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welcome to how to buy out a sibling after mom and dad pass away and preserve prop 13. my name is jim cunningham i'm going to be walking you through the steps on how to preserve prop 13 for the children when the parents pass away if you're watching this video you know that um you know that this can be lost so whenever the parents die and the children inherit property the children have to do something in the right way within certain time parameters in order to preserve the prop 13 that passes at least currently before february 16th of 2021 the prop 13 that passes to the children i'm a lawyer this is information this is not legal advice this video does not constitute an attorney-client relationship do not watch this video and go out and do a bunch of stuff it's a really bad idea i'm an attorney i own cunningham legal i have 25 years experience we have rege offices in the sacramento region bay area northern california bay area and socal as well i'm a certified specialist in estate planning trust and probate law that means i've taken an additional bar exam and i've been reviewed by my peers i'm also a real estate broker and securities licensed i'm also insurance licensed so i have a broad depth of experience and the prop 13 is the intersection when you inherit um assets uh from a parent uh prop 13 is an intersection of trust law and real estate law um and a whole bunch of other stuff so these are the lawyers in our firm there's me there's tasha there's connor rachelle liz jeff and janiece okay prop 13 we got to understand this is an important property right that every taxpayer in california has even if you bought your property two years ago you're under prop 13. if you bought your property in 1975 you're under prop 13 everyone benefits from prop 13. as a general rule the longer you hold property the greater benefit you have because the tax that the amount that you're taxed on the property uh it does not necessarily correlate with its current market value and i'll walk you through that so prop 13 taxes at least currently until february 16 of 2021 can be inherited by children this is very important a lot of people don't know that but there were changes to prop 13 that were passed in 2020 that we're going to cover and prop 19 effectively eliminates the children's ability to inherit the parents prop 13 tax base so we are here because as a taxpayer you want to pay the least taxes possible including property tax and not a penny more that's most of my clients we're here to help you craft a plan give you options make recommendations that may reduce your overall tax bill leading to more wealth for your family and loved ones i mean who wouldn't want that right understanding the property tax issues involved when buying out a sibling requires a an understanding of prop 13 and an understanding of prop 58 so we're going to talk about prop 13. this this is 1978. what happened in 19 in the 1970s there was massive inflation housing prices went way up they kept going up and at the time prop 13 was passed the average tax rate for a homeowner or property owner was about 2.7 percent 2.67 and that is a big tax burden so the voters rebelled they said you know what forget this we're gonna we're going to bring in a new tax structure that drops our taxes down this was approved in 1978 it rolled back values to their 1975 assessments and capped the amount that the uh county could tax at at uh one percent of the market value in 1975 or when the property trades whatever the assessor says the market value is the taxes are one percent there are some ad ads in there some local county ads you know uh school district uh community college district you'll see those on your property tax bill but for our purposes one percent is kind of the number that we're operating under um so mom and dad buy home in cupertino in the 1970s and for those of you who don't know where cupertino is it's where apple is headquartered cupertino has seen some of the biggest price appreciation in the entire state of california so i love this example the property has gone up from fifty thousand dollars to two million dollars this is actually a property that's listed uh as of december uh 2020 on the multiple listing service it is listed at two million dollars and the taxes are fifteen hundred dollars a year now the taxes on the next door neighbor who just bought their property are fifteen hundred dollars a month maybe more right that's prop 13 so one neighbor might pay 10 times what the next door neighbor pays or more so as i mentioned the current property tax structure property is assessed at one percent of its market value plus some additional county sweeteners in our example so it's a little bit more than one percent um and the cha a change in ownership um what that means whenever when a property when there is a change in ownership obviously it's a sale i buy i sell the property to you that's that's a change in ownership a gift is a change in ownership and a death and this is where a lot of people um kind of get surprised death is a change in ownership because the board of equalization that manages all the assessors office they disregard trusts for the purpose of determining who owns the property they do not look at who the trustee is they look at who the beneficiary is now these prop 13 taxes are capped at a