OFFICE OF THE ASSESSOR COUNTY OF LOS ANGELES JEFFREY PRANG ASSESSOR

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1 OFFICE OF THE ASSESSOR COUNTY OF LOS ANGELES JEFFREY PRANG ASSESSOR 1

2 PROPERTY TAX EXCLUSIONS RELATED TO ESTATE PLANNING 2

3 TOPICS 1. PARENT TO CHILD EXCLUSION (PROP 58) - QUALIYING ELEMENTS AND SUPPORTING DOCUMENTS REQUIRED BY THE ASSESSOR 2. GRANDPARENT TO GRANDCHILD EXCLUSION (PROP 193) - QUALIFYING ELEMENTS AND SUPPORTING DOCUMENTS REQUIRED BY THE ASSESSOR 3. CO-TENANCY EXCLUSION 4. JOINT TENANCY ORIGINAL TRANSFEROR EXCLUSION 3

4 PROPOSITION 13 Proposition 13 passed in June 1978, established that: The maximum tax levy cannot exceed 1% of a property s assessed value. Increases in assessed value are limited to 2% annually. Requires the Assessor to reappraise property to market value if there is a change in ownership or completion of new construction. 4

5 DEFINITION OF CHANGE IN OWNERSHIP A change in ownership is a transfer of present interest in real property including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest. There is a change in ownership whether the transfer is voluntary, involuntary, by operation of law, by grant, gift, devise, inheritance, trust, contract of sale, addition or deletion of an owner, property settlement, or any other means. 5

6 PROPOSITION 58- PARENT TO CHILD EXCLUSION Proposition 58, effective November 6, 1986, is a constitutional amendment approved by the voters of California which excludes from reassessment transfers of real property between parents and their children. 6

7 Eligible Properties: A transferor s principal residence is fully excluded with no value limit. Only the first $1 million of the full cash value of all real property other than a principal residence for each eligible transferor is excluded. 7

8 $1 million dollar allocation If there are more than one non principal residence involved, please provide the Assessor with a list of how you want the first million dollar excluded amount allocated. 8

9 Children means any of the following: Any child born of the parent or parents Any stepchild of the parents and the spouse of that stepchild as long as the marriage of the parents exists Any son-in-law or daughter-in-law of the parents. As of January 1, 2005, an in-law includes a registered domestic partner.

10 Any child adopted by the parent before the age of 18 Any foster child of a state-licensed foster parent 10

11 PROPOSITION 193 GRANDPARENT TO GRANDCHILD EXCLUSION The purchase or transfer of real property occurring on or after March 27, 1996, between grandparents and their grandchildren, are eligible for exclusion if all of the parents of those grandchildren, who qualify as the children of the grandparents, are deceased as of the date of purchase or transfer. 11

12 Mary owns property. Jim, Mary s biological son is married to Susan and they have a son, Tom. Jim predeceases Mary, and Susan remarries; once Susan remarries, she is no longer a child of Mary for Prop 58 purposes. Therefore, if Mary transfers or leaves her property to Tom it will be excluded from reassessment under Prop

13 Effective January 1, 2006, the son-in-law or daughter-in-law of the grandparent that is a stepparent to the grandchild need not be deceased in order to meet the requirement that all of the parents of the grandchild must be deceased as of the date of transfer. The transfer of a principal residence from grandparent to grandchild shall not be fully excluded if the grandchild has received a principal residence that was eligible for exclusion from the parent. 13

14 Propositions 58 and 193 Filing Periods To receive the exclusion effective as of the date of transfer of real property, a claim for the parent-child exclusion must be filed within three years of the date of the transfer, or before the property has been transferred to a third party, whichever is earlier. 14

15 If the property has been transferred to a third party or it has passed three years since the transfer or date of death, a claim will be considered timely, if it is filed no later than six months after the date of mailing of a Notice of Supplemental or Escaped Assessment; as a result of the transfer at issue. Example: A parent dies on August 15, The property was sold on September 15, The supplemental assessment notice for the date of death was mailed on April 15, A Prop 58 claim form was filed on September 15, The claim is timely because it was filed before the end of the six-month deadline. 15

16 Prospective Relief If both the three years and six months limitation periods have expired, and the property has not been transferred to a third party, a claim may be filed at any time. If granted, the exclusion shall apply commencing with the lien date of the assessment year in which the claim was filed. 16

17 Signature Requirements The transferor or transferee The transferor or transferee s legal representative (in this case guardian, conservator or the like) The executor or administrator of the transferor s or transferee s estate. The trustee of the transferor s trust or trustee of the transferee s trust 17

18 The claim form requires the signatures of all transferors or their legal representative. The claim form requires the signature of at least one, or all of the transferees or their legal representatives. A separate claim form is required for each exclusion and for each parcel 18

Legal Entities and Prop 58/193 The exclusion for transfers of property between parents and their children and from grandparents to grandchildren does not include any interest in a legal entity

19 Legal Entities and Prop 58/193 The exclusion for transfers of property between parents and their children and from grandparents to grandchildren does not include any interest in a legal entity because: (1) A legal entity is not an eligible transferor/transferee under Section (2) Section 63.1 only covers interests in real property, and a legal entity interest is not a real property interest. 19

20 TRUSTS If the medium of the transfer for which the exclusion is requested is a Trust, the Assessor needs to review a copy of the Trust Agreement and any amendments to it. When requested a copy of the entire trust agreement and any amendments to it must be submitted. The document may be redacted if necessary. 20

21 Certification of Trust The Assessor does not accept certification of Trusts. The entire trust agreement is needed. Evidence of the identity and interests of the trust beneficiaries, the powers of the trustee to distribute the trust property and assets, and other terms relevant to the disposition of the trust assets is necessary for the assessor to determine whether an exclusion applies. 21

