BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 909 |Hearing |4/6/16 |
| | |Date: | |
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|Author: |Beall |Tax Levy: |No |
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|Version: |3/29/16 Amended |Fiscal: |Yes |
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|Consultant|Grinnell |
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Property tax postponement: special needs trust claimants
Allows the Controller to accept applications for property tax
postponement for beneficiaries of special needs trusts.
Background
The Senior Citizens and Disabled Citizens Property Tax
Postponement Law (PTP) allows the State Controller to loan funds
to pay property taxes to county tax collectors on behalf of
individuals over the age of 62 or disabled persons with less
than $39,000 in income per year. The Controller secures
repayment by recording a lien against the claimant's property,
which is satisfied when the home is sold or refinanced. As
liens are repaid, revenue flows back to the Controller, who in
turn uses these funds to pay property taxes for new applicants.
Loans do not become due and payable if the claimant or the
claimant's spouse continues to occupy the home. However, the
Controller's lien is only paid off when proceeds remain after
previously filed liens have been satisfied; property tax liens
filed by county tax collectors have "super priority" status, and
therefore must be satisfied before all others regardless of when
they're filed.
In 2009, the Legislature prohibited persons from filing new
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claims for property tax postponement, and the Controller from
accepting applications, largely due to budgetary constraints and
less funds flowing back to the Controller as a result of
diminishing sales prices (SBx3 8, Ducheny, 2009). However, the
Legislature resuscitated the program in 2014 by removing SBx3
8's prohibition, albeit with tightened eligibility criteria, and
a requirement for the Controller to transfer to the General Fund
repayments received above a $20 million total (AB 2231, Gordon,
2014). The Controller states that she will begin accepting PTP
applications under the reconstituted program on November 1st of
this year.
PTP will only loan funds to claimants to pay property taxes for
their principal place of residence, and any land reasonably
necessary for the dwelling to be used as a home, so long as it's
owned by the claimant, the claimant and spouse, the claimant and
another individual eligible for the program, or specified
members of the claimant's family. Without a demonstrable
ownership interest in the property, the Controller won't accept
a PTP application. Additionally, the law charges the Controller
with determining that the state's interest is adequately
protected for every PTP loan. Current law defines ownership as:
The interest of a vendee in possession under a land sale
contract, provided that it's recorded,
The interest of a holder of a life estate, but not
remainder or reversionary interests,
The interest of a joint tenant or tenant in common in
the residential dwelling,
The interest of a tenant in cooperative housing, or
The interest of a residential dwelling in which title is
held in trust, using the definition of trust used in
Revenue and Taxation Code §62(d).
Special needs trusts (SNTs) assist beneficiaries who are usually
disabled. While SNTs resemble typical trusts in many ways, they
differ in key respects. SNTs can be created by individual
beneficiaries, family members, attorneys, or county public
guardians or conservators to fund services for the beneficiary
while maintaining Medi-Cal and Supplemental Security Income,
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which can apply asset or income tests that disqualify the
beneficiary. SNTs also allow trustees to manage the
beneficiary's affairs, and ensure they receive adequate
services. However, current law precludes the Controller from
accepting PTP applications from many SNTs, as the section
referenced in PTP law only accounts for ownership interests held
in trusts which are either revocable, or where the transferor of
assets into the trust is also its beneficiary, which isn't the
case for many SNTs. Santa Clara County wants to clarify that
SNT beneficiaries are eligible for PTP.
Proposed Law
Senate Bill 909 adds the interest of a beneficiary of a special
needs trust to the list of ownership interests necessary for the
Controller to accept a claim for the PTP program.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author: "a special
needs trust is designed for beneficiaries who are disabled,
either physically or mentally. Some special needs trust
beneficiaries have financial difficulty in meeting their
property tax obligations and meet the financial qualifications
for the Property Tax Postponement Program. However, because the
trust itself, rather than the individual, is considered to be
the technical owner of the residence held in trust, special
needs trust beneficiaries are considered ineligible for the
program. Thus, under current law, some special needs trust
beneficiaries who have financial difficulty meeting their tax
obligations may be forced to move from their homes because they
are not able to defer their tax burden. SB 909 would clarify
that beneficiaries of special needs trusts who meet all other
criteria for participation are eligible to apply for the
property tax postponement program. This bill will allow
low-income, disabled individuals to stay in their own home
regardless of whether their homes are held in trust."
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2. Silent partner . Ensuring that beneficiaries of SNTs are
eligible for PTP is legally difficult because no clear,
comprehensive, definition currently exists. To accomplish the
goal, SB 909 adds a beneficiary's interests in a SNT in which
title is held in trust to the list of ownership interests which
qualifies for PTP using the same code section which makes other
interests in trusts eligible. The Controller states that this
approach makes SNTs formed by public guardians eligible for PTP
in most cases because §2111 of the Probate Code states that a
transaction made by a guardian on behalf of a ward (or by a
conservator on behalf of a conservatee) in accordance with an
order directing the transaction has the same effect as if the
ward had made the transaction while having legal capacity to do
so. The Controller indicates that she will determine
eligibility for PTP for SNTs not formed by public guardians and
conservators on a case-by-case basis.
Support and
Opposition (4/1/16)
Support : Santa Clara County Board of Supervisors.
Opposition : Unknown.
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