two percent annual increase but what's happened so your one percent tax market value your taxes can only go up two percent but property in california has gone up four six eight percent even more in some areas and so what happens is for many people the fair market value of their property as in our cupertino example is two million but they are taxed as if the thing is worth 120 000. so long-term owners of california real estate the longer you hold real estate as a general rule the more beneficial prop 13 becomes for you and everyone is protected by prop 13. so we have a uh some there is a q a uh if you're watching this recorded obviously you're not we're not gonna answer questions but we do have a a question from anonymous is an irrevocable trust accepted by assessor's office in san francisco as a transfer immediately for preserving prop 13 or is it recognized as a transfer at the death of the parent uh it depends uh if a change in ownership has occurred and you look at california revenue and taxation code section 60. there's a three-prong test if you meet all of those three prongs that constitutes a change in ownership many trusts have a lot of strings attached to them that kind of blow that up so without looking at the trust i could not give you a definitive answer but if if if it is a completed gift and meets that three-prong test uh then the san francisco assessor like every other assessor in california looks through the trust so in the 1980s um before 1986 if a parent died the property was reassessed right there was no parent to child reassessment exclusion so 1986 rolls around uh you know what is that eight years after 1978 uh after prop 13 was passed and let this lets the children keep the parents prop 13 taxes when a change in ownership occurs and and then the kids when the kids die the kids can leave that property to their kids and we do have families where a a a grandparent was under prop 13 left the property to the kids and then the kids died so the grandkids get this prop 13 tax base so that is putting together prop 13 and prop 58 and again a change in ownership includes death sale gift um and then privately in the chat asks if i buy up my two sisters using my if i buy out my two sisters using buy assets i think my assets from the trust do i still get my parents lower tax base we're going to cover that so the parent can give the property their prop 13 tax base to the child uh until february 16 2021 so property is reassessed when there's a change in ownership classic example the parent gives the property to the child we'll cover why that may not be a good strategy in some cases it might be a good strategy uh but um the home of any value so you could have a beachfront malibu property that maybe has a 500 000 tax base and is worth 10 million dollars those are out there right the property was purchased for 400 000 in the 70s which was a lot of money back then and now the assessed value is very low and that prop 13 tax base can transfer to the child same with the tahoe property we have a lot of clients with lakefront tahoe properties that they are legacy properties they're able to transfer under current law those if those are their residences a tax base of any value if the tax if it is not a residence and you know it's your residence if you claim your homeowner's exemption you find you you to determine if you know if you've claimed your homeowner's exemption look at your tax bill it's that seven thousand dollar deduction from the assessed value of your property so in addition to the home each individual parent can leave a million dollars in assessed value to their children we do have clients that have a 10 or 20 million dollar portfolio properties with a million dollar assessed value they're meeting with us and i'll walk you through how to do that they're meeting with us right now to figure out a way hey how can i get these properties to my kids and and preserve prop 13 because february 16 of 2021 when the parent dies all those properties get reassessed so mom and dad died before february 16 2021 this is current law as of december 2020 when we're doing this webinar prop 58 lets the kids keep parents prop 13 taxes the taxes stay at 1500 and they don't go up to 24 000. that's the one percent plus the the added sweeteners in in santa clara county so the kids do not have to live in the home that's a really big deal okay the kids don't have to live in the home and i want you to remember that because later the it's gonna change right february 16th those rules start changing but what if only one kid wants the house and let's say there are three kids mom and dad have three kids and one kid and this is kind of why why most of you are here if one kid wants to buy out the other two kids there's a two-thirds reassessment right what i mean is if the property is distributed to the kids and then andy betty and charlie and andy wants to buy out betty and charlie then if the property's already been distributed the property will get a two-thirds reassessment so all of this has to happen before the property is distributed okay this is after mom and dad die but before the property is distributed and so i meet with a lot of people who say jim i talked to my accountant mom and dad died this is really easy all we need to do is is do an affidavit of death and distribute the property and then that's fine well the