Huntington Beach, California Attorney, Mark W. Bidwell

Ownership change of real estate in California after the death of a parent is by trust or by order of a probate court.

How a child obtains a court order to transfer real property is determined by the market value of the real property. The lower the market value, the easier and cheaper it is to obtain ownership by court order.

What is the value?

The value of real property is determined by an independent third party known as the probate referee. A probate referee is a real estate appraiser qualified to submit his or her appraisal to the probate court.

Real Property less than $50,000

California law has a shortcut, or expedited probate procedure for real property less than $50,000 in value known as “Affidavit Real Property of Small Value.” This procedure is primarily available for timeshare estates and land away from the coast. The $50,000 exemption can be used even if the parent owned other real property, provided the other real property did not go through probate. The affidavit is simple compared to a formal probate. Before filing the affidavit, the child has to wait six months from date of death and verify all debts of the parent have been paid.

Real Property less than $150,000

Property appraised at less than $150,000 is collected and transferred by a succession to real property court order. A petition is prepared, a hearing date is scheduled and heirs are notified. After the hearing, the court order is filed with the county recorder. The court order allows for a subsequent quit claim deed to change ownership on the public record. The quit claim deed transfers real property from the decedent to the heirs.

Real property held in joint tenancy or a revocable trust is not included in the value of a probate estate. Succession is a good tool to pick up the lots of land, timeshares, vacation homes, and houses in rural areas that were omitted or overlooked in the decedent’s estate planning.

Real Property greater than $150,000

Real property with market value greater than $150,000 requires formal probate administration. Formal probate requires at least two court hearings; notice to all heirs, creditors and the Franchise Tax Board; notice to the public by publication; collection and inventory assets; appraisal of assets; accountings; letters of administration; and at least three court orders. Large estate probate administration takes about one year to complete and is open to the public.

Real Property Owned by a Trust

Two documents are needed to transfer California real property from a parent’s trust to children: affidavit of death of trustee and quit claim deed. Any real property distributed to a child of a deceased parent qualifies for Proposition 13 parent-to-child property tax exclusion.

Affidavit Death of Trustee is a declaration under oath, by the successor trustee. The successor trustee declares the owner has died and attaches a certified copy of the death certificate. The successor trustee further declares he or she is authorized to take control of the real estate property according to the terms of the trust.

The affidavit is filed with the county recorder. The successor trustee then has the authority to take control. Control is limited to what is directed by the trust. Typically, the trust directs the successor trustee to distribute the real estate property of the parent to his or her children.

The second step is to prepare a quit claim deed from the parent’s trust to the children. A quit claim deed does not contain any implied warranties. The successor trustee who “quit claims” real estate simple conveys whatever ownership interest the parent had along with any debt or loans secured by the property. The successor trustee makes no promises and the property is taken “as is.”

The successor trustee to a parent’s trust has the additional duties to notify, file tax returns, and prepare an accounting. An accounting of assets and debts, income received and debts and expenses paid provides transparency and minimizes second guessing of the successor trustee’s actions.

Successor trustees often need to open a bank account to make deposits and pay debts of the estate. Banks require a Federal Tax Identification Number. A tax return from the date of death to the close of the estate is needed for each year the trust has assets. The return is Form 1041 and is filed on the tax number used to open the bank account.

The successor trustee is required to notify heirs of the decedent and beneficiaries of the trust in a format and manner required by California law. Details of the notice are in California Probate Code Section 16061.7. The successor trustee is required to notify the death to each county where the decedent owned real property. Notice is sent to the assessor’s office of the county. The notice is titled “Change in Ownership Statement Death of Real Property Owner.”

Protect Property Tax Base

Any real property distribution to a child of a deceased parent qualifies for Proposition 13 parent-to-child property tax exclusion. The parent’s property tax base for assessment is transferred to the child. But to receive the reduction in property tax, a claim for reassessment exclusion must be filed with the county assessor.

Save on Capital Gains Tax

Transfer-on-death real property receives a "step-up in basis" to reduce or eliminate capital gains tax. The step-up is the real property's fair market value as of the date of death. Children protect the new basis with an appraisal in the event of an IRS audit.

Transfer Tax

The last tax on land and real property transfers is the documentary tax. This tax currently is $1.10 per thousand dollars plus any localgovernment additions. The California Revenue and Taxation Code Section 11930 exempts real property ownership change due to death. The exemption is stated under penalty of perjury on the face of the deed.

About

This article is provided by Mark W. Bidwell, attorney licensed in California. The office is located at 4952 Warner Avenue, Suite 235, Huntington Beach, California 92649. Telephone number is 714-846-2888. Email is Mark(at)Bidwelllaw(dot)com. Practice focuses on non-sale transfers of real property.

How to Protect the Property Tax Base for Post-Death Parent to Child Transfer of California Real Property

Proposition 13 limits increases in the property tax base. On death the property tax base of inherited real property in California increases to fair market value with some exemptions. One exemption is inherited real property by a parent or child. The exemptions must be timely claimed. 

In California the assessor’s office in each county is responsible for the collection of property taxes. The State wide Assessor’s hand book states the date for reappraising real property is the date of death for wills, trusts and intestate succession. This is regardless of the date the heir actually receives the property.

Often there are years in delays from date of death to distribution of real property. The causes can be as simple as the court’s backlog in probate administration or a trustee’s difficulty in gathering the assets and paying off creditors prior to distribution. It may take time to determine who will receive the real property.

Fortunately, California has a pretty liberal deadline for the timely filing of a parent to child claim for exclusion. The deadline is different for retroactive application and prospective application. For retroactive application, or in other words to go back to the date of death, the claim must be filed within three years or if three years has passed, six months after the date of mailing of a notice of supplemental or escape assessment.

Even if the child waited over three years and ignored the notice of supplemental or escaped assessment, the child still can obtain prospective relief. Property tax for years prior to the filing will be at the current market value. But going forward after the claim is filed, the child’s property tax base will be the parent’s property tax base as of date of death.

There is one parent to child transfer that is not protected.  The parent-child exclusion applies only to a transfer of real property and does not include any legal entity interest. If the parent’s real property was owned by a business entity such as limited liability company, the real property will be appraised at fair market value as of date of death and the property tax base will become that appraised value.

A deceased parent’s property tax base transfers to a child. The transfer is not automatic. A claim for parent to child exclusion must be filed with the county assessor’s office. For retroactive relief the claim must be filed within three years from date of death or six months after notice of supplemental or escape assessment, whichever is longer. Prospective relief is available at anytime the claim is filed.

This press release was authored by Mark W. Bidwell, an attorney licenses in California. Office is at 4952 Warner, Suite 235, Huntington Beach, California 92649. Telephone is 714-846-2888. Website is www.DeedAndRecord.com.