June 26 2019 Barbara Edginton Assessment Manager 805 7815666 San Luis Obispo County Assessors Office R eassessment rules upon transfer of property into Trusts and distribution from Trusts and Estates ID: 1029860
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1. San Luis Obispo Bar Association Estates and Trust Section June 26, 2019Barbara Edginton, Assessment Manager(805) 781-5666San Luis Obispo County Assessor’s Office
2. Reassessment rules upon transfer of property into Trusts and distribution from Trusts and Estates.
3. RequestsTransfer into or out of irrevocable trust – Need copy of trustTransfer into or out of “special name” trust – Need copy of trust (or, in some cases, certification of trust)When last trustor dies – Need complete package (Death of Real Property Owner, trust and all amendments, P58 and/or P193)Please do not submit in pieces – e.g. Death of Real Property Owner in one submittal, trust in a separate submittal, P58 attached to recorded Affidavit, etc.If clients don’t know how they will distribute, or there is litigation, consider submitting a protective filing and letting us know
4. Death considerations in trustsSprinkle provision?Life estate?Disclaimer?Power of Appointment?Non-pro rata distribution?Later acquired title?4
5. 1. Sprinkle Provisions5Property Tax Rule 462.160Annotation 220.0821
6. TrusteeSonDaughterNephewSpecific DistributionTrustor Death 8-2-18 40% of income(Prop. 58)40% of income(Prop. 58)20% of income(20% CIO)6
7. TrusteeSonDaughterNephew??????100%CIO7Income SprinklingTrustor Death 8-2-18
8. 8Real property distributed to son on March 24, 2019Specific Distribution60% change in ownershipIncome SprinklingNo change in ownership
9. 2. Life Estates9
10. Leckie v. Orange County(1998) 65 Cal.App.4th 33410DadDad’s childrenDad’s friendUpon death, friend receives life estate100% CIOWhen friend dies, interest goes to Dad’s children100% Prop. 58Dad is transferor
11. Annotation 220.037211Joe grants a life estate to his friend Bob100% CIOJoe grants the remainder interest to his wife and children
12. Annotation 220.037212Bob grants to remaindermen while aliveBob dies – to remaindermen via trust terms100% CIOSpousal/Eligible for P58
13. Lifetime Right of Occupancy13Annotation 220.0364.005Annotation 220.0364Right to income = life estateNo right to income = no life estate
14. 3. Disclaimers14
15. Disclaimers15Assessor’s Handbook 401, pg. 85, 86
16. 4. Powers of Appointment16Annotation 625.0234
17. General Power of Appointment17The holder of a general power of appointment is treated, for estate tax purposes, as if he or she is the owner of the property subject to the power, whether or not the power is exercised.
18. 2. Determine who grantor is for Parent/Child exclusion purposes18Olga = trustorRemaindermenEvan = sonDawn = daughter50% life estate eachHope – Dawn’s daughter Jabari and Ethan – Evan’s sons
19. Dawn has a limited power of appointment over her interest.Evan has a general power of appointment over his interest.Neither exercise their power of appointment.19
20. Dawn dies, married to Hope’s father.50% CIO – Grandparent/grandchild exclusion does not applyEvan dies, married to Jabari’s and Ethan’s mother.50% eligible for parent/child exclusion.20
21. 21Distribution AgreementsAnnotation 625.0234.005
22. Property = $1,350,000 Cash = $950,000Beneficiaries enter into a Distribution Agreement.Daughter gets houseEach grandchild gets $450,000 cash22
23. Does daughter get a 100% Parent/Child exclusion?“Any distribution agreement would have to take effect after the terms of the power of appointment have been met.”23
24. 5. Non-pro rata distributions24
25. Example25Tony (Son)Aaron (Son)BENDOD 4/16/19Sylvia, wife of BenDOD 9/24/10Ben & Sylvia Family TrustTotal Asset Value =$2,000,000
26. DescriptionMarket ValueOutstanding LiensNet Estate ValueSan Luis Obispo property$1,000,000$300,000$700,000Imperial property$1,000,000$500,000$500,000Cash$500,000$500,000Personal property/bonds$300,000$300,000 TOTAL ESTATE VALUE$2,000,000Must be value as of 2nd trustor’s date of deathSufficient Assets26
27. AARONSan Luis Obispo prop. - $700,000Personal Prop. - $100,000Cash - $200,000Total $1,000,000Allow 100% Prop. 58TONYImperial prop. - $500,000Bonds - $200,000Cash - $300,000Total $1,000,000Allow 100% Prop. 58Sufficient Assets27
28. Insufficient AssetsDescriptionMarket ValueOutstanding LiensNet Estate ValueSan Luis ObispoProperty$1,980,000-0-$1,980,000Cash$ 20,000$ 20,000TOTAL ESTATE VALUE$2,000,000$2,000,00028
