{"id":222,"date":"2010-02-20T21:50:18","date_gmt":"2010-02-21T04:50:18","guid":{"rendered":"http:\/\/fiduciarydutiesblog.com\/?p=222"},"modified":"2010-02-20T21:50:18","modified_gmt":"2010-02-21T04:50:18","slug":"change-of-property-ownership-triggers-big-tax-bill","status":"publish","type":"post","link":"https:\/\/fresnolawyerblog.com\/?p=222","title":{"rendered":"Change of Property Ownership Triggers Big Tax Bill"},"content":{"rendered":"

The California Supreme Court recently considered when a transfer of ownership occurs in the context of an estate planning trust.\u00a0 The dispute arose in under Proposition 13, which sets the rules for property tax reassessment.<\/p>\n

According to the court, \u201cWhen Helfrick died, the residence’s assessed value for tax purposes was $96,638, with total taxes due of $1,105.\u00a0 Upon her death, defendant County of Los Angeles reassessed the residence and increased its valuation for tax purposes to $499,000.\u00a0 For the next three tax years, the County sent property tax bills of, respectively, $5,492, $5,764, and $6,245.\u201d<\/p>\n

That\u2019s the dispute \u2013 do the property taxes increase by 500% upon the owner\u2019s death?\u00a0 Stated the court, \u201cThe starting point for our conclusion lies in the fact that, during her lifetime, Helfrick transferred the residence to a trust of which she was the sole present beneficiary and as to which she held the power to revoke.\u201d<\/p>\n

\"\"<\/a>The court explained that \u201cunder general principles of trust law, trust beneficiaries . . . are regarded as the real owners of that property . . . Moreover, property transferred to, or held in, a revocable inter vivos trust is deemed the property of the settlor.\u201d<\/p>\n

The court cited to a legislative task force, which had explained that:\u00a0 \u201cRevocable living trusts are merely a substitute for a will.\u00a0 The gifts over to persons other than the trustor are contingent; the trust can be revoked or those beneficiaries may predecease the trustor.\u201d<\/p>\n

According to the court, \u201calthough transferring legal title to the residence to herself as trustee, Helfrick, as sole trust beneficiary and holder of the revocation power, continued to hold the entire equitable estate personally and effectively retained full ownership of the residence.\u201d<\/p>\n

It\u2019s a relief to see such a clear statement from the California Supreme Court.\u00a0 A living trust is established for estate planning purposes as a will substitute.\u00a0 Such a trust can be amended or revoked by the trustor (i.e., the property owner) during the his or her lifetime, just like a will.\u00a0 In the court\u2019s explanation, \u201cAny interest that beneficiaries of a revocable trust have in trust property is \u2018merely potential\u2019 and can evaporate in a moment at the whim of the settlor.\u201d<\/p>\n

What happens to the property after death?\u00a0 At this point, the trust cannot be modified.\u00a0 \u201cUpon Helfrick’s death, the trust became irrevocable and the entire equitable estate in the residence, which Helfrick had personally held during her lifetime, transferred from Helfrick to Steinhart and her siblings (or their issue) as beneficiaries of the irrevocable trust.\u201d<\/p>\n

The same thing with a will \u2013 the instrument becomes permanent at death, and the property passes to the persons named as the beneficiaries.\u00a0 Here\u2019s the point at which the court had to make a slight leap.<\/p>\n

With a will, Probate Code section 7000 states that, \u201ctitle to a decedent’s property passes on the decedent’s death to the person to whom it is devised in the decedent’s last will.\u201d\u00a0 However, there is no statutory counterpart in California\u2019s trust laws.\u00a0 Hence, the court filled the gap by holding that, \u201cupon [the] settlor’s death, [the] trust became irrevocable and the full beneficial interests in the property transferred to the residual beneficiaries of the trust.\u201d<\/p>\n

Thus, during her lifetime, \u201cHelfrick personally held the entire equitable estate in the residence and was regarded as the residence’s real owner.\u00a0 Under the terms of the trust, upon her death, Helfrick transferred not just a life estate, but the entire fee interest – i.e., the full bundle of rights – to, collectively, Steinhart and her siblings (or their issue) . . . Helfrick, who was the sole beneficial owner of the residence before her death, retained no interest in the residence after her death.\u201d<\/p>\n

In the case before the court, the decedent left a life estate to one heir, with the remainder interest passing to certain siblings.\u00a0 The life estate tenant claimed that the property was not subject to reappraisal until her death.\u00a0 The court disagreed:\u00a0 \u201cThat circumstance does not alter the fact that, upon Helfrick’s death, the entire equitable estate in the residence was transferred from Helfrick to, collectively, Steinhart and her siblings (or their issue) as beneficiaries of the irrevocable trust . . . This transfer constituted a \u2018change in ownership\u2019 within the [meaning of Proposition 13].\u201d<\/p>\n

The holding is not surprising but again reflects the legal tensions that arise from the use of a trust agreement as a substitute for a will.<\/p>\n

Steinhart v. County of Los Angeles<\/em>, 2010 DJDAR 1913 (Feb. 5, 2010)<\/p>\n","protected":false},"excerpt":{"rendered":"

The California Supreme Court recently considered when a transfer of ownership occurs in the context of an estate planning trust.\u00a0 The dispute arose in under Proposition 13, which sets the rules for property tax reassessment. According to the court, \u201cWhen Helfrick died, the residence’s assessed value for tax purposes was $96,638, with total taxes due […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,9],"tags":[],"class_list":["post-222","post","type-post","status-publish","format-standard","hentry","category-case-law","category-trusts-and-estates"],"_links":{"self":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/222"}],"collection":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=222"}],"version-history":[{"count":0,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/222\/revisions"}],"wp:attachment":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=222"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=222"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=222"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}