Legal Question in Real Estate Law in California

Re: Prop 13-Transfer from Parent to Child

With the amount of money at stake that you have, it would be a wise investment to spend some time with a real estate tax attorney. [By the way, your wording of the new dollar terms of your proposal is confusing; you will borrow $560,000 as a first from a bank [$370,000 of which will pay off the first loan you have] and $140,000 from your parent, and pay your parents $190,000]. Will you be able to afford the payments on loan debts of $510,000?

I think there is a fair amount of tax avoidance planning that you need to be informed of.

Re: Prop 13-Transfer from Parent to Child

Don't you want to consult with an attorney regarding assets this important. Our Orange Co. member has extensive real estate experience and can help you do this the right way to help you and your parents.

David W. Nance

DWNanceLLC.com

NanceGroup.com

Re: Prop 13-Transfer from Parent to Child

I do not practice in the taxation area of law. Follow Mr. Nance's advice, or resubmit under the heading of Tax/Taxation Law.

Re: Prop 13-Transfer from Parent to Child

Neither of these prior answers seems to address the questions asked. I will try to do a little better, but I'm going to end up recommending that you see a local attorney specializing in the area of estate planning and/or family wealth transfer.

First, transferring real property from parent(s) to child(ren) and avoiding reassessment to current market value is a well-established practice, specifically permitted by statute and often done without a problem. The main advice I can give you here is that county assessors vary in their documentation requirements from county to county, and while the law is uniform (at least in this specific area), the rules under which it is administered do differ, so I suggest having a discussion with Orange County's assessor - or look at their Web site, which likely has good info - I know L.A. County's site explains the process well.

Next, I don't think there is any two-year aspect to Prop. 13 transfers, but I could be wrong! However, more likely than not, you are thinking of the IRS requirement that to shelter up to $500,000 (for a couple) of capital gains, a house must have been your "principal residence" for at least two years out of the last five. It sounds as though that gives your parents three years to take a gain that would be sheltered.

That leads to the next observation. If they give the house to you, or sell it for less than $181,490, they won't have a taxable gain anyway. You, however, will have a low basis, and if you ever sell, you will have a big capital gain.

Next issue is the gift tax. That may be triggered if you get the house for less than fair market value. If you assume debt, I think that is part of the price you're paying, however.

Finally, it is widely believed that the best way to transfer appreciated property from generation to generation is by will or trust, and not by gift.

Since I'm rather uncertain about all of this, the one thing I will advise is to see a local estate-planning attorney - and not just a guy who does cookie-cutter living trusts - and get real, personalized advice from a true expert. It's worth it!