problem is you've just eliminated the ability to preserve prop 13 taxes when you want to buy out a sibling so i will tell you if so if your parents have passed away or they're not doing so well and you're kind of thinking about this or you are the parents and you want to preserve prop 13 you really do need an expert lawyer involved in the process there are not many expert lawyers in this field because it's a confluence of property tax law and estate planning so this is a sub-specialty of a sub-specialty and we do have a q a after april 15 2021 if the parents die and there are two kids and one kid buys out the other and stays in the home would there be a reassessment uh maybe it depends and neil i'll answer that as we go through the materials so again savvy attorneys know how the siblings can buy out the other siblings right and i put that in air quotes because you're not really buying out you're doing something slightly differently where there's no reassessment so three kids andy wants to buy out betty and charlie and he can end up with the property and there's no reassessment so how do you buy out a sibling without triggering a change in ownership because those two examples seem really similar the example where the property is distributed and andy buys out betty and charlie versus the properties in the trust and the deck is shuffled a little bit and andy ends up with the property those have two very different um legal analyses under the board of equalization and the board of equalization again is the organization that um that supervises the assessor's office mike asks if you gift now you lose your step up why not add the child to observe step up and then half reassessment well i'll answer that there's a there's a solution that we're working on so here's how you do it mom and dad let's make i'm gonna give you the easy example mom and dad have six million dollars in assets mom and dad create a living trust and this is very important and i'll explain what this is in the next slide mom and dad create a living trust with non-pro-rata distribution powers now i will tell you most trusts that are are properly drafted have this but i have seen trust that do not have this provision so a lot of people say why are you writing that trust that's 70 pages long well it's 70 pages long because we have non-pro rata distribution provisions in there okay well i want so i'm going to take my three-page trust and i'll add those provisions and then there you know there's another webinar where we talk about a lot of other stuff so that's why these documents end up so long because you need to load them up with all these goodies that really frankly don't benefit the parents but they do benefit the kids so when you look at a trust and you go wow this one's five pages and this one's a hundred pages am i paying for law by the pound many times that much uh longer trust has superior functionality uh if you need it right so mom and dad die and they have their three children andy betty and charlie so mom and dad's estate is six million and what they do during the trust administration is the trustee the trustee has the ability to divide up the the house a third or third or third the trustee also has the ability to give the house to andy because it's a non-pro-rata distribution and just remember that term because it's a non-pro-rata distribution andy can take the property and betty and charlie get the two million dollars each six million dollars andy is not reassessed on the property and he has to file a prop 58 form and that's a form that lawyers download from the assessor's office in each county and they complete for their client it does require um disclosing your social security number to the board of equal to the assessor that then is sent to the board of equalization and they keep a master index of all the parent-to-child reassessment exclusions they are paying attention so it's very important uh to note so this is the simplest situation we see this a lot where one child takes the property the other kids take the cash you do need a non-pro-rata distribution a pro-rata distribution of the assets of a trust means that andy betty and charlie each receive an equal portion of each asset in the trust most trusts most well-written trusts have non-pro-rata distribution and that means andy betty and charlie receive an equal proportion of the entire trust but not necessarily each asset and that was the example of the two million dollar property going to andy the two million dollars in other assets going to betty and the two million dollars in other assets going to charlie but what if there aren't enough assets in the estate to make non-pro-rata distributions all right let's take the houston we have a problem okay this is a problem and this is a problem where a lot of estate planning lawyers who handle trust administration and they haven't done this before they actually seek out other expert lawyers and you know our firm would be one of those but there are other firms out there as well and they seek out the help of an expert lawyer because they don't want to screw this up and the problem is if you do mess it up your taxes jump quite a bit and so here's what we do if mom and dad have 2 million in assets mom and dad have created a living trust with non-pro-rata distribution powers you gotta have non-pro-rata distribution powers mom and