Navigating property matters among siblings following inheritance can be intricate. Often, one sibling wishes to retain the property, while others might prefer a cash settlement for their share. In such scenarios, a trust loan might be an option as a solution for the sibling wishing to retain the property.

Let’s find out how trusts loans can provide an efficient and equitable solution for handling sibling buyouts in inherited property situations.

How can a trust loan be used for a sibling buyout?

A trust loan can be a valuable tool for a sibling buyout in joint ownership situations. If one sibling desires to retain ownership when an inherited property must change hands, a trust loan supplies the needed funds for that sibling to buy out the share of the other(s).

In cases where an individual does not have the necessary funds to buyout the property, this type of loan can accelerate the inheritance settlement and assist in keeping the family home.

A trust loan for a sibling buyout is one of the quickest ways to divide an interest in an inherited property owned by multiple beneficiaries.

What are the benefits of using a trust loan for a sibling buyout?

Trust loans present myriad benefits when employed for sibling buyouts in property inheritance scenarios, offering an effective solution to the needs and preferences of the siblings involved in such transactions.

Property Tax Benefits

The most valuable benefit of a trust loan for sibling distribution is the property tax benefit. Trust loans align with the Board of Equalization rules, and provide an opportunity to take advantage of Proposition 58 or Proposition 19, which excludes parent-to-child (or grandparent-to-grandchild) transfers from property tax reassessment. This option can potentially save thousands of dollars in property taxes and provide substantial financial relief to the retaining sibling.

Equitable Asset Division

A significant advantage of using a trust loan for a sibling buyout is the fair distribution of assets it facilitates among beneficiaries. The trust loan provides the necessary funds for the sibling who wishes to retain the property, enabling them to buy out the shares of others. It makes siblings more inclined towards liquidating their inherited property shares relatively quickly to obtain their portions in cash.

Property Ownership Retention

Trust loans are uniquely advantageous as they allow one (or more) of the siblings to maintain possession of the inherited property without needing immediate liquidation.

This is especially beneficial when the inherited property:

  • Holds sentimental value,
  • Is expected to appreciate, or
  • Is intended to be occupied or made use of by the retaining sibling(s).

Efficiency and Speed

Unlike traditional property sales, which can be time-consuming and depend on market conditions, trust loans obtained via private lender can expedite settling estate matters. The funds become available more quickly, leading to a swift resolution that benefits all involved parties.

Financial Flexibility

Once the property ownership transfers to an individual, they can apply for a traditional mortgage to pay off the trust loan. Having this significant financial flexibility allows for lower long-term interest rates.

Sibling Buyout Laws in California

To assist property owners, the propositions below describe how a California real estate property is transferred between parents and children (and in some cases between grandparents and grandchildren).

Moreover, the information below explains how real estate property transfers that happen before and after February 16, 2021 will be handled.

Proposition 58

In the State of California, the sale or transfer of an inherited real estate property between parents and their children is subject to Proposition 58 (effective November 6, 1986). Proposition 58 allows property owners to avoid property tax increases when inheriting property from their parents or children.

Transfers of Property Excluded from Reassessment by Propositions 58

  • Transfers of principal residence (no value limit).
  • Transfers of the first $1 million of real property other than the primary residences. The $1 million exclusion applies separately to each eligible transferor.

California proposition 58 was replaced by Proposition 19, however it remains in effect for any matters with date of death prior to Feb 16, 2021.

Proposition 19

California Proposition 19 (Effective February 16, 2021) replaced Proposition 58 and changed the rules for tax assessment transfers in California. Note that any properties transferred after February 16, 2021 will be subject to Proposition 19 (not Proposition 58). Proposition 58 applies to dates of death that happened before February 16, 2021.

Proposition 19 created a more narrow exclusion from change in ownership for transfers of family homes between parents and children and grandparents and grandchildren. It only allows transfers of the primary residence between parents and children and grandparents and grandchildren up to an “excluded amount.” If the fair market value of the family home at the time of transfer is greater than the “excluded amount,” the amount in excess is added to the taxable value.

Suppose the higher property taxes resulting from a reassessment are too much for one sibling to afford when transferring real estate between siblings in California. In that case, they may consider a third-party loan to buy out their sibling’s shares, allowing the transfer to be seen as a parent-to-child transfer and qualify for Prop 58 or Prop 19 tax relief, ultimately preserving the property’s tax basis.

HCS Equity lends funds directly to the trust or estate, allowing beneficiaries to take advantage of property tax exclusions under Proposition 19/58. Once change of ownership and exclusion from reassessment are filed, the individual who inherited the family property can either repay the private loan with their own funds or seek traditional financing options.

How to Get a Trust Loan for a Sibling BuyOut of Trust Property

Securing a trust loan for a sibling buyout involves the following steps:

  • Contact HCS Equity, a specialized private money lender,
  • Providing the required documentation, and
  • Satisfying the eligibility requirements.

Requirements for Getting a Trust Loan

Opting to work with HCS Equity for your trust loan presents many advantages. Primarily, HCS Equity offers competitive interest rates and terms that can cater to various financial situations. Unlike many lenders, we don’t require a personal guarantee, providing security and ease for borrowers. The payments are interest-only, simplifying repayment and reducing monthly financial stress.

The Cost of a Trust Loan

The cost of a trust loan depends on several factors, such as the loan amount and loan-to-value ratio.. However, HCS Equity has very competitive interest rates and terms, no prepay penalties, and can usually make funds available in 7-10 business days.

Call HCS Equity, a Specialized Trust Loan Lender for Sibling Buyouts

Trust loans from HCS Equity are a valuable financial solution when one of the siblings wants to keep the inherited property in exchange of a cash payout to the other sibling (s).

The loan approval process for a sibling buyout of trust property is much faster since we’re simply looking at the available equity in the property as collateral for our loan.

Our experienced real estate professionals can also explain all the basics of Prop 58 and Prop 19 in California and make the buyout process as smooth as possible.

Contact our experienced Trust Loan Group at HCS Equity to discuss your loan requirements and preserve your inheritance tax advantages.


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