California provides various exclusions from reassessment of property tax when a “change of ownership” occurs. One of the most common exclusions is used to prevent reassessment for transfers from a parent to a child or from a grandparent to a grandchild (often referred to as the “parent-child exclusion”). However, it is important to understand when a “change in ownership” occurs and how long you have to apply for an exclusion from property tax reassessment.
“Change of Ownership”
Generally, Revenue & Taxation Code Sections 60 through 62 define the events (i.e., the sales and transfers) that trigger property tax reassessments under provisions of the California Constitution, commonly known as Proposition 13. These trigger events are known as a change of ownership. Generally, whenever a change of ownership occurs that is not subject to an exclusion provided under the Revenue and Taxation Code, the transferee must file a change in ownership statement in the county where the real property is located. Cal. Rev. & Tax. Code § 480(a).
Revenue and Taxation Code section 60 defines a “change in ownership” as “a transfer of a present interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest.” The transfer of a fee interest is commonly accomplished via a sale from one person or entity to another.
Transfers can also be through legal trusts. In fact, transfers between parents and children typically take place through trusts that are set up by the parent(s) for the benefit of the child after the parent passes away. The Revenue and Taxation Code also provides that circumstances constituting a “change in ownership” occur when any interests in real property which vest in persons other than the trustor (i.e., the trust creator) or when a revocable trust becomes irrevocable (such as the parent/trustor passing away).
Thus, there is a change of ownership when the children receive the full present interest in real property, even when the property remains in the trust. Luckily an exclusion is available to prevent a costly property tax reassessment, but must be timely claimed.
The Parent-Child Exclusion
Certain constitutional initiatives (including Propositions 13, 58, and 193) were passed that provide for exclusions to reassessment when the transfer is from a parent to a child or from a grandparent to a grandchild. Those initiatives were codified in the California Revenue & Taxation Code, which states (in relevant part) that “a change in ownership shall not include the purchase or transfer of real property . . . between parents and their children.” Cal. Rev. & Tax. Code § 63.1.
But, in order to avoid reassessment under the parent-child exclusions described above, once there is a change in ownership a claim for the exclusion must be filed within three (3) years after the date of the purchase or transfer of real property, or prior to transfer of the real property to a third party (whichever is earlier). If no claim for a parent-child exclusion is filed within the three (3) year period, then it may be filed within six months from the date of mailing of a notice of supplemental or escape assessment that was issued as a result of the purchase or transfer of the real property. Cal. Rev. & Tax. Code § 63.1.
In certain types of litigation, including litigation involving real property and corporate assets, a party (typically the Plaintiff) will request that the Court appoint a receiver, or the Court may decide to appoint a receiver without being asked.
A receiver is neutral person who is not a party to the litigation who takes possession of and manages property or assets belonging to one or more of the litigants. California Rules of Court Rule 3.1179.
A receiver is an agent for the court, not the litigants. Thus, the receiver holds or manages the property or the assets “for the benefit of all who may have an interest in the receivership property.” California Rules of Court Rule 3.1179.
Generally, a receiver has the power to bring and defend legal actions, to take and keep possession of property, to receive rents, collect debts, to make transfers, and generally do anything with respect to the property that the Court may authorize. Code of Civil Procedure § 568.
There are specific circumstances that control when to appoint a receiver. Code of Civil Procedure § 564. One common circumstance is the appointment of a receiver to manage and hold the property and assets of a corporation that is in the process of being dissolved. Code of Civil Procedure § 565.
At the request of any creditor or stockholder of the corporation, the Court in the county where the corporation conducts business or has its principal place of business may appoint one or more persons to be the receiver of the corporation. The receiver may take charge of the corporation’s property, collect the debts and property due and belonging to the corporation, and to pay the outstanding debts of the corporation as necessary. The receiver may also divide any of the corporation’s income, money, and other property among the stockholders of the corporation.
A receiver is particularly helpful in circumstances where one or more shareholders of a corporation believe that other shareholders are embezzling funds by paying phony accounts payable, transferring assets to other entities, skimming accounts, etc. By appointing a receiver, the Court and the requesting party may be able to stop improper or illegal activity and preserve the remaining assets and property of the corporation. Also, as stated above, the receiver can bring an action to recover assets and property as it sees fit.