obviously have their own way of tweaking the trust financing process… both wealthy and middle class families are taking advantage of these unique tweaks, not just  families that are well off, as gossip and rumors have it.

Therefore, you now have trusts paired with intra-family loans and beneficiary loans, with a view towards different ways to tweak the trust loan process, in order to help conflicted beneficiaries of estates and trusts. So – When you get to property tax relief in the state of California,   the unique pairing of trusts and  loans, or probate estates and loans, with Proposition 58 – throws an entirely new spotlight of results  out there for trust beneficiaries and heirs of estates… 

The ability to avoid property tax reassessment and lock in low parents property tax base forever for permanent property tax relief,  for any property transfer, always with low property tax benefits enabled by the use of Proposition 13… working in concert with Proposition 58, enabling inherited property buyouts and lower property transfer tax hits. Always avoiding property tax reassessment – making sure you transfer parents property taxes, even when inheriting business facilities, inheriting property taxes for commercial properties, at  the same low Proposition 13 property tax base your parents enjoyed.

California trust loans are used to resolve numerous inherited property conflicts, between beneficiaries, working alongside CA Proposition 58 – enabling co-beneficiaries to purchase  shares of inherited property, a beneficiary buyout of sibling property shares… while avoiding property tax reassessment.  Generally buying out a sibling’s share of an inherited house, usually with some land – as realtors call it, “a transfer of property between siblings” or “sibling to sibling property transfer” – lending money to an irrevocable trust – from a reliable trust lender… specializing in trust loans, CA Prop 13, and Proposition 58.   That combination of skills and know-how you can’t find just anywhere, even in California.

So you add CA  Proposition 58 and an experienced California trust lender – plus a low Proposition 13 property tax base for beneficiaries, and residential or commercial property owners – while using trust loans with Proposition 58 in various new ways… This has decidedly become an unquestioned, mainstream financing process; referred by bank officers, accountants, property tax specialists and tax attorneys.  Whereas, prior to 1986, one wouldn’t be able to find this type of trust or estate financing anywhere! 

Think about this… even surfacing in a buttoned-up mainstream publication like Barrons, covering the pairing of trusts and trust loans – they reiterate, “Many wealthy families with taxable estates can benefit from cleverly structured trusts and intra-family loans…”  Establishing the fact that non-conventional uses of trusts and loans is an established process in mainstream financial services – if you’re in the 1% bracket!  Nice concept, with agreeable lenders, helping folks to save on property taxes… for rich clientele only. 

However, if you reside in California, and you’re a middle class beneficiary or new home owner, or moderately well off commercial property owner, you can find a more fair minded, well rounded niche lender who will serve your financial needs if you’re not rich, for example like the Inheritance Funding Co. in San Francisco, CA, if your estate is in probate and you need fast cash from a future inheritance, and you don’t even have to be upper middle class, and certainly not wealthy as you do with the firms and trust loan process Barrons favors…

Or if you’re inheriting real property and need a trust loan to buyout siblings and retain a low Prop 13 property tax base that your parents had, then you want something like the Commercial Loan Corporation,  in Newport Beach, CA.  You can forget pairing a trust with a loan and beneficiaries for wealthy families only!  You don’t need those folks.  You can get your estate or trust financial needs met elsewhere!

>> Click Here to go to Part Three…

PART ONE: Trusts, Intra-Family Loans & Property Tax Benefits in California

California Proposition 58

California Proposition 58

Many beneficiaries in California who are inheriting property, and seriously considering trust loans with Proposition 58 to nail down a low California Proposition 13 property tax base… working in conjunction with Prop 58 (property transfer from parents) or Proposition 193 (property transfer from grand parents)  insures an iron clad property transfer tax shelter. Naturally, this provides a solution to a conflict that many estate heirs and trust beneficiaries often run into… with respect to buying out sibling beneficiary property shares, while locking in a low property tax base rate forever.  

This may not sound like much to some folks, but in fact it frequently makes the difference between being able to keep an inherited property, or losing it to the tax man or in a foreclosure due to yearly property taxes that aren’t able to avoid property tax reassessment, and consequently are much too high for a typical middle class property owner to maintain.

Trust loans are used by numerous beneficiaries of trusts, and probate estate heirs, who wish to buyout a co-beneficiary’s interest in a trust-owned home, business property, or land, where certain beneficiary siblings have decided to retain their inherited real property – while other siblings firmly stand their ground, preferring to sell their shares in an inherited property to an outside party.  A trust loan often provides a worthwhile solution to this type of family conflict, so one beneficiary, or several, can buyout other beneficiaries that are looking to sell.  

What is so interesting and unique about this type of estate or trust financing is the fact that the entire process is so different than the usual inheritance funding process, involving trust advances and probate loans. Best to side-step the “wealthy families only” firms, and to run with a trust lender that has a reputation for treating all clients as VIP customers, welcomed into a family-like atmosphere, regardless of the size of their loan.  Like the cloanc.com outfit in Newport Beach.  Naturally, a company like that is quick to secure a loan against real estate owned by the trust, which is a logical first-step, and tends to set clients’ minds at rest, letting everyone know that the process is proceeding forward in a common-sense, professional manner.  

This is completely different than the usual inheritance funding process, which uses the entire estate, real property plus cash and investment estate or trust assets, to supply heirs with an inheritance cash  advance “assignment”, rather than an actual “loan”.  Trust loans that work in conjunction with Proposition 58 serve a very different purpose, and a trustee must approve the trust loan of course, and sign off on the deal.

Beneficiaries and property owners should typically do their own solid  research on this process; on business oriented websites that are easy to understand,  such as Proposition 58 and Prop 13 focused site that offers a professional atmosphere, and provides clear, easy to digest information in an accurate, no-nonsense way… or a free resource site that covers a wide range of property tax relief issues; or even in articles on sites that can be trusted for accuracy, for example at Barrons, in an article like:  “How Family Loans and Trusts Can Create Big Wins”…  Focusing on: “…interest rates at historic lows — for the time being — wealthy families are turbocharging their estate-planning strategies by pairing intra-family loans with trusts… As long as interest rates stay low, many families with taxable estates can similarly benefit from cleverly structured trusts and intra-family loans…”  

A different use of trust loans, as we can see —  yet still a step away from conventional loans; bringing a trust and loan funding into the family mix… With trust loans and Proposition 58 moving the process into an entirely new arena, without the necessity of the involved  family being wealthy, should you be a well-off or middle class property owner or a new  beneficiary in the state of California.

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

Status

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 51 million jobless claims nationwide and over 13 million looming evictions; plus a host of other related problematic 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 their revised version of the true Proposition 13 property tax relief system, they’re calling “The Split-Roll  Proposition 15” property tax, includes a “small business exemption” that will supposedly 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 Proposition 15 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!  Moreover, fighting a war against a Pandemic, with tens of millions of job losses resulting from the Covid-19 crisis — nothing would help middle class, upper middle class and working class Americans more right now than a nation-wide system of property tax breaks mirroring Proposition 13 & Proposition 58 property tax relief.

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 significantly higher rents… The long and the short of it?  This supposedly “revised” Proposition 15 Split-Roll 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…