San Luis Obispo Bar Association Estates and Trust Section

1. San Luis Obispo Bar Association Estates and Trust Section June 26, 2019 Barbara Edginton, Assessment Manager (805) 781-5666 San Luis Obispo County Assessor’s Office

2. Reassessment rules upon transfer of property into Trusts and distribution from Trusts and Estates.

3. Requests • Transfer into or out of irrevocable trust – Need copy of trust • Transfer into or out of “special name” trust – Need copy of trust (or, in some cases, certification of trust) • When last trustor dies – Need complete package (Death of Real Property Owner, trust and all amendments, P58 and/or P193) • Please do not submit in pieces – e.g. Death of Real Property Owner in one submittal, trust in a separate submittal, P58 attached to recorded Affidavit, etc. • If clients don’t know how they will distribute, or there is litigation, consider submitting a protective filing and letting us know

4. Death considerations in trusts • Sprinkle provision? • Life estate? • Disclaimer? • Power of Appointment? • Non-pro rata distribution? • Later acquired title?

5. 1. SprinkleProvisions Property Tax Rule 462.160 Annotation 220.0821

6. Trustee Trustor Death 8-2-18 Specific Distribution 20% of income (20% CIO) 40% of income (Prop. 58) 40% of income (Prop. 58) Nephew Son Daughter

7. Trustee Income Sprinkling Trustor Death 8-2-18 ?? ?? 100% CIO ?? Nephew Son Daughter

8. Real property distributed to son on March 24, 2019 Income Sprinkling No change in ownership Specific Distribution 60% change in ownership

9. 2. LifeEstates

10. Leckie v. Orange County(1998) 65 Cal.App.4th 334 Upon death, friend receives life estate 100% CIO Dad Dad’s friend When friend dies, interest goes to Dad’s children 100% Prop. 58 Dad is transferor Dad’s children

11. Annotation 220.0372 Joe grants a life estate to his friend Bob 100% CIO Joe grants the remainder interest to his wife and children

12. Annotation 220.0372 Bob grants to remaindermen while alive 100% CIO Bob dies – to remaindermen via trust terms Spousal/Eligible for P58

13. Lifetime Right of Occupancy Right to income = life estate No right to income = no life estate Annotation 220.0364.005 Annotation 220.0364

14. 3. Disclaimers

15. Disclaimers Assessor’s Handbook 401, pg. 85, 86

16. 4. PowersofAppointment Annotation 625.0234

17. General Power of Appointment The holder of a general power of appointment is treated, for estate tax purposes, as if he or she is the owner of the property subject to the power, whether or not the power is exercised.

18. 2. Determine who grantor is for Parent/Child exclusion purposes Dawn = daughter Olga = trustor Evan = son Remaindermen Jabari and Ethan – Evan’s sons Hope – Dawn’s daughter 50% life estate each

19. Dawn has a limited power of appointment over her interest. Evan has a general power of appointment over his interest. Neither exercise their power of appointment.

20. Dawn dies, married to Hope’s father. 50% CIO – Grandparent/grandchild exclusion does not apply Evan dies, married to Jabari’s and Ethan’s mother. 50% eligible for parent/child exclusion.

21. Distribution Agreements Annotation 625.0234.005

22. Property = $1,350,000 Cash = $950,000 Beneficiaries enter into a Distribution Agreement. Daughter gets house Each grandchild gets $450,000 cash

23. Does daughter get a 100% Parent/Child exclusion? “Any distribution agreement would have to take effect after the terms of the power of appointment have been met.”

24. 5. Non-proratadistributions

25. Example BEN DOD 4/16/19 Ben & Sylvia Family Trust Total Asset Value = $2,000,000 Sylvia, wife of Ben DOD 9/24/10 Tony (Son) Aaron (Son)

26. Sufficient Assets Must be value as of 2ndtrustor’s date of death

27. Sufficient Assets

28. Insufficient Assets

29. Qualifies for exclusion Does NOT qualify for exclusion Trustee of Dad’s trust gets loan against the property – (does not have to be commercial lender) – lender canNOT be the property beneficiary Trustee of Dad’s trust distributes property to beneficiary – beneficiary gets loan and pays brother from loan proceeds, or pays brother from personal funds Annotation 625.0235.005

30. Allow 50.505% Prop. 58 49.495% CIO Allow 100% Prop. 58 Annotation 625.0235 Annotation 625.0235.010

31. LTA 91/08 Calculation for disproportional distribution from trust Equity in the property minus the child’s share of the estate divided by the equity in the property $1,980,000 - $1,000,000 = $980,000 $980,000 / $1,980,000 = 49.495% Equity in the property Child’s share of estate Divided by the equity in the property

32. Share value is specific to trust John and Anita Taylor Family Trust Exemption Trust Survivor’s Trust Annotation 625.0235.020

33. If the house is allocated/titled to the Exemption Trust, then only the assets in the Exemption Trust can be considered. Cash from Survivor’s Trust cannot be used to equalize value.

34. 6. Later-acquiredTitle

36. Example 1 House in Orange County sold House in SLO County purchased Trustor A – Owns house in Orange County • A dies • Child B has life estate • Child B is trustee • Children of B are remaindermen • B claims Homeowners’ Exemption • B dies 20 years later • 100% reappraisal • Neither A nor B are eligible transferors Annotation 493.0131

37. Example 2 Survivor’s Trust Purchases home in San Luis Obispo County • Joe and Mona Family Trust • Joe dies • Survivor’s Trust • Decedent’s Trust • Mona dies • Daughter is beneficiary • Property eligible for P58 • Mona is eligible transferor

38. Example 3 • Tony purchases a property in San Luis Obispo County in 2010 • Survivor’s Trust – 50% • Decedent’s Trust – 50% • Tony and Maya Family Trust • Home in Fresno County • Maya dies in 2005 • Survivor’s Trust – 50% • Decedent’s Trust – 50% • Tony dies in 2018 • Son Ben is beneficiary • Survivor’s Trust • 50% eligible for P58 • Decedent’s Trust • 50% reassessment

39. 7. “NursingHome” Trusts

40. Irrevocable Grantor Trust Trustor receives income except for time in a skilled nursing facility or when a resident of a medical institution.

41. When in facility, income continues to be held until trustor dies or comes out of the facility, or can be distributed to children or other beneficiaries.

42. If eligible, P58 exclusion applies on date trustor enters the facility. If eligible, P58 exclusion applies on date trustor leaves the facility.

43. What might this mean for the Homeowners’ Exemption? Principal residence?

44. 8. LegalEntities&Spouses

45. Jazzy Corp Tina (wife) -- 30% Tom (husband) -- 30% Ben (friend) -- 40% R&T 63 Spousal Exclusion LTA 85/33

46. Legal entity owned 95% by husband and 5% by wife (each as sole and separate property) Husband owns property 100% as sole and separate property Transfers property to 100% CIO Annotation 220.0274

47. Community property presumption All property acquired during the marriage is presumed to be community property. Unless… Statutory exemption applies LTA 2018/014

48. In Re Marriage of Valli(2014) 58 Cal.4th 1396 • Property that a spouse acquired during the marriage is community property [Family Code §760] unless it is:

49. Transmutation Family Code §852(a)

50. Example Grant and Mia, husband and wife, took title to property as community property in 2010. Presumption is that the transfer is proportional, but we will need additional information. In 2015, Grant and Mia transfer title to Ye OldePubb LLC. Grant is the sole member of the LLC.