Huntington Beach, CA (PRWEB) April 28, 2015
This is one of a series of tip sheets prepared by Mark W. Bidwell on how to change real property ownership. This tip sheet explains how a child obtains ownership of a parent’s real property after his or her parent has died. This tip sheet also explains how a child can reduce property tax and reduce capital gains tax.
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.
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.
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.
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 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.
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.”
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.
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.
The last tax on land and real property transfers is the documentary tax. This tax currently is $1.10 per thousand dollars plus any local government 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.
This tip sheet 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.