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Keeping a Low Property Tax Base When Inheriting a Home

Written by Posted On Tuesday, 08 June 2021 20:58

Inheriting Real Estate and Liquid Assets

As most of us know, who have inherited or are currently inheriting cash assets and/or a home from a parent – distribution and the estate process proceeds in stages, not all at once.  When a parent passes away and the funeral is over, the process is just beginning. Many events or conflicts may arise.  

During probate there are often heated debates among siblings triggered by a disinherited son or daughter who has decided to contest the will – or a serious conflict may surface between heirs over whether or not their family should  keep or sell their parent’s “primary home” – to an outside buyer.  A frequent problem troubling many estates. 

A Loan to an Irrevocable Trust

A trust loan from a trust lender is one solution numerous beneficiaries use to resolve the issue of selling or keeping inherited property; used to buyout co-beneficiaries that insist on selling their inherited property shares… From the sellers point of view – a loan to a trust will put more money in their pocket that selling to an outside buyer.  Working in concert with CA Proposition 58 (or now, Proposition 19), this is also a way for the beneficiary who is buying out co-beneficiaries to nail down their parent’s low property tax base.  

A Low Tax Base for Trust Beneficiaries 

Commercial Loan Corp in Newport Beach, California is offering new homeowners and beneficiaries inheriting property a free consultation on how to keep a low property tax base for  homes inherited from parents.  Ms. Alonso, Senior Account Manager at the firm shares her viewpoint of the process that funds irrevocable trusts with 6-figure loans, benefiting beneficiaries inheriting property from a parent – in tandem with Proposition 58, or Proposition 19; solving a myriad of problems.  She explains:  

“…Take a typical middle class inherited real estate scenario.  Let’s say, for example, there are three beneficiaries and no other assets being inherited except an older home. One beneficiary wants to keep the house, to keep parents property taxes; while the other two siblings prefer to sell the house with a realtor.  But, instead of selling to a buyer, here is where Proposition 58 and a trust loan comes into play, providing liquidity and compliance with the Proposition 58 tax system – furnishing the two siblings who prefer to sell with more cash liquidity than if they’d sold their property shares to a buyer…

So why not sell [to a buyer]?  Why the trust loan?  Because, with a loan to a trust there is the upside of far less expense since no realtor fees are involved.   Proposition 58 and Proposition 19 tax systems make it possible to transfer property to a qualified beneficiary that wants to keep parents property taxes at the low Proposition 13 rate – involving Proposition 193 if property was left by grandparents.” (1)

Equalizing Distribution: Retaining & Selling Inherited Property at Maximum Benefit

Commercial Loan Corp’s trust loan, Proposition 58 process gives working families the ability to profit more than a customary house sale typically allows. Ms. Alonso elaborates on how the trust loan process works, from a detailed viewpoint. She points out:

“It costs the families we help far less to get a trust loan from us, believe it or not, then it does if they were to dig into their own savings to complete the Proposition 58 property transfer process.  In terms of real numbers, let’s say a property value is currently one million dollars and the current tax base is $1,200.  If they were to get reassessed at current value that would be around $11,000 annually.  

By someone keeping the property and obtaining a trust loan to properly buy out their siblings, that allows the beneficiary that is keeping the property to keep parents property taxes, to retain 100% of the Proposition 13 tax base that was paid by their parents and keep that low property tax base of $1,200.   The loan to trust goes hand in hand with the Proposition 58 property tax transfer system, creating enough liquidity to equalize distributions, not sell, and allow a beneficiary to keep their parents property with their low property tax base. 

It’s a better way to be able to keep an inherited house in the family, and to keep parents property taxes, when there is a dispute going on that pits the beneficiary who wants to keep a house against the beneficiaries that want to sell that home.” (2)

Doing Your Own Due Diligence

Before accepting a loan to an irrevocable trust, you might want to ask yourself  – 

• Are you going to have to spend money on serious repairs that are impossible to ignore,  such as roof or boiler problems.   

• Will you be living in your inherited home for more than two years – as a primary residence, or moving in within 12-months? 

• Was the parent leaving the property to you residing in it as a primary residence?  

• How much will you save in property taxes by taking advantage of Proposition 58 or Proposition 19?

CA Assemblyman Kiley Sponsors Urgent “Amendment 9” to Protect Property Tax Relief

No matter which property tax break is in use, the key point is that California must maintain robust property tax relief for middle class families – or face electoral and economic consequences.  The trend we’re now seeing is wealthy property owners getting tax relief, while limiting property tax breaks for the middle class – a trend that should be curtailed, while property tax relief for the middle class should be protected and expanded.  

One of the many organizations in California promoting property tax relief, The Howard Jarvis Taxpayers Association, summed it up accurately when their president, Jon Coupal, indicated that the non-partisan Legislative Analyst’s Office estimated that any repeal of “inter-generational transfer protections” will result in tens of thousands of California families getting hit with higher property taxes… totaling “hundreds of millions of dollars”. The organization recently announced their support for Assembly Constitutional Amendment 9, introduced by CA Assemblyman Kevin Kiley. 

CA Assemblyman Kevin Kiley said recently about the urgent Amendment he is sponsoring: “The opportunity to own a home is central to the California Dream.  But California’s affordability crisis has put this beyond the reach of too many working families.  Now, thanks to a Special Interest deal, Californians face a large and unplanned-for tax increase when they pass down property to their children.  ACA 9 restores a vital protection that was in place for 35 years [under Proposition 58 and Prop 13].” (3)

Fortunately for property owners and beneficiaries, there is a veritable army of advocates out there, like Commercial Loan Corp, the Taxpayer’s Association, and Assemblyman Kiley – working every day to protect long-standing tax breaks; expanding property tax relief in general for Californians of all incomes and net worth. 

Families, beneficiaries, or their attorneys, who want a low property tax base, through CA Prop 58 or 19, and require a trust loan, can contact Commercial Loan Corporation at 1-877-464-1066. 

PropertyTaxNews.org is a blog written by communications specialist Geoffrey Sadwith, sponsored by Commercial Loan Corp – devoted to promoting California property tax relief; and maintaining a low property tax base for inherited homes. 

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Geoffrey Sadwith

Communications / Content & PR Specialist since 2002; 18 years with Heir Advance Company.

Specializing in probate and trust inheritance loans; and California property tax relief, including Proposition 13, and the Proposition 58 / Proposition 19 trust loan process enabling sibling-to-sibling property transfer -- beneficiaries inheriting property from parents to buyout co-beneficiary property shares; along with keeping parents' low property tax base. Geoffrey's expertise encompasses parent-to-child property tax transfer, and parent-child exclusions allowing homeowners to avoid property tax reassessment, when inheriting property taxes, with the right to keep parents property taxes.

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