CALIFORNIA REAL PROPERTY TAXES – REASSESSMENT – PART II

R&T §62 sets forth several transactions which are excluded from being deemed a reassessable “change in ownership.”  The most significant exemptions are listed below:

Transfers to and from parents and their children, and from grandparent to their grandchild, if the intervening generation is dead.

  • "Child” means a natural child unless adopted by another, stepchildren, children born to a parent with a registered domestic partner, adopted children, spouse of a child, some foster children.
  • The exclusion is unlimited for transfers of the principal residence of transferor(s), but is limited to $1 million in “full cash value” (assessed value) for “other property” (but this is doubled for spouses).
  • Grandparent-grandchild exclusion limitation: if the child already received an interest in a principal residence from parent, transfer from grandparent is treated as “other property” ($1 million limit), only applies if the intervening generation (the parent) is deceased, and only applies from grandparent to grandchild (not vice versa)

 

Transfers between spouses and registered domestic partners;

Transfer or creation of Joint Tenancy if the transferor remains a joint tenant under R&T §65(b):

  • Only the portion transferred is reassessed;
  • Creation, transfer or termination of joint tenancy is a Change in ownership except as provided in §§62, 63 (interspousal transfers) and 65 (between joint tenants and “original transferors”)

- when the joint tenancy is created, transferors become “original transferors” for subsequent transfers

- if the joint tenancy interest of the original transferors terminate, their interest is reappraised unless it vests in any remaining original transferor

- on termination of last remaining original transferor, that interest is reappraised along with all others given the prior §65 exclusion

- no reappraisal if a non-original transferor transfers to an original transferors or all remaining joint tenants

Principal residence co-tenancy, at death of co-tenant

  • Two co-tenants, between them, must have owned 100% of prop as joint tenants or tenants in common;
  • Both co-tenants were owners of record and continuously resided in property for at least one year prior to the transfer;
  • The transfer leaves surviving co-tenant with 100%
  • The property was the principal residence of both co-tenants at death;
  • Claim and affidavit as to the above are filed.

Trust Transactions

  • Trust transfer rules under §62(d).  Transfer by a trustmaker or by their spouse or registered domestic partner, or by both, into a trust are exempted if:

- they remain the present beneficiary of the trust, or

- the trust is revocable; or

-  the trustmaker retains a reversionary and in which the interest of others does not exceed 12 years.

  • Rule 462.160. Excludes transfers to revocable living trusts, whether the interest is held directly or by an entity.  Applies to:

-  Interspousal trusts

- Parent-child/grandparent-grandchild trusts where the usual requirements are satisfied

- Proportional interest trusts

- Irrevocable trusts where the trustor is present beneficiary

- Other trusts – transfers from one trust to another which meets one of these exceptions

- Future and contingent interests are irrelevant until vested

- However, sprinkle powers to non-exclusionary parties will result in 100% reassessment, unless all beneficiaries are spouse and/or children to whom excludable transfer could be made, even if there is a power to invade principal

- Non-pro rata distributions possible, but property value must not exceed child’s interest in estate

  • Transfers out of trust are ok if:

- It’s a transfer from revocable trust to grantor;

- There’s a reversionary interest back to the trustmaker within 12 years;

- From an interspousal trust to spouses;

- To a trust for parent, child, grandchild;

- And the interest is proportional.

Transfers between and within business entities (such as limited family partnerships or LLCs):

  • Generally, transfer of ownership interest within an entity holding property (even if held by trust) is not reassessed unless:

1) A person or entity (including trusts) obtains direct or indirect control from the original owners of more than 50% (or a corporation: look at voting stock; LC/LPs: look at capital & profits).  This will result in ALL realty being reassessed.

OR

2) Where realty is transferred to entity under proportional exclusion, persons holding entity after transfer are deemed “original co-owners;” if the original owners transfer a cumulative amount > 50%, the property will be assessed.

  • Proportional ownership interests into an entity are excluded from reassessment if:

- Transfers result solely in change of method holding title,

AND

-  The proportional ownership interests of the transferors and transferees in each parcel remain the same

  • Transfers pursuant to statutory conversions and mergers won’t be assessed if:

- The surviving entity succeeds to assets, or jurisdiction treats it same as a converting entity,

AND

- The partners/members maintain the same ownership interest.

Other transfers exempted from reassessment as a “change in ownership”:

  • Transfers which are subject to a lease of 35 years or more
  • Transfers done merely to perfect title, or which create or change a security interest;
  • Transfers reserving an estate for years/life to transferor (with exceptions).