0:03 hello and welcome to trust and Estates weekly I'm your host Kevin bemel and we are here every Monday at 10:00 a.m. Pacific time to talk about estate planning from your own perspective estate Administration and probate Administration trust Administration for your own needs and also from the standpoint of professionals who help other people uh handle their Estate Planning and their estate and Trust Administration so for example me that's that's what I do today I'm going to talk about a subject that I think is
0:40 obscure and oftentimes not on the radar when it comes to either estate planning or um estate Administration but is nonetheless important um because how how it gets handled can have a significant impact both on what happens with your property after you die as well as Financial issues and that is the change of ownership that takes place when a property goes through probate now in in
1:16 this case I'm using probate in its loosest sense because if uh a a Property Transfers through the operation of a trust as we've talked about many times before it doesn't go through probate nonetheless it that probably constitutes a change of ownership okay so so that's that's what we're talking about here is is change of ownership as a result of probate or at least the death of the owner of of a property so the the the
1:52 fact of the matter is that um and and I'm only going to talk about California um and uh I I'll comment on on another state that that I know the rules of for sure but here in California when someone dies and the and and a pro let's start let's start with just a personal residence that's the most common type of real estate that uh changes ownership as the result of the death of the owner so that as a result of the death of the owner that property
2:29 will EXP erience a change of ownership and in California that triggers in many cases a reassessment of the property okay so the reason that's important is because for example here in California we have a a law known as Prop 13 that restricts how much the assessed value of a property can change Year bye year so so for example when when
3:04 somebody buys a home okay and let's say they pay $700,000 for that home so at the time the purchase of the home is completed a change of ownership is submitted to the the tax assessor for the county in which the home is cited okay and that property is reassessed generally speaking at 100% of market value so it's probably going to be assessed at around $700,000 now in California property
3:39 taxes are calculated at 1% of assessed value so on a $700,000 house property taxes are going to be $7,000 1% of $700,000 okay now excuse me you you can also be taxed additionally uh for what are called special assessments generally speaking up to a maximum of one quarter of 1% so if we taking that that $700,000 house
4:14 $77,000 in property taxes and then let's see 3750 divided by two a a maximum of about $875 for special assessments so rounding up about $1900 so the taxpayer who gets their their um uh property tax bill it could be for a total of roughly $8,900 that's that's per year now here's the thing once that new assessed value is set assessed value can increase a
4:53 maximum of 2% per year okay so for example if if you bought bought a house here in California in 2017 I'm sorry 2019 okay and for $700,000 okay the maximum amount that it could have increased in the intervening five years is 2% compounded for five years it's probably somewhere around 12% 133% something like that uh so the uh the assessed value now would be
5:30 somewhere around $800,000 the value of that house though is probably something like a million dollars okay and that's oftentimes the case in California is aess value lags behind uh market value of the property okay now let's contrast that with another state like Alabama another jurisdiction that I'm familiar with in Alabama the properties are reassessed every four years with an
6:07 interim reassessment done every in the two years so let's say again that somebody brought a property in Alabama you know probably not $700,000 properties are much less expensive there let's say they bought a property in Alabama in 2019 for $300,000 okay so whenever the inim assessment is the interim assessment may have been a year later okay in 2020 there would be an interim reassessment and then two years after that okay there in 2022 there would be a
6:43 reassessment okay and then 2024 this year there'd be an interim uh reassessment and then 2026 there'll be a reassessment now I'm not saying that's the actual calendar I'm just giving you that as an example uh I I didn't I didn't frankly bother look up what the exact calendar is for for uh Alabama but that's a you see that's a different assessment system and the reason that's important is let's say that between 2019 when the uh when the property was bought for $300,000 and 2024 it it went up in value to
7:23 $400,000 okay so in 2024 it's going to be as reassessed for $400,000 it's market value that that because that's just how the process works even now under the California system right it would have experienced like I said about maybe a 133% increase in assessed value so instead of being assessed for $400,000 it would be assessed for about $340,000 so you see there's an additional $60,000 in assessed value that the taxpayer is going to be held responsible for under the alab system
8:00 that they wouldn't under the California system okay and then the other difference is the tax rate in Alabama is essentially set based on Revenue needs so there's no maximum tax rate per se okay and that's that's another important distinction so here in California the maximum rate is 1% but in most states in the country what the what the what the um tax collector in a particular County
8:35 does is looks at the the revenue needs for the county whether it's schools or whatever it is and says okay well we need x amount of Revenue the assessed value of the property in this county is you know $50 billion or whatever it is okay and so that you know we need we need um $500 million of Revenue and the assessed value of the property is $50 billion so the tax rate is 1% now
9:10 let's say they needed $550 million in revenue and they had 50 billion dollar of property so they would set the tax rate at 1.1% so they have that flexibility whereas here in California we do not okay so why is this important well because when a Property Transfers as a result of the death of the owner a reassessment is triggered okay so here in California it could mean that you know someone who had bought the property a long time ago maybe has a very very low
