California Estate Planning Blog by Kevin Staker

April 9, 2018

How Home Can Go to One Child and Keep Proposition 13 Low Property Taxes by Kevin Staker

Filed under: Kevin Staker — Kevin Staker @ 2:47 pm

One way to have home to one child and buy out another is for trust to borrow money secured against the home.  One child gets cash and other child gets home subject to the loan.  Difficult because the third party loan is expensive (at least 4 points).

Two other methods, which involve a right of first refusal.

  1.  Trust gives one child a “right of first refusal”.  In California State Board of Equalization Letter 625.0233 dated August 19, 2013, the BOE states if the Trust gives one child the right to buy the home from the Trust, the purchase qualifies as a parent to child transfer.  Hence, the property taxes remain the same because of Propostion 58.  This occurs even if though it is a purchase and sale.
  2. The trust instrument gives one child the right to include the trust property as part of his or her share, if he or she provides enough cash and assets to the other child(ren) to equalize the distribution distributions from the trust.  See California State Board of Equalization Letter 625.0235.025 dated February 22, 2010.

Hence, we have some alternatives to the expensive loan to the trust option.

By Kevin Staker