During an estate or trust administration when multiple beneficiaries inherit shared ownership of a real estate property, one or more beneficiaries may decide to obtain full ownership of the property. For this purpose, they must “buy out” the remaining beneficiary (s) who prefers to receive cash for their share of the asset.
If the beneficiary who plans to reside in the property is a child or grandchild of the decedent, they have the potential to take advantage of California’s Proposition 58/19 (an exclusion from property tax reassessment for parent-to-child or grandparent-to-grandchild transfers).
A trust equalization loan plays an essential role in property tax preservation since it can provide the financing needed for equal distribution of trust assets among beneficiaries without forcing the sale of the property, or triggering reassessment.
How can a trust loan help with a beneficiary buyout?
A trust loan can be an effective financial tool for facilitating a beneficiary buyout. The most common reason for obtaining a trust loan is to secure enough funds for one heir to buy the shares of the property from other beneficiaries to equalize the distribution of assets.
The funds are lent directly to the trust or estate to comply with California’s Board of Equalization rules, so that the property transfer wouldn’t trigger a partial (or full in some cases) tax reassessment. Moreover, the funding doesn’t require any personal guarantee by the trustee or beneficiaries.
Preserving Property Taxes
This is the number one reason heirs opt for a trust loan during a trust equalization and distribution. For inherited real estate in California, real estate transfers from parent to child (or grandparent to grandchild) are excluded from full or partial property tax reassessment under Proposition 58/19. This means that the heir (s) who is a child or grandchild of the deceased individual can potentially save thousands of dollars in property taxes under these propositions. Keep in mind, sibling-to-sibling transfers are subject to reassessment, so it’s critically important to follow the correct steps in the appropriate order to avoid any issues with the Assessor’s office.
To avoid reassessment, heirs need to equalize the estate distribution through a private trust loan lent directly to the parents’ trust. The loan to the trust cannot be received from the beneficiary retaining the property.
Trust loans from HCS Equity align with California’s Board of Equalization rules, allowing the trust or estate to borrow the funds necessary to complete the equalization, thus helping the retaining beneficiary avoid the potential tax consequences of the buyout.
In addition to property tax preservation, here are a few common situations of when a trust loan might help:
- Providing liquidity to the trust. A trust loan provides funds directly to the trust or estate, allowing for immediate liquidity without selling the property.
- Resolving disputes among heirs. A trust loan can alleviate the stress and tension arising from family disputes by providing a financial solution for equitable distribution among multiple beneficiaries.
- Preventing the sale of trust-held assets. A trust loan can prevent the need for a quick and forced sale of the property held in a trust.
- Allowing beneficiaries to receive cash for their share. Those who don’t want to sell the property can utilize a trust loan to proceed with a beneficiary buyout, thus satisfying those wanting a cash equivalent of their share.
How to Obtain a Trust Loan for a Beneficiary Buyout
Private trust loan lenders such as HCS Equity provide short-term financing directly to the trust or estate. When the trust receives the funds, they can provide cash shares to beneficiaries who prefer liquidity, while the property can stay with those who wish to keep it. When the property changes hands, the beneficiary retaining the property can either repay the loan with their own funds, or refinance the trust loan with a more permanent financing solution.
The loan is typically available for 12 months, with no prepayment penalties or minimum months interest. However, the terms can be extended upon reviewing the individual circumstances. The loan amount ranges from $30,000 to $3,000,000.
We use our own capital, and make swift approvals. Our loans are typically funded within 7 to 10 business days at competitive rates and fees. The beneficiaries don’t need to present any personal financial documentation (social security number, income, or credit history) since we rely on the equity of the property and use the EIN or tax ID number of the trust or estate.
Navigating the Complexities of a Beneficiary Buyout with Trust Loans from HCS Equity
Finding a reliable and trustworthy private money lender can be challenging. The good news is that HCS Equity has assisted thousands of trustees in sibling buyouts of trust property.
Our team is familiar with the legal criteria under Proposition 58/19 necessary for exclusion from property tax reassessment. Therefore, you can rest assured that the loan process will be completed in compliance with all these regulations, allowing you to qualify for property tax reassessment exclusion.
If you’re looking for a private money trust loan lender that offers no down payment financing and competitive interest rates, then look no further than HCS Equity.