dad die leaving the three children andy betty and charlie mom and dad's estate is only the home all mom have has this house it's paid off they spent their last nickel and they're in the home and mom and dad die and they have no other assets all they have is the home and andy wants the home and he wants to move into the home or andy wants to rent the home i don't know what that home would rent for thousands and thousands of dollars a month right it's just around the corner from apple their headquarters andy wants the cupertino home and he wants to buy out betty and charlie so how does andy do this so this is um a a specialty area this is actually if you do not have the right lender it's almost impossible to do very few lenders will lend to a trust but here's what happens mom and dad's trust not andy mom and dad's trust borrows 1.1.33 million i rounded up 1.35 million so they borrow 1.33 million and andy has distributed the home the 2 million home with a mortgage of 1.33 million so he's getting a net value of 667 000. the cash that's left over because remember the trust borrowed money from a lender and now the trust has 1.3 million cash the trust distributes the property with the note secured by deed of trust on the property and then betty and charlie each get cashed out for 667 000 there is no reassessment of the property provided andy files his prop 58 form his claim for reassessment exclusion that's how you buy out a sibling in a trust very few lenders will um will permit this these are very expensive loans they're short-term loans but the value's there because if the property's reassessed um his property taxes stay 1500 a year they don't go up to 24 000 a year that's a lot of money 22 you know 20 what is that 22 500 that's a lot of money we do have the salt limitations now where the state and local tax you can't deduct those on your federal return if it's over um if it's over uh 10 000 so this prop 13 super important property right this is kind of an extreme example but it is not uncommon quite frankly these are the properties that people tend to want to hold on to so mission accomplished we've done what we need to do uh michael asks does the bridge hard money loan have to come from a financial institution lender or can the funds be obtained from any source a friend you know um they the the whole point is the trust has to borrow it andy can't pay money to his siblings okay and take the property it doesn't work that way it's all got to funnel through the trust so if andy has another alternative would be andy could um well the money has to come from somewhere it goes into the trust there are a lot of variations on that but on a high level that's what needs to happen so mission accomplished but february 16 2021 the whole universe changes right the whole world changes because of prop 19. and so here's what just happened prop 15 did not pass prop 15 got 49 of the vote and uh 50 49 yes 51 no very close prop 19 passed 5149 go figure right so mom and dad die after february 16 die february 16 2021 or later uh carrie asks if all the siblings are fine with it can't they just agree that one kid gets the property i don't care about the money um maybe it just depends on how the trust is written trusts have an ant have a spend thrift provision an anti-assignment clause so it is tricky that and there are a lot of i'm just giving you on a very high level this is what happens um but uh that's something where i would i would talk to us if if this is something that you're concerned about go ahead and reach out to us if my parents did not have a non-pro rata if my parents did not have a non-pro-rata distribution in the trust can we still do non-pro-rata distribution no right so you you need that in there um so what just happened prop 19 passed mom and dad so if mom and dad die february 16 201 or 2021 or later trust has non-pro-rata distribution uh powers andy this is very important the parents have to claim this as their homeowners all right they have to be living in the home have their homeowners exemption on there if they're not living in the home and they're renting it out and they claim the homeowner's exemption that's called tax fraud not a good idea andy must also claim the homeowner's exemption in within one year okay and here's what andy gets andy gets remember that million dollar parent-to-child reassessment exclusion on other property andy gets the tax base plus another million dollars in value which is not reassessed that brings him to 1.12 million dollars the remaining 880 000 is reassessed and this is if andy if andy buys out his siblings right so prop 19 not so good for kids really good for mom and dad we'll talk about that not so good for kids this is going to add about eleven thousand dollars per year to andy's tax bill the taxes go from fifteen hundred to twelve thousand five hundred still not so bad on a on a on a two million dollar property uh but still they're significantly higher than they would have been uh before prop uh 19 and frankly this is with a great planning we're going to know more after the new year the legislature convenes in january we'll have some enabling legislation passed now this is important this million dollar exemption the current million dollar exemption the one where you can leave other property of a million or greater is not indexed to inflation this one this one is