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Home » Estate Planning » Property Taxes and Living Trusts in California

Property Taxes and Living Trusts in California

September 29, 2014Estate Planning, Taxes

property taxes and living trustsEstate planning attorneys are often asked what happens to property taxes for real property when that property is transferred to a living trust.  The purpose of a living trust is to provide a way for planning the management of your property if you become unable to do so yourself, due to incapacity.  A living trust can also allow you to determine how your property should be distributed upon your death, similar to a will.   In many cases, when real property is transferred into a trust, the title must be changed to reflect the new owner, which would be the trust.  So, what effect does that have on property taxes and living trusts?

Transferring real property into a trust

There are several issues to consider when real property is transferred to a living trust.  First, before the property can be retitled, its value must be reassessed.  This process involves determining the current value for the purposes of calculating the property tax that is owed.  In most states, when you are designated trustee of your own living trust, the property does not need to be reassessed.  In those cases, the amount of property taxes, based on the appraised value, will not change.  On the other hand, if reassessment is required, your property taxes may change if there is a difference in the current value and the value last assessed.

Other issues to consider

Another thing that should not change is your mortgage interest deduction.  If the real property in your living trust is your residence, there may be tax breaks available in the event you later sell your home.  In fact, you may be able to exclude as much as $250,000 in profit from the sale of your principal residence.  This exclusion will be doubled if the co-owners are spouses.  Also, any homestead rights you may have had, which protect the equity interest in your home, will still apply to property transferred into the living trust.  Another benefit is that, if your mortgage includes a due-on-sale clause, that clause cannot be enforced by your lender, simply because you transfer your residence into a living trust.

What if I do not include my real estate in the trust?

Any property, in which you have title, that is not included in your living trust will be required to go through the probate process when you die.  Also, any property that is located outside the state in which you reside, which is not included in your living trust, must go through “ancillary probate,” which is a separate probate proceeding in that other state.

Assets that are owned jointly with your spouse, but are not included in the living trust, may lose their estate tax exemption.  You can also the risk of disinheriting your children or grandchildren, if they are co-owners or tenants with you, the property is excluded from your trust.  So, consider all of your options when determining which property to include.

If you have questions regarding property taxes and living trusts, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.

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Scott Schomer, Estate Planning Attorney
Scott Schomer, Estate Planning Attorney
A graduate of Boston University School of Law, Scott P. Schomer is a frequent lecturer on estate planning and elder law issues, having discussed these important issues on local and national television. A seasoned courtroom advocate, Scott has obtained combined judgments and verdicts in excess of twenty-five million dollars for his clients. Scott has served as a member of the Los Angeles Superior Court Probate Volunteer Panel (PVP Attorney), Probate Settlement Panel and a Judge Pro Tempore. Scott's expertise has been recognized by his peers with such accolades as a life-time membership in the Multi-Million Dollar Advocates Forum, the Five Star Wealth Manager designation, and repeated nominations as California Super Lawyer.
Scott Schomer, Estate Planning Attorney
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