9:47 assessment maybe the assessment is you know $200,000 on a property that's worth a million and a half dollars so now as a result of that death it's POS possible that the property will be reassessed at a million half dollars even though there's been no sale there has been a change of ownership and why is that important well property taxes will go from uh $2,000 1% of $200,000 assessed value to $155,000 1% of15 million that's a huge
10:25 increase it's a seven and a half times increase right so so for someone who is inheriting that house they're going to be paying a lot more in property taxes than the deceased owner paid now I'm gon and I'm going to talk to about some some exceptions to that here in California in a minute okay some other issues to be concerned about um with respect to change of ownership property taxes Etc is even though a property is in Probate that does not stay the collect of property taxes stay is a legal term that
11:02 means um stops legally stops the payment of property taxes not at all property taxes still have to be paid and so while the estate is going through probate or while the trust is being administrated the property taxes will have to be paid now hopefully there's sufficient cash or sufficient liquidity in the estate to pay them but if there's not okay then some property may need to be sold in order to pay those property taxes now how much they are it's going
11:39 to depend on what the triggering process is and again I'm going to talk about that um in a little while okay I mentioned a few minutes ago special assessments on a property sometimes those special assessments first of all let me explain what special assessments are so let's say that when a subdivision of homes was developed they put in uh sewer lines and storm drains and other types of infrastructure okay the cost of that
12:15 infrastructure is sometimes essentially charged to the property owners and the way it's done is a bond is levied to pay for those that those that infrastructure and then a special assessment is charged on each owner's property tax bill to pay off those bonds that's that's one type anyway there are others I'm just going to stick with that basic one okay now some of those special assessments or actually the underlying
12:50 obligation when a Property Transfers that underlying obligation needs to be paid off okay so that could be another financial burden on the estate as a result of the change in ownership and that is that this you know bonded indebtedness for for the infrastructure in this in this subdivision housing subdivision it may the that particular property share may need to be paid off it could be you know who knows 10,000 $20,000 maybe more okay it depends on
13:28 when the original indebtedness was incurred and how much of it has been paid off in the interim okay now if you've got a a house in a you know a very old subdivision so it's unlikely that there would be a bonded indebtedness for infrastructure however if there had to be some sort of recent Improvement um to storm drains or something so maybe there is some kind of bonded indebtedness there even in older subdivision and so again the state would might be required to piay pay that off and require that kind of know the the liquidity the cash to do so okay so that
14:07 that's sort of the the the basics there now essentially for the purposes of change in ownership there's two kinds of property one is a personal residence and the other is essentially everything else okay so let's start with a personal residence let's let's let's go back to that example of a home here in California it was bought in 2017 for $700,000 okay and now here it is
14:43 2024 and the owner has passed away okay so I'm gonna go ahead and share my screen this is the one I want okay so first of all when somebody dies the the assessor the county assessor needs to be notified so it can maintain accurate records of who owns a property and you see here A change in ownership
15:18 death of real property owner form needs to be filed it's it's a pretty simple form I'm not going to go over that but it's it's pretty simple basically you put in the address of the property the the deceased owner's name what's called the Assessor's partiel number uh who the person inheriting the property is and and and I think that's that's pretty much it and it has to be signed by the executive of the estate or if it's a trust the trustee of the trust Etc notice that it has to be filed within 150 days of date of death or if the
15:53 estate is probated at the time the inventory and Appraisal is filed Okay so if the inventory and Appraisal is filed earlier than 150 days has to be filed earlier later than 150 days it can it can be filed later okay and you can see this is where the form gets gets mailed to now when a when a child or a grandchild of a homeowner inherits a property okay and that property is is
16:29 the principal resident of the decedent the parent or grandparent and the child or grandchild moves into be well makes that property their principal residence within a year of the transfer so the child or grandchild can file for a homeowner's exemption and what that will do is it will retain the assessed value of the home that the that the um the the deeded had okay
17:06 and this was a law called Prop 19 it was passed I think a few years ago and the reason it was passed was people were inheriting their parents or grandparents properties and as I mentioned before you you would have a situation where maybe you know the the the current assess value was $200,000 now the the the assessed value at market value when property was inherited might be a million a half dollars causing a 7 a half times higher property tax payment and and the person
17:42 inheriting it can't afford the property tax payment and so they would end up having to sell the home because they couldn't afford the property taxes so this this law was passed under the proposition process here in California and it's only for a personal residence okay so I'm I'm working on a a case right now for example where there is a personal residence okay it's going to the child of the decedent but he is uh not going to occupy uh the property certainly not with within a year of the