indexed to the fha the uh federal housing authority house price index for california so here's what's going on the 120 000 tax base is tied to the california consumer price index but it can only go up a minimum a maximum of two percent a year and that's good right this million dollar exemption goes up according to the house price index for all of california not a specific region and er some areas in california go up faster than others but here's what you need to understand if there is a gap right now that gap will only get wider because the house price index for california goes up higher than two percent every year right and so what's gonna happen is if in this situation if the house is worth three million dollars in ten years then the um that difference even if even when that million dollar exemption's growing the the price of the house is going to grow faster all right the value of the house is going to grow faster so mom and dad die after february 16 2021 andy buys out betty and charlie before distribution if andy does not live in the home his taxes jump to 24 000 a year there is no reassessment exclusion this is because prop 19 guts prop 58 and prop 58 was a parent to child reassessment exclusion trisha asks this all has to do with property taxes and not step up in basis correct yes this is all this is just property taxes all right just we're not talking about step up in basis uh basically when mom and dad die or when mom and then dad die there's an adjusted cost basis so if mom paid mom and dad pay 15 or paid 100 000 for the property 50 000 for the property and now it's worth 2 million mom and dad die the kids can sell that property and not pay capital gains tax if they sell it for 2 million so prop 13 now this is important residential rentals reassessed at death commercial industrial family vacation homes everything gets reassessed to death very important for you to understand uh the world the property tax world is changing on february 16 of 2021. so your parents can gift their prop 13 tax base how do you do this well property is reassessed when there's a change in ownership that's revenue and taxation code section 60. the parents can transfer a primer right now a primary home of any value while while living to their children there's no reassessment the parents can also transfer while they're alive they don't have to wait till they die they can transfer while they're alive a million dollars each or two million per parent whether you have one kid or ten kids it's still a million two million and but you gotta act before february 16 2021. so what can mom and dad do now well we're working on a proposition 13 trust and there are different variations of this trust this allows passing prop 13 to the children now it preserves prop 13 for for the children for their entire lifetime because prop 13 is still around okay if you transfer a property to your kids they're going to enjoy prop 13 for their whole life you got to deed the property to the trust before february 16th the parent is the grantor and the children are the beneficiaries in ownership occurs whether there's an adjusted cost basis at death is case specific some clients want it some clients don't wealthier clients don't want it less wealthy clients do want an adjusted cost basis there is no one-size-fits-all and each plan and i'll tell you we've been meeting with so many clients lately myself the other attorneys in the firm every situation is entirely different and so it's really hard to to generalize i've been talking a lot of people out of transferring their home quite frankly because there are a lot of goodies in prop 13. we have another webinar coming up at i believe it's three this afternoon where we do cover um the goodies uh there's a few other webinars that are on our youtube page i'd highly recommend you check out our youtube page um here it is we kind of go over a lot of these concepts this is about a two-hour webinar we're up to i don't know 6 000 views so here's what you can do to save prop 13 taxes for the kids now go to cunninghamlegal.com set up a zoomer phone consult collect all your recent property tax bills and locate your current estate planning documents uh and you need to get those to us before the meeting the consultation fee is 500 and at the end of the meeting you will need you will be able to decide do i need to do something or not if we do more work obviously additional fees apply but you can go to the website and set up an appointment anonymous asks if you transfer the property to the kids what happens to the step-up and basis the step-up and basis is very important we are working on a structure where a gift can be completed but still included in the gross estate of the grantor which gets you an adjusted cost basis and we're using a combination of 2038 powers internal revenue code section 2038 which is the delaying of the uh income to the children and under uh code 26 cfr 25 25 11-2 d uh the fact that you are withholding the distribution of income does not make the gift incomplete we believe that you need to have a complete gift for federal estate tax in order to trigger a change in ownership under in revenue and taxation code section 60. so there's a lot in there that's probably more for lawyers but i want you to know that this is uh it's a big step to do this a lot of our clients choose to do it and a lot choose