29. Annotation 625.0235.005Trustee of Dad’s trust gets loan against the property – (does not have to be commercial lender) – lender canNOT be the property beneficiaryTrustee of Dad’s trust distributes property to beneficiary – beneficiary gets loan and pays brother from loan proceeds, or pays brother from personal fundsQualifies for exclusionDoes NOT qualify for exclusion29
30. DescriptionMarket ValueOutstanding LiensNet Estate ValueSLOProperty$1,980,000$1,000,000$ 980,000Cash$1,020,000$1,020,000TOTAL ESTATE VALUE$2,000,000DescriptionMarket ValueOutstanding LiensNet Estate ValueSLOProperty$1,980,000-0-$1,980,000Cash $20,000 $20,000TOTAL ESTATE VALUE$2,000,000AaronCash - $1,000,000Total $1,000,000TonySLO property –$980,000Cash - $20,000Total $1,000,000AaronCash - $20,000Total $20,000TonySLO property –$1,980,000Total $1,980,000Allow 100% Prop. 58Allow 50.505% Prop. 58 49.495% CIOAnnotation 625.0235Annotation 625.0235.01030
31. LTA 91/0831Calculation for disproportional distribution from trustEquity in the property minus the child’s share of the estate divided by the equity in the property$1,980,000 - $1,000,000 = $980,000 $980,000 / $1,980,000 = 49.495%Equity in the propertyChild’s share of estateDivided by the equity in the property
32. Share value is specific to trust32John and Anita Taylor Family TrustSurvivor’s TrustExemption TrustAnnotation 625.0235.020
33. If the house is allocated/titled to the Exemption Trust, then only the assets in the Exemption Trust can be considered. Cash from Survivor’s Trust cannot be used to equalize value.33
34. 6. Later-acquired Title34
35. 35
36. 36Example 1Annotation 493.0131Trustor A – Owns house in Orange County A diesChild B has life estateChild B is trusteeChildren of B are remaindermenHouse in Orange County soldHouse in SLO County purchasedB claims Homeowners’ ExemptionB dies 20 years later100% reappraisalNeither A nor B are eligible transferors
37. 37Example 2Joe and Mona Family Trust Joe dies Survivor’s Trust Decedent’s TrustSurvivor’s TrustPurchases home inSan Luis Obispo CountyMona dies Daughter is beneficiaryProperty eligible for P58 Mona is eligible transferor
38. 38Example 3Tony and Maya Family TrustHome in Fresno CountyMaya dies in 2005Survivor’s Trust – 50%Decedent’s Trust – 50%Tony purchases a property in San Luis Obispo County in 2010Survivor’s Trust – 50%Decedent’s Trust – 50%Tony dies in 2018Son Ben is beneficiarySurvivor’s Trust50% eligible for P58Decedent’s Trust50% reassessment
39. 7. “Nursing Home” Trusts39
40. 40Irrevocable Grantor TrustTrustor receives income except for time in a skilled nursing facility or when a resident of a medical institution.
41. 41When in facility, income continues to be held until trustor dies or comes out of the facility, or can be distributed to children or other beneficiaries.
42. 42If eligible, P58 exclusion applies on date trustor enters the facility.If eligible, P58 exclusion applies on date trustor leaves the facility.
43. What might this mean for the Homeowners’ Exemption? Principal residence?
44. 8. Legal Entities & Spouses44
45. LTA 85/33Jazzy CorpTina (wife) -- 30%Tom (husband) -- 30%Ben (friend) -- 40%R&T 63Spousal Exclusion45
46. Annotation 220.0274Husband owns property 100% as sole and separate propertyLegal entity owned 95% by husband and 5% by wife (each as sole and separate property)Transfers property to100% CIO46
47. Community property presumptionAll property acquired during the marriage is presumed to be community property.Unless…Statutory exemption appliesLTA 2018/01447
48. In Re Marriage of Valli(2014) 58 Cal.4th 1396Property that a spouse acquired during the marriage is community property [Family Code §760] unless it is:48
49. TransmutationFamily Code §852(a)49
50. ExampleGrant and Mia, husband and wife, took title to property as community property in 2010. In 2015, Grant and Mia transfer title to Ye Olde Pubb LLC. Grant is the sole member of the LLC.Presumption is that the transfer is proportional, but we will need additional information.50
51. LEOP(Legal Entity Ownership Program)R&T Code §480.1 & §480.251
52. Entity responsibility52
53. Late file penaltyPenalty 10% of taxes:New base value if CIOCurrent value if no CIOAbatement of penalty AppealOr…53
54. Penalty abatement [§ 483(c)(2)]54
55. Documentary Transfer Tax926 North Ardmore Ave., LLC v. County of Los Angeles3 Cal. 5th 319 /219 Cal. Rptr. 3d 695 (2017) May be imposed on changes in ownership within legal entities
56. ResourcesRevenue and Taxation Codes 60 – 69.5Property Tax Rule 462Assessor’s Handbook 401 – Change in OwnershipLetters to AssessorsAnnotationsCourt cases
57. www.boe.ca.gov
58. Questions??