18:18 transfer and so he is not going to qualify for this exclusion okay so just just here's some and by the way this this kind of exclusion California is not the only state um that has it um although I will tell you Alabama does not because I have I have I handled the case there and um as a result of the change in ownership from parent to child the property was uh reassessed at at uh full full market value number one and
18:55 number two because the parent was elderly qualified for a it was like a credit based on them being I think it was over 70 years old the the child also lost that um deduction in reduction I should say in property taxes too so the property taxes went up by a factor of two or three as I recall okay all right so some some frequently asked questions um Can the property be reassessed upon the death of the the owner and the answer in California is yes okay can the
19:32 property be reassessed if the seeden held the property in trust again yes so the fact that the property was held in the trust uh once it undergos a change of ownership um as a result of one of the Bene of the beneficiaries dying and now there's new beneficiaries okay so then um that that's going to be considered a change of ownership and indeed um even if it's held in a trust a change of ownership statement is is going to have to be um filed okay and then it talks about
20:07 um um what happens if you don't file it and then you know our parent child transfers automatically excluded from reassessment and the answer is no it has to be filed for um a claim must be filed with within uh within three years of the transfer or before uh or before the trans trans which ever occurs first okay so the so in other words this form has to be filed okay in order for the parent to child or grandparent to
20:42 grandchild um exclusion from reassessment uh to to take place now that's that's really something that whoever is administrating a in estate needs to track carefully because if they don't do so in time that's it you don't get that benefit right and and as and as the you know the example I've been giving all along you could see a tremendous increase in property taxes okay um if if you're you know if you're if you're entitled to that exclusion um but for whatever
21:17 reason you you you take it late and and or you not take it late you apply for it late and now you're PR precluded from getting it because the the deadline has pass so you want to track those very carefully so I'm going to go to the uh Assessor's website um here here in Los Angeles okay our assessor is is Jeff PR presumably that's Mr PR right there and and you can see here's here's all the information about um you know various issues relating to property uh property
21:55 taxation property property assessments and you see here death of the real property owner so you have some general information here okay and the it tells you the different forms that you you have to file okay the fact sheet so that's we were just looking at the death of a property owner fact sheet here's um here's you know basic questions these are the same ones you saw in the fact sheet okay here's where you download forms okay here's the various forms that you might have to fill out and you see here claim for reassessment exclusion between trans for transfer between parent and child there's a different
22:31 form for grandparent to grandchild if you file the wrong form I can imagine they're going to be unforgiving about that okay so you know again you want you want to make sure that you file the correct form change in ownership uh statement death of real property owner okay that's for if there's a death here's change of ownership statement when there's not a death it's just been a change of ownership okay and um okay and then finally I guess there's some video oh this okay this is a video on uh how Prop 19 Works um presumably it was it was sometime it
23:07 was past sometime in 2021 2022 and uh Mr pray is is explaining how it works so people can take advantage of it okay so in in your state um hopefully I oh gosh I I I forget to do this periodically okay let me let me go through this again real quickly so you can see it so here's you know death of a real property owner the general information I mentioned links to fact sheets that'll download frequently asked questions here's the forms that I mentioned okay the different one for parent and child and the different one
23:43 for grandparent to grandchild um change of ownership and change of ownership due to death okay and then uh you know again there's the the the video that I mentioned okay so um for you know if you're not in California so you know do do a a a search for um for the for the uh you know reassessment of property on death in your state okay so I'm gonna I'm going to uh do that here and we'll see what we come up with because I've been talking about um Alabama so let's just
24:18 do this in real time so you can see how this works okay so here we go and we're going to do to um change of ownership on death uh property in Alabama and as as usual I have misspelled something okay all right so here you go you can see okay so here's Shelby County Alabama okay Shelby County I
24:53 think is the biggest County in Alabama okay and here here's the to transfer title from a deceased owner single ownership no will or will does that does not require probate it shows you what you need to do you need the original title to the house original death certificate you fill out this form okay you may need um an affidavit Etc okay if there's a probated will okay so then basically the um oh wait this is this is for a vehicle
25:28 oops sorry sorry sorry that's for a vehicle I meant let's see where's the for let me let me change this sorry about that for real estate there we go okay okay here we go uh Alabama okay well it's interesting you
26:06 don't so see here's here's what makes it difficult you get a lot of um estate planning things here okay so let's let's do this um so here's a better way to do it maybe Shelby County uh Real Property Tax Assessor okay here we go oh Shelby County Tennessee oh gosh Shelby County Alabama okay here we go Property Tax Commissioner all right we found the
26:43 right place okay so in the in Shelby County in Alabama uh the property tax commissioner is Dan Armstrong okay and here's real property search Okay property taxes online you pay there file for a home set exemption file uh Boe appeal that's a um that's a um an appeal on the appraised value and let's see interesting they don't have a link here
