BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1700 HEARING: 6/20/12
AUTHOR: Butler FISCAL: Yes
VERSION: 4/17/12 TAX LEVY: Yes
CONSULTANT: Grinnell
CHANGE IN OWNERSHIP EXCLUSION FOR COTENANCY INTERESTS
Exempts from change of ownership transfers between two
specified tenants in common
Background and Existing Law
The California Constitution (Article XIIIA) limits
reassessment and annual property value increases for
property tax purposes to two percent per year but requires
reassessment of real property to current fair market value
upon change of ownership (Proposition 13, 1978). The State
Constitution provides an exception to "change in ownership"
for property transfers between spouses, domestic partners,
parents and children (Proposition 58, 1986), and
grandparents and grandchildren (Proposition 193, 1996),
subject to specified limits.
State law also provides other exclusions from reassessment
for changes in ownership. Generally, a change of
ownership does not include any situation where one person
continues to own or reside in the home, such as placing
property in a trust, creating a life estate, or purchasing
the land under a mobile home. However, when more than one
unrelated persons owns a property, and an owner dies, that
owner's share is generally reassessed to fair market value.
A notable exception exists when unrelated persons jointly
own a property as joint tenants; the property is not
reassessed for any transfers among owners who have
"original transferor status," including deaths.
According to state law and Board of Equalization (BOE) rule
462.040, joint tenancy is characterized by the four
"unities" of interest, title, time, and possession, plus
the right of survivorship. Owners must be on the same
title, and have the same ownership interest, starting at
the same time. Joint tenancy is created by:
AB 1700 - 4/17/12 -- Page 2
A joint tenancy deed from the owner to two or more
other parties,
Owners deeding to an intermediary and taking back a
joint tenancy deed, or
Owners directly transferring the property to
themselves as joint tenants.
In any of the above events, the words "joint tenancy" must
be written on the transfer document given to the county
recorder to ensure that the assessor does not reassess the
property because the owners are creating a joint tenancy.
If the owners fail to write the words, or if the ownership
shares are not equal, BOE rule and state law state that
instead of a joint tenancy, a different relationship
exists, one of "tenants in common." The difference is
significant: transfers between tenants in common are always
subject to reassessment, even in the event of death.
Proposed Law
Assembly Bill 1700 exempts from change of ownership
transfers between two tenants in common beginning on
January 1, 2013, when one of the owners dies and:
The co-owners together own 100% of the property in
joint tenancy, or as tenants in common,
As a result of the death of one co-owner, the
surviving owner holds 100% interest in the property,
Both tenants were co-owners of record and
continuously resided at the property for the one-year
period prior to the death,
The property was the principal place of residence
for both co-owners immediately prior to the death, and
The surviving tenant signs an affidavit under
penalty of perjury certifying that the co-owners
continuously resided at the property for the one-year
period prior to the death.
The transfer takes place upon death of the co-owner
pursuant to a will or trust, intestate succession, or by
operation of law. The measure specifies that its exclusion
shall not apply to any transfer for which a separate
exclusion applies, and provides definitions for "cotenancy
interest" and "principal residence."
AB 1700 - 4/17/12 -- Page 3
State Revenue Impact
According to BOE, AB 1700 results in property tax revenue
losses of $108,000.
Comments
1. Purpose of the bill . According to the author, "AB 1700
protects surviving co-owners from the financial hardship of
property reassessment when a loved one passes away. People
who live and own a home together and are unmarried, whether
by choice or because of the law, should be treated equally
to married couples."
2. Follow the rules . While AB 1700 adds a limited benefit
for specified co-owners, it conflicts with laws and rules
dividing joint tenancy from tenants in common, essentially
combining the two concepts for a specified set of
taxpayers. California's definition of joint tenancy is
found in the laws guiding property ownership found in the
Civil Code, applies only when the four unities and the
right of survivorship exists, and requires that owners must
specify joint tenancy on the recorded documents. AB 1700
applies extends joint tenancy benefits solely to co-owners
who either didn't create one, or who are deemed to be
tenants in common because they have unequal ownership
shares. Governor Arnold Schwarzenegger vetoed a previous
bill, SB 153 (Migden, 2008) for this reason, stating:
To the Members of the California State Senate:
I am returning Senate Bill 153 without my signature.
This bill would exempt real property from reassessment
due to change
of ownership when one co-owner dies, leaving his or
her interest in
the property to the surviving co-owner.
Existing law already provides that real property
transferred between
spouses and registered domestic partners, or between
parents,
grandparents, and children, is exempt from
reassessment. Further,
AB 1700 - 4/17/12 -- Page 4
co-owners not covered by any of these exemptions have
the option of
changing a real property title to a joint tenancy,
thus ensuring that
a reassessment does not occur upon the death of one
joint tenant.
Given these exemptions and options provided under
existing law, this
bill is not necessary.
For these reasons, I am returning this bill without my
signature.
Sincerely,
Arnold Schwarzenegger
The Committee may wish to consider whether the bill's
benefits are worth departing from long-standing rules of
property ownership, and whether the bill is necessary given
that the benefit is currently already available to many of
the taxpayers it affects.
3. Yes we can . In 2005, three County Assessors sued BOE
asserting that Rule 462.240(k) which provides an exclusion
from the definition of change of ownership for property
transfers between registered domestic partners is
unauthorized by the Constitution in Strong v. Board of
Equalization (Case CO52818/Sup Ct. 05AS01701). The
Assessors argued that neither BOE nor the Legislature has
the authority to create exclusions beyond those listed in
the Constitution. BOE responded that because the
Constitution is silent on this issue, the definition is
left to the BOE and the Legislature. Sacramento Superior
Court denied the claim in 2003, siding with BOE, and the
California Court of Appeal affirmed the decision. While
the flash point in the lawsuit was BOE's rule that was
later enacted into state law, the case appears to be a
fight between defining the relevant powers delegated by the
people through the Constitution to the Legislature and
administrative agencies. Had the Court found the Assessors
to be correct, all statutory exclusions from change of
ownership would have been rendered invalid.
4. What's going on ? According to BOE's analysis, the
California Assessors' Association petitioned BOE to revise
AB 1700 - 4/17/12 -- Page 5
amendments made in 1999 and 2003 to the joint tenancy rule,
noting additional complexities and nuances, and an increase
in inconsistent application of its provisions and
understanding resulting from the rule change. Assessors
argue that problems with trusts being considered a joint
tenant created unanticipated and unintended consequences.
The BOE heard the petition in March and moved the issue
into the interested parties' process.
Assembly Actions
Assembly Revenue and Taxation Committee: 7-1
Assembly Appropriations Committee:12-4
Assembly Floor: 48-23
Support and Opposition (06/14/12)
Support : Equality California, Antonio Villaraigosa, Mayor
of the City of Los Angeles, BOE member Betty Yee, Phil
Ting, San Francisco County Assessor-Recorder , Tom
Bordanaro, San Luis Obispo County Assessor, Larry Stone,
Santa Clara County Assessor, California Apartment
Association, California Association of Realtors, Congress
of California Seniors, California National Organization of
Women, Los Angeles Gay and Lesbian Center.
Opposition : Unknown.