In its simplest form, parent to child (and grandparent to grandchild) transfers are excluded from reassessment, but sibling to sibling transfers are subject to reassessment when it comes to property taxes. An exclusion occurs when an assessor does not reassess a property because the property is eligible to be excluded if the owner files a claim.

As your trusted private 3rd party lending company in California  experienced with parent to child and sibling to sibling transfers, we are here to break it all down for you:

• Proposition 58, modified by section 63.1 of the Revenue and Taxation Code, which went into effect in California in 1986, is a constitutional amendment that excludes from reassessment transfers of real property between parents and children, according to the California State Board of Equalization.
• Proposition 193, which went into effect in 1996, is a constitutional amendment which excludes from reassessment transfers of property from grandparents to grandchildren, providing that all the parents of the grandchildren who qualify as children of the grandparents are deceased at the time of transfer.
• In the State of California, property is reassessed at market value when sold or transferred. As a result, property taxes often increase dramatically. But if the sale or transfer is between parents and their children, or from grandparents to their grandchildren, the property does not have to be reassessed if stated conditions are met and the correct application is filed in a timely manner. 

A “child” for purposes of Proposition 58 includes:

• Any child born of the parent(s).
• Any stepchild while the relationship of stepparent and stepchild is still in existence.
• Any son-in-law or daughter-in-law of the parent(s).
• Any adopted child, provided they were adopted before 18 years of age.

A person adopted after reaching the age of 18 is not considered a “child” for purposes of the parent-child exclusion. An eligible “grandchild” for purposes of Proposition 193 is any child of parent(s) who qualify as child(ren) of the grandparents at the date of transfer.

These propositions allow the new property owners to avoid property tax increases in the event they acquire property from their parents or children or from their grandparents. The new owner’s taxes are calculated on the Proposition 13 factored base year value, rather than the current market value when the property is acquired.

Excluded Transfers of Property

There are some transfers of property that are excluded from reassessment under Propositions 58 and 193, including:

• Transfers of primary residences (no value limit) from parents to children.
• Transfers of the first $1 million of property other than the primary residences.
• Transfers of a principal place of residence from grandparents to their grandchildren.
• Transfers may be the result of a sale, gift, inheritance or trust. When ownership passes from a parent to a child, this change in ownership is eligible for the parentfsty-child exclusion.

Transfer of Property Between Siblings

So where do sibling to sibling transfers come into the equation? In a nutshell, transfers between siblings or other family members are not excludable from reassessment.

As an example, let’s say your father recently passed away leaving the family home to you and your sibling, and named you as the trustee. As trustee you have the power to distribute trust assets on a pro rata or non-pro rata basis. You and your sibling mutually agree that you will keep the home, and they will take their share of the estate in the form of cash. As such, you elect to make a non-pro rata distribution to equalize the value of the other beneficiaries’ interests in the trust assets by encumbering the real property with a 3rd party loan and distributing the loan proceeds to the other beneficiary. In this scenario you would qualify for the parent-child exclusion.

However, in the same scenario, if a loan is made by the beneficiary seeking to retain the real property to the trust in order to equalize the trust interests it would trigger reassessment. Such a loan would be considered payment for the other beneficiary’s interest in the real property resulting in a transfer between beneficiaries (in this case a sibling-to-sibling transfer) rather than a transfer from parent to child, which would disqualify the transfer from the parent-child exclusion

Filing Requirements

A claim form must be completed and signed by the transferors and transferee and sent to the Assessor. This form must be filed within three years after the date of purchase or transfer; or before the transfer of the real property to a third party — whichever comes first.

If a claim is not filed in a timely manner, the exclusion will be granted starting with the calendar year in which the claim was actually filed.

Sections A, B, and C must be filled out completely or the claim may be denied. You may have to provide proof of eligibility, including a copy of the transfer document and/or trust, according to the Office of the Assessor-Recorder.

Failing to understand the exclusions, filing the proper paperwork on time and taking the time to engage in careful planning and execution can result in unfavorable outcomes. Here at HCS Equity, we can help you navigate loans to trusts, loans to estates in probate, reverse mortgage payoffs, and more. Contact us today to schedule your free consultation or call 877-427-9820.

This article is for illustrative purposes only, HCS Equity does not provide legal advice or service