Updated 2/22/17. Another 5 years have passed and the State Board of Equalization (BOE) still has not eliminated the loophole that allows property owners to avoid reassessment on a joint tenancy transfer at death to a person not eligible for exclusion as a spouse, registered domestic partner, cotenant, parent, or child of the transferor. As amended in 2013, the regulations continue to provide that tenants-in-common can transfer property to themselves as joint tenants and become original transferors under Rev & T C §65. This means there will be no change in ownership on the subsequent death of a joint tenant. For example, siblings receiving property as tenants in common on the death of a parent may postpone reassessment until the death of the survivor by retaking title as joint tenants. See 18 Cal Code Regs §462.040(b)(1), Example 4; Letter to Assessors No. 2013/044 (Sept. 2013).
Here’s how it works. Under Rev & T C §65, joint tenancy property is not reassessed as long as an “original” transferor remains on title. For example, if A and B as joint tenants grant Blackacre to A, B, and C as joint tenants, and then A dies, the property is not reassessed because B is an “original” transferor. The rule allows joint tenancy to be used for estate planning purposes.
In 2003, there was no exemption from reassessment for domestic partner transfers, so the BOE amended Property Tax Rule 462.040 to allow those partners to transfer joint tenancy interests to each other in trust and be treated as original transferors. For example, A and B grant to A and B as joint tenants, A leaves his interest in trust to B and B leaves his interest in trust to A, and then A dies. The property is not reassessed because B is an “original” transferor.
The rule also allows other persons not eligible for an exclusion, such as unmarried partners or siblings, to avoid reassessment on joint tenancy transfers.
In 2007, the legislature and created an exemption for domestic partner transfers under Rev & T C §62(p). The California Assessors’ Association (CAA) then petitioned the BOE to amend Rule 462.040 to eliminate the loophole. Letter to Assessors No. 2007/010 (Feb. 23, 2007).
End of story, right?
Not so fast. On May 21, 2007, the BOE issued another letter stating that the interested parties process was being delayed indefinitely at the request of the CAA.
On February 12, 2012, the BOE received a new petition from the CAA seeking to close the loophole. The comment period ended on July 6, 2012, and an interested parties meeting is scheduled for August 27. The current regulation remains in effect until “one day before the effective date” of the proposed amendments.
But you have to act fast. For example, siblings receiving property as tenants in common on the death of a parent may be able to postpone any further reassessment until the death of the survivor by retaking title as joint tenants. Siblings or unmarried partners who might otherwise contemplate taking title as joint tenants should consider taking title as tenants in common and then retaking title as joint tenants, thereby becoming original transferors under the current regulation.
The current regulation will cease to apply to joint tenancy transfers made before November 13, 2003, so joint tenants who acquired property before that date may wish to transfer the property to themselves as tenants in common and then retake title as joint tenants to avoid reassessment until the death of the survivor.
These and other more exotic possibilities for transfer strategies were discussed in the April 2007 and October 2012 issues of CEB’s Estate Planning & California Probate Reporter. Also check out CEB’s California Estate Planning §15.10 and CEB’s award-winning California Trust Administration §13.53B.
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