22 Non-pro rata distributions The Assessor accepts non pro rata distributions from Trusts if: The Trust Agreement does not limit the Trustee powers to distribute as such, and When documentation is submitted to show that the beneficiaries received their percentage of interest stated in the Trust Agreement. 22

23 The best evidence for the Assessor for nonpro rata distributions are: The Estate Tax Return (IRS Form 706) The Trustee s Final Account of Distribution of Trust Assets We may also accept Property Settlement Agreements among the beneficiaries and the trustee as long as they are entered into, prior to the distribution of the assets. 23

24 Equalizing Trust Distributions When a single property is the primary trust asset, unless prohibited by the trust, a trustee who makes a non-pro rata distribution may encumber the property with a loan prior to distributing the property to one beneficiary. The trustee may then distribute the loan proceeds to the other beneficiaries to equalize the value of the distributions to all of the beneficiaries. The trustee must be the party encumbering the property and the loan must not be from the beneficiary who will receive the property 24

25 The filing of a Change in Ownership Statement Death of Real Property Owner, is required and important In cases in which an interest in real property is transferred by death, including an interest in a trust, the change in ownership statement must be filed with the Assessor within 150 days after the date of death of the decedent, or if the estate is probated, at the time of filing the inventory and appraisal. 25

26 Timely filing of the Change in Ownership Statement allows for early processing by the Assessor and the application of any exclusion to the transfer. In cases were a Change in Ownership Statement is not filed, upon discovery, the Assessor will process a change in ownership for a date of death and bills for escaped assessments will be issued. 26

27 Penalty for not filing the COS The failure to file a COS within 90 days of a request from the Assessor results in a penalty of either: Up to $5,000 for property eligible for the homeowner s exemption or, Up to $20,000 for property not eligible for the homeowner s exemption 27

28 Documents required to update the Assessor s records and process Prop 58/193 exclusions upon the death of a Trustor/Settlor Change in Ownership Statement (Death of a Real Property Owner) Death Certificate Entire Trust Agreement, including any amendments Proposition 58/193 Claim Form (If Applicable) 28

29 Documents required to update the Assessor s records and process Prop 58/193 exclusions for Testate Succession Change in Ownership Statement (Death of a Real Property Owner) Death Certificate Copy of Signed Will Proposition 58/193 Claim Form (If Applicable) 29

30 Documents required to update the Assessor s records and process Prop 58/193 exclusions for Intestate Succession Change in Ownership Statement (Death of a Real Property Owner) Death Certificate Letters of Administration Proposition 58/193 Claim Form (If Applicable) 30

31 CHANGE IN OWNERSHIP EXCLUSION-COTENANCY A change in ownership shall not include a transfer of a cotenancy interest in real property from one cotenant to the other that takes effect upon the death of the transferor cotenant if all of the following conditions apply: 31

32 Cotenants for purposes of this exclusion, are two parties that together must own 100 percent of the property as joint tenants or tenants in common. The transfer occurs due to the death of one of the cotenants. 32

33 The property was the principal residence of both cotenants immediately preceding the transferor cotenant's death, and both continuously resided at that residence for the one-year period immediately preceding the date of death. The transfer must result in the surviving cotenant owning a 100 percent interest in the property. 33

34 To receive the exclusion the survivor should submit a signed Affidavit of Cotenant Residency (the Claim Form) with the Assessor. The affidavit affirms that the survivor (the transferee) resided with the transferor at that home for the one-year period immediately preceding the transferor s death. 34

35 Upon the death of the transferor cotenant, the property is passed to the surviving cotenant via the transferor cotenant s will or trust; intestate succession; or by operation of law. The transfer of the title is not automatic unless it is in a joint tenancy. 35

36 The exclusion would only apply to a principal place of residence. With respect to other types of real property jointly owned by the parties, such as a rental home or a commercial property, the property would be subject to a reassessment if no other exclusion is available. 36

37 The exclusion would not apply in a situation where two people shared a principal residence, but the survivor was not on title to the property. If no other exclusion is available, a reassessment of the property to current market value will occur. 37

38 The exclusion only applies in the situation where only two people are on title to the property. If there is any other person on the title even with a fraction of an interest, the exclusion would not apply. The exclusion provided by this section shall not apply to any transfer of real property interests for which a separate exclusion applies. 38

39 The Assessor may require documentation such as Income Tax Returns, Homeowners Insurance Policy, Joint Banking Accounts, Utility Bills, and the like, to verify residency. 39

40 JOINT TENANCY ORIGINAL TRANSFEROR EXCLUSION An original transferor is a person who creates a joint tenancy by transferring real property to others and remains among the resulting joint tenants. Example: Y, the sole owner, deeds his/her property to Y, X and Z as joint tenants. Y becomes an original transferor and there is no change in ownership of the property as long as Y remains in the joint tenancy. 40

41 When Y dies, the property passes to X and Z per operation of law. This would be a change in ownership unless an exclusion applies. If Y transfers the property to the other joint tenants or someone else, there is a change in ownership unless an exclusion applies. 41

42 Contacts: Office of the Assessor 500 West Temple Street Room 205 Los Angeles, CA Propositions Unit Telephone Number (213) You may also contact me if you have any questions or seek some direction regarding the processing of your requests by the office: Robert Lardge (213)

Property Tax Change in Ownership for Estate Planners and Fiduciaries

Property Tax Change in Ownership for Estate Planners and Fiduciaries South Bay Estate Planning Council September 11, 2014 Matthew F. Burke Pillsbury Winthrop Shaw Pittman LLP 725 S. Figueroa Street Los