Will My Property Taxes Increase After Creating a Trust?

This is a very important concern that lots of people family.

Often times, when a person creates a trust to hold real property, process involves transferring the real property into the name of the trust. This transfer or change of ownership triggers a property tax reassessment with the Tax Assessor’s Office.

Whether the property taxes will change depends on a number of factors including the type of trust created.

In this particular example, John and Jill create a trust and transfer their home into the trust. They purchased their home in the 1970’s for $100,000 and have an extremely low property tax bill. The property has appreciated and is now worth $1 million. But the assessed value for property tax purposes is limited to their original purchase price (with an annual increase). This means they are paying property taxes on about $180,000 assessed value, not the million of fair market value.  They are extremely concerned about the changes to their property taxes, and for good reason!

Now, when a transfer of ownership happens in real property, the real property is reassessed at its fair market value. This increase results in an increase in the property taxes. For example, if this was to be done, John and Jill’s new property taxes would be based on the million dollar fair market vale.

In this transaction, John and Jill have chosen to create a revocable trust to avoid probate. When the transfer documentation is prepared and filed correctly, there should be absolutely no changes in property taxes on this property.

There are certain transactions that are exempt from property tax reassessment. The key is to make sure the correct exemption is filed with the county Tax Assessor’s office in order to preserve the property tax basis.

If you are working with an experienced attorney, the filings should be included and a part of your estate plan.

Feel free to consult with our office for a free consultation with an attorney.