not to do it but at least they know because this is a very this is an extremely valuable property right for for californians anonymous asks would the transfer transfer would occur in prop 13 trust is it irrevocable yes it's an irrevocable trust it needs to be a completed gift it can't be a revocable gift you can't say i'm going to give my kids the home and keep a life estate or i'm going to give my kids the home but i'm going to keep i'm going to get the income for 30 years you know you can't game it that way because that does not constitute a change in ownership so um i'll open it up for questions uh any more questions um whoops not quite the end of the slide deck so go to our website i'd also encourage you to go to our youtube page so if you go to youtube cunninghamlegal.com subscribe to our youtube page uh that is a great way to stay in touch so there's a subscribe button somewhere on here yeah it's the lower right hand corner on the subscribe we have a lot of really valuable content we are pushing out a lot of prop 19 content a lot of different examples we're looking at this in different ways if you're a lawyer or other professional we do accept referrals uh we are very busy um and we also co-counsel or whatever you want to do if you want to bring us in to help you out a lot of people are doing outright transfers i would say that is probably the the super safest way to do it the problem is you lose control right you don't get a step up in basis and there are a lot of problems that come with that but for some people you know if somebody's 95 years old and going into assisted living yeah it might not be a bad idea so again this is not legal advice i'm just these are my thoughts and we do have one question so go ahead put your questions in the q a anonymous asks for clarity a transfer to a prop 13 trust gets both the step up in basis and preserves prop 13. that is uh what we are yes that is correct if that's appropriate some people don't want an adjusted cost basis at death because it is included in their taxable estate so it depends on the value of your state craig asks if you live in the home after you inherit it how long do i need to live there before i can rent it out to avoid reassessment craig that is the 64 000 question nobody knows uh is it a life sentence do you have to live there forever i don't know the legislature is going to convene there will likely be a rule on it um i have no idea what it is but i can't imagine that it would be forever but it's possible it's possible that they could say if you stop making that uh your home right if you if that homeowner's exemption drops off the property does get reassessed it's possible they take that away anonymous tasks if you add kids now to rental property on title don't you get the step up and then only get partial reassessment no if you have a retained interest if you if you add someone to title that actually is not a change in ownership that does not meet the test under revenue and taxation code section 60. i would encourage you to go to the internet and google california revenue and taxation code section 60. it's about two lines um it's it's really short but you have to meet a three-pronged test otherwise there's not a change in ownership and here's the problem there's a whole body of law that says this is not a change in ownership this is not a change in ownership this is not a change in ownership it's like trying it's like you've never seen a duck and someone shows you a picture of an elephant and they say this isn't a duck and a picture of an alligator this isn't a duck well we don't haven't seen a duck so i'm i'm in in the interest of full disclosure i will tell you i'm talking to some of the smartest attorneys in california i've ever talked to we are all struggling with this because it is a rewiring of our brain we have to come to this with a beginner's mindset and we have to kind of unlearn what we've learned and re re-learn in order to get a transfer of property and have it be completed but then get an adjusted cost basis what if they put you on title with them before they die that's not a change in ownership it's a change in ownership when they die and if they die after february 16 2021 it's going to be reassessed well we're gonna put this is gonna be recorded it'll go up on our youtube page and i believe you will be getting a follow-up email so you can slow it down if if i went through this a little too fast could you share more details how you can preserve the step-up and basis after gifting it to the children yeah so on the what we do is we do an irrevocable trust and the parent the grantor retains the power to to accumulate income essentially to defer the distribution of income that power causes inclusion in the gross estate of the grantor so you make a completed gift you file your 709 and then this internal revenue code section 2038 power brings the the asset back into your taxable estate but does not constitute an additional change in ownership and the 25 25 11-2 d says that the mere control over when somebody receives something does not make the gift the underlying gift incomplete and so we believe that that meets the um the revenue taxation code section 60 threshold to trigger a change in ownership when the trust is created and the parent transfers the property to the trust when that property is transferred to the trust