When we are preparing estate plans and creating a living trust for real estate, I often get this question about the tax implications for a trust. The main question is whether the transfer of real estate into a living trust will trigger a reassessment from the county tax assessor’s office. The key reason people worry about a reassessment of real estate is because property taxes in California are calculated on the value of the property at the time it is purchased. Property purchased several years ago usually is lower than the current value that it is today, and if it is reassessed, your property tax bill will be higher than what you purchased it for.
For individuals and their families who are creating living or revocable trusts for the sole purpose of avoiding probate and costly court interaction, the answer is no. The assessor cannot reassess the property based on the transfer to a trust, since the transfer of interest from one’s individual name to that individual’s revocable trust is not considered a transfer of ownership. For the majority of living trusts, any reassessment that is going to occur will usually happen upon the death of the individual who created the trust. At that time, an exclusion for reassessment can be applied for. The most common exclusions are spouse-to-spouse and parent-child exclusions.
However, individuals and families who are thinking about transferring property as a gift to someone else should be very careful. They should not be too hasty since any interest given that is not covered under an exclusion could subject the property to reassessment and extra taxation.