27:19 for um for what happens when the property owner dies okay so you know is what it is it's going to be you know in this case you're you're probably going to want to talk to a lawyer okay and find out um uh you know what what what the situation there is okay manufactured homes registration first market value okay y yep okay so I'm gonna I'm gonna stop the sharing here um so that adds another layer of complexity to it
27:56 because unlike California where it's pretty easy to find the information in some counties it's not and and so this is something that if you can't find the information you do want to make sure you talk to someone knowledgeable about it now a typical lawyer may not be knowledge knowledgeable about property taxes and so you're well advised to find a real estate lawyer and a real estate lawyer who knows how taxation works and in your state and in your county okay so
28:32 um I have a friend who's been a a real estate lawyer for many many years and when it comes to property taxes he's he's my go-to guy Todd so um you know that's that's just because he has that expertise also because he knows uh a prior um uh tax assessor and so because he has that relationship he sometimes get questions answered more thoroughly than other people can Okay so let's let's look at the takeaways from from this whole issue of transfer of
29:08 ownership due to probate or due to due to death of a property owner first of all like I said it's it's it's I think it's an overlooked issue so make sure it's on your radar to deal with number one number two find out what is the requirement for reporting a change of ownership due to to death or due to probate in your county that's number two number three does it trigger a reassessment okay and if so what impact is there going to be on the property on property taxes Etc and then four is
29:46 there some kind of exemption for let's say the transfer of a property from a parent to a child or a grandparent to a grandchild okay and and if so what is that and tail in other words does it apply only to Natural children does it apply to adopted children does it apply to step children okay that weren't maybe legally adopted exactly what are what is the definition of child or grandchild okay those are all important things to know as you deal with uh the whole situation of
30:23 reassessment of a property on change of ownership due to death and then finally is is is an exemption automatic or does it have to be applied for and if it has to be applied for what is the deadline for making that application because you don't want to lose out on it could be a very very costly mistake okay especially if you are like me a professional fiduciary of some kind um whether you're act you know whether you're a lawyer or whether you're some sort of independent trustee or something
30:59 like that okay if you miss a deadline you could very you know it's it's possible depending on the terms of of a trust for example or or the terms of a probate it's possible that you could held be held liable for the additional expense that that is incurred okay so that's our show for today I appreciate you tuning in I noticed we had we had several people online I I always appreciate you doing so by the way if you are on online uh I mean if you are watching us live I mean uh you can ask
31:34 questions um and they all aggregate right over here off to this side of my screen is a a chat window and so you can feel free to drop questions into that questions and comments into that chat window and I will see them during the show and I'll be happy to respond I I've noticed over the last few weeks I've gotten more live viewers uh than uh late and so you know feel free to drop those questions comments um in into the chat on wherever you're watching it and and and I will I will see those uh presumably here in my live chat
32:10 otherwise if you have questions comments uh after the show posts please feel free to uh post them in our social media all the links will be in the show notes after the the show posts to YouTube and my email address will be there as well happy to answer any answer any questions you might send me via email or that you post online or send through direct messaging with the caveat I always give and that is if it's within my area of expertise otherwise I will refer you to someone hopefully who can help you so
32:46 thank you very much for watching today tomorrow at uh 10: am Pacific time is my show business lessons from the military and we're going to be talking about having a well-defined mission as as a precursor to success and I'm going to talk about the various Wars lost and won by the United States so those of you who are fans of the movie Stripes at least the first half of the movie which is the part I like with Bill Murray he talks about how the US is something like nine
33:22 and one I'm not sure that's exactly the case um but in any event I think I'm going to be we're going to be examining the various Wars in which the United States uh has has participated and how having a clear Mission a well-defined mission was critical to understanding whether that war was successful or not and then on Wednesday at 10: am my guest is Jason gerado Jason is a veteran like me and he helps people find their path to success
33:58 so I'm I'm I'm excited to be speaking with Jason and I hope you will join us for that and then on Thursday at 5: PM Pacific time is jigger's place this is an opportunity as we head toward the end of the week to relax and talk about all the things not related to professional matters and and on this coming Thursday we're going to be talking about the maltes Falcon one of my my all-time favorite books and movie and we're going to be delving into the question of which
34:33 is better which is a better version the book or the movie it it's it's uh it's something that comes up I think in a lot of a lot of famous movies you know they always say oh the book is always better not necessarily I'm not I'm not sure I agree with that philosophy so I'll hope you I hope you will tune in and we'll have a cocktail and we'll we'll debate that subject so again thank you very much for joining me today wishing you a wonderful rest of the day and signing off as I always do Marie darling you are my bell uh courage at all times