it's looking like and i hate to speak couch this and it's looking like because this is not definitive and we're we're about 98 done with the research and development on this but um uh when the parent dies it there are strings that are attached that bring back the the gift into the estate and get you your adjusted cost basis i live i live in the home caring for an elderly father it is my primary residence when he transitions can i claim his primary residence retain prop 13 tax basis if my siblings agree without buyout i i would hate i can't say yes um i think you're gonna have problems um and the other open question is if there's a parent with multiple siblings unless they leave the house to you right unless they change their estate plan and leave their house to you um you you may get reassessed on that on that portion you know if it's if it's you and two siblings you may get two thirds reassessed we just don't know what the rules are going to be so what might be the main reasons for avoiding a step up in basis to the property um yeah so here's the here's the issue right now you can leave 11 million 580 000 tax free to anyone you want you can gift 11 million 580 000 tax free and that's each that's per person next year it's going up to 11 million 700 000. in 2026 regardless of what happens in con you know if if no bill is passed changing it right that's going to drop down to 6 million in 2026 so some people have larger estates they don't want those assets to be in their estate they would rather forego the adjusted cost basis and and avoid the estate tax and remember capital gains taxes are typically paid when the property is sold when you have money estate taxes are paid when somebody dies and that's not a sale and so for many people who have significant real estate holdings they have to liquidate those quickly because the taxes are due nine months after death so um again this is case specific but i would encourage you to to go to our website book an appointment for rental properties can mom and dad continue to receive income after gifting title we're working on that we've got to work around what the trust uh can be a grand tour trust and the the parent can retain the right to borrow without adequate security and we believe that does not cause a problem for property tax reassessment when the parent dies so the parent could borrow on the other hand once the property is transferred to the kids in the irrevocable trust they can the trustees can capitalize an llc and the parent can potentially manage the llc they got to do work um but if a parent's in an assisted living facility the kids can can distribu have the income distributed to them and then pay for mom and dad's care because that is not considered a gift so if you're paying medical care directly to the medical provider that's not a gift in your irrevocable trust example that received a step up would that also retain prop 13 taxes meaning off of original purchase price so the idea is when both parents die and it's when one parent dies you get a half adjusted cost basis and when the other parent dies you get the other half which is not as good as that the parents keep the property but when when the parents are both deceased the idea is you get an adjusted cost basis on on those properties and uh which means you potentially pay less capital gains tax but on a high level the reason people are doing this the reason people are doing this is because they don't want to sell the property so how important is cost basis to you and again you know if you're talking a five hundred thousand dollar assessment and an eight hundred thousand dollar market value i'm not sure it's a big deal but if you have a hundred thousand dollar assessment and a million dollar market value on ten properties is whatever client does which is ten properties and the tax base is a million and the market value is 10 million those taxes would go up 100 000 a year when the kid inherits the property that's the kind of person who's doing this type of a trust what is your youtube channel uh cunningham legal uh let's see here it's right there uh if you go to youtube and just put in cunningham legal it's cunningham legal the living trust lawyers is our youtube channel and let's see uh answer that to the in the abc example where trust borrowed uh 1.3 million so one kid gets the 2 million dollar home with the 1.33 million loan what kind of term length for the loan would be typical those are gonna be short-term loans they're um you pay a lot of points um and when the property's distributed typically the um the beneficiary who's inheriting the property andy in this case wants to refinance because the interest rate's too high so they typically go out and uh and refinance the property uh after february 16 2021 then all rental properties will be reassessed no matter what correct yes unless it's not a change in ownership unless original owners but and for our example yes as a general rule unless there's an exception there are very few exceptions um that's that's a real issue so um the bottom line is prop 19 there's a lot of good stuff in prop 19 again we're covering a webinar later today and you can go ahead and register there's there's a few spaces left on that but we're covering all the good stuff in prop 19. at yesterday's seminar uh charitable lead unit trust and charitable remainder annuity