One aspect of estate planning may be that an individual or couple is "house rich" but strapped for cash. In some California communities, real property taxes have risen to the point that seniors are in danger of losing their homes solely for not being able to come up with the money for the property tax. Asset protection planning is often necessary to both save the home for the duration of the owner's remaining years and to preserve it as part of the estate to pass on to heirs. A law to help seniors with just that problem is being proposed again, having been initially axed when California faced its budget crisis.
Back in the 1970s, a law was passed in California allowing seniors and disabled homeowners to defer payment of their real property taxes. In essence, the deferment was a loan from the state at 7 percent interest. That law existed for three decades, until it became victim of the state budget cuts two years ago.
Now it appears the law is to be revived, albeit in somewhat different form. The new bill, which would go into effect in 2012, gives counties the right to adopt the old program. Officials in some high real property tax areas, such as Santa Cruz, indicate that they will provide the program as an option for residents. The expectation is that the bill will prevent tax-based foreclosures, and the 7 percent interest charge compares favorably with a projected 1 percent default rate.
While it remains to be seen exactly what effect the bill will have, it raises issues for estate planning. Those interested in using the program may wish to plan for the eventual payment of the taxes as part of their own estate plans. It may also be wise for Californians to confer with experienced legal counsel to create a strategy that takes full advantage of the bill and avoids passing on significant debt to be settled by heirs.
Source: santacruzsentinel.com, "Property tax break for seniors, disabled back on table," Jason Hoppin, Oct. 12, 2011