Trusts and Possible Tax Savings
May be used if a property owner wishes to make provisions for the transfer of property upon death but is not currently ready to make an actual transfer of ownership. For a trust to be revocable, the “trustor” must reserve the right to terminate the trust and retain all trust property. When property is placed in a revocable living trust, there is no “change in ownership,” and thus, no reassessment to the current values.
Upon the death of the trustor, the revocable living trust becomes irrevocable. In preparing a revocable living trust, there should be planning to qualify the real property for the parent-child or another exclusion in order to avoid a “change in ownership,” and thus reassessment, upon the death of the trustor.
AN IRREVOCABLE TRUST
Is used when property is transferred during the lifetime —or upon the death—of the property owner, or when the beneficiary of such a trust is changed. These events will (for property tax purposes) generally trigger a reassessment. However, if the parent-child exception applies, and with proper planning, it is possible to leave property to a child in trust and be relieved of the burden of high property taxes. With an Irrevocable Trust, a property owner can maintain ownership of the property for the duration of the owner’s life.
When property is left to more than one child, one of these children may want the property and the other may seek money or assets of equal value. If the trust provides only the property to each child equally (each getting a one half interest), it will be necessary for one child to transfer their interest to the other in exchange for an equalizing payment. This would no longer be a parent-child transfer, but would be a sibling-to-sibling transfer, which is not excluded from reassessment—thus, a change in ownership will have occurred and the property will be reassessed. In either case consult with a real estate or estate planning expert for advice before claiming any exclusions.
NOTE: This information is not intended as a complete guide regarding property tax laws. Information here has been derived in part from written and oral opinions from the California State Board of Equalization.