trust were discussed briefly is there a fuller discussion in another cunningham legal youtube webinar no we're going to post that webinar we're going to take an in-depth dive in that next year so we're kind of preoccupied with prop 19 but we're going to be covering those tax strategies because something you need to understand if you're a higher net worth person even though these laws change in 2026 january 1 of 2026 any gift made within three years of death comes back into your estate so the real deadline right this is if biden doesn't get his his bill through to drop the exemption down to three and a half million the real deadline is december 31 of 2022 which is only two years from now right and two years goes kind of quick uh carrie asks we have a vacation home can mom put me on title now and when she dies there's no change in ownership so no reassessment even though i have two other siblings if my brother and sister are fine with it um if she puts you on title that is not a change in ownership it's a change in ownership when he died when she dies if she dies after february 16 the whole property is going to get reassessed go ahead make an appointment we can help you out with that there is a strategy we can use that um that that can make that happen so that's that's part of kind of updating your mom's estate plan but definitely you're that's the kind of that's the kind of person situation that we're meeting with quite a bit if i currently own a rental property in california and continue to hold it during my lifetime does prop 19 trigger a reassessment no you are protected by prop 13. by the way if the kids sell everything if they're going to sell everything doesn't even make sense to do any of this planning right it's only if the kids are going to hold it after you're gone eric asks only one parent is alive the house purchase price was 300 000 is now worth two million i don't want to sell it but receiving step up and basis is important will prop 13 trust accomplish both the step up and basis to the 2 million to avoid capital gains tax for the eventual sale years down the road and preserve prop 13 taxes yes what if you survive your kids does prop 13 trust pass back to parents uh that is people dying out of order so here's one of the risks and this is a very important risk one of the risks is that you that your children die before you do then your property gets reassessed so what we're doing once these transfers are complete on a separate engagement we are taking those individual bits that have been transferred to the kids and we're putting those in an llc and the reason is if less than 50 percent of an llc interest transfers then the property is not reassessed so there is a workaround it's down the road we don't know what the rules are but we know what to do now to make sure that you're teed up so that you can take advantage of future rules so again go to our youtube page subscribe to our youtube page it's a great way to get the feed of our videos we're doing uh a few a week and these are very topical videos of stuff that's that's really happening now um so also go to cunningham legal to set up a zoomer phone consult and you got to collect all your property tax bills this is your recent property tax bill the 20 2020 2021 and um you can scan those or even take a picture of them and text or email it to us but we need we need that tax bill your your entire your complete estate plan and your finances your assets so whether it's a questionnaire that you fill out or if you have a personal balance sheet uh it just depends uh consultation fees 500 and at the end of the meeting at the end of the meeting you will you will know hey should i take another step or not uh could prop 19 be rescinded you know what um absolutely by a vote of the people they can amend the constitution and here's what i'm thinking may happen uh i hate to predict here's here's what i think may happen i think you're going to have passage of a of a a an initiative that reassesses commercial and industrial property for at least for publicly traded companies but maybe everyone and what they're going to do is they're going to bring back the parent-to-child reassessment exclusion i think that's that may be the bootstrapping way they're going to do it so i don't know who knows sounds like you need uh granular info on the property tax bill beyond the simple dollar amount of the property yes we need the granular information it's like line item by line item because we need to know if you're claiming your homeowner's exemption we need to know two really to the dollar what the assessed value is because it's not the tax the taxes that you pay it's really your assessed value because every county is different some counties charge 1.1 percent some counties charge 1.25 percent so we it just depends on what county you're in and then what you know college district you're in and all this all this other stuff so with that uh we do have another webinar this afternoon and we're going to go into all the good stuff on prop 19 and if you're watching this recording it's probably already going to be up on our website um so uh it was a pleasure spending time with you and mike thank you for your comment very informative thanks uh go ahead and subscribe to our youtube page and hopefully cove it'll be over soon uh hang in there and uh stay safe and have a great day