No one wants to pay more taxes than the legal minimum. Most often a parent’s trust distributes California real property out of the trust to his or her children. The successor trustee identified in the trust is the person to make this happen. There are capital gains tax and property tax savings available for parent to child transfers.

But first, two documents are needed to transfer California real property to the beneficiaries of a trust — an “affidavit of death of trustee” and a “deed”. The affidavit 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 must further declare that he or she is authorized to take control of the real estate property according to the terms of the trust.

This affidavit is then filed with the county recorder. It is now a matter of public record that the successor trustee has the authority to distribute the real estate property. Distribution is done by a deed from the trust to the beneficiaries of the trust. The deed must be signed by the Successor Trustee and recorded with the county recorder.

California real property distribution to a child of a deceased parent should qualify for Proposition 13 parent-to-child property tax exclusion. This exclusion allows for the parent’s property tax base to transfer to the child. A claim for the reassessment exclusion must be filed within 3 years of death. The Successor Trustee should submit the exclusion claim immediately after the deed has been recorded.

Good practice is for the Successor Trustee to obtain an appraisal on the property as of date of death. The appraised value of the real property is the new cost basis to the trust beneficiaries. This is known as a “step-up in basis”. If the property is sold, the capital gains tax is computed on the difference between sale price and the appraised value.

Successor Trustees must transfer real property out of the trust to the beneficiaries of the trust by submitting both an affidavit death of trustee and a deed. In order to reduce capital gains tax, the Successor Trustee obtains an appraisal as of date of death. To avoid property tax increase on parent to child transfers the Successor Trustee should also file a claim for exclusion from reassessment.

Author: Mark W. Bidwell

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