Loans to Trusts and Estates

To retain the Prop 13 property tax base, we provide capital to the trust or estate to facilitate equalization of distribution. In order to take advantage of property tax exemptions and avoid problems caused by cash-poor estates or beneficiaries’ needs, trustees and executors should consider HCS Equity a valuable resource in ensuring a smooth transfer of assets from one generation to the next.

We work closely with both trustee and attorney to comply with State Board of Equalization tax regulations. We use our own capital, and provide swift review and approval, flexible underwriting and terms, no prepayment penalties or minimum months of interest (use our capital for one day or up to four years), and availability of funds within 7-10 days in most cases.

  • Proposition 58, adopted in 1986 provides that a transfer between parents and children of a principal residence, as well as an additional $1 million of the full cash value of all additional real property, is excluded from the definition of a “change in ownership,” which would ordinarily necessitate property tax reassessment. Proposition 193, adopted in 1996 further expanded this definition to include certain transfers between grandparents and grandchildren, but only if the grandchild’s parent is deceased.
  • California Probate Code Section 16246 provides that a trustee may distribute property and money in divided or undivided interests, and to adjust resulting differences in valuation, with in-kind distributions being either pro rata or non-pro rata pursuant to a written agreement. By leveraging cash from a private loan in conjunction with an agreement between the heirs, executors and trustees can provide a valuable service to families who otherwise would have to forfeit their valuable real estate in the course of trust or estate administration.
  • Loans cannot be made by any of the beneficiaries of the real property to the trust in order to equalize the trust interests. Such loan would be considered payment for the other beneficiaries’ interests in the real property resulting in a transfer between beneficiaries rather than a transfer from parent to child, which would disqualify the transfer from the parent-child exclusion. (Board of Equalization Letter to Assessor No. 2008/018, Q.36.)
  • Estates and trusts with limited liquidity may forfeit these important advantages if the estate or trust has no resources available which would allow the heirs to keep the family home. The California Board of Equalization has specifically sanctioned third party loans to trusts to equalize the value of beneficiaries’ interests in the trust assets while retaining the applicable property tax exemptions. (See Board of Equalization Letter to Assessor No. 2008/018, Q. 36.)

Additional benefits include:

  • Competitive rates and terms
  • No personal guarantee required
  • Interest only payments
  • No prepay penalties
  • No minimum months of interest
  • Funds are typically available within 7-10 business days

Private Loan Process

Step 1
Determine who will retain property

Oftentimes one or more beneficiary wishes to retain the property and it’s tax base

Step 2
Determine loan amount

The property value, other assets/cash in the trust, and the number of beneficiaries are used to determine the liquidity needs of the trust

Step 3
HCS Equity provides a loan to the trust

HCS Equity provides private capital directly to the trust to create liquidity needed for equalization, a necessary step to avoid reassessment under Proposition 58.

Step 4
Equalization and distribution

Cash or property are distributed as mutually agreed upon by the beneficiaries

Step 5
Change of ownership

Change of ownership and exclusion from reassessment are filed

Step 6
Trust loan is repaid

The beneficiary retaining the property either repays the trust loan with their own funds, or secures conventional financing to repay the trust loan

*This is for illustrative purposes only, HCS Equity does not provide legal advice or services

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