BILL ANALYSIS Ó SB 909 Page 1 Date of Hearing: June 20, 2016 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Sebastian Ridley-Thomas, Chair SB 909 (Beall) - As Amended March 29, 2016 Majority vote. Fiscal committee. SENATE VOTE: 39-0 SUBJECT: Property tax postponement: special needs trust claimants SUMMARY: Provides that a beneficiary of a special needs trust may qualify for the Senior Citizens and Disabled Citizens Property Tax Postponement (PTP) Program. Specifically, this bill: 1)Adds, to the list of ownership interests in a residential dwelling qualifying for the PTP Program, the interest of a beneficiary of a special needs trust, in which title is held in trust, as described in Revenue and Taxation Code (R&TC) Section 62(d). SB 909 Page 2 2)Imposes a state-mandated local program and provides that no reimbursement is required because the only costs that may be incurred by a local agency or school district will be incurred by creating, eliminating, changing the penalty of, or changing the definition of a crime, as specified. EXISTING LAW: 1)Establishes the PTP Program, which allows the State Controller to loan funds to county tax collectors to pay property taxes on behalf of individuals over the age of 62 or disabled persons with less than $39,000 in annual income. 2)Requires the State Controller to secure repayment of any loan by recording a lien against the claimant's property, which is satisfied when the home is sold or refinanced. 3)Restricts the PTP Program to a claimant's principal place of residence, and any land reasonably necessary for the dwelling to be used as a home, so long as it is owned by the claimant, the claimant and spouse, the claimant and another individual eligible for the Program, or members of the claimant's family, as specified. The claimant must be able to demonstrate an ownership interest in the property. 4)Defines "owned" in reference to ownership interests in residential dwellings to include: a) The interest of a vendee in possession under a land sale contract, provided that it is recorded; b) The interest of a holder of a life estate, but not SB 909 Page 3 remainder or reversionary interests; c) The interest of a joint tenant or tenant in common in the residential dwelling; d) The interest of a tenant in cooperative housing; or, e) The interest of a residential dwelling in which title is held in trust, as described in R&TC Section 62(d). 5)Requires, in reference to included ownership interests in residential dwellings, the State Controller to determine that the state's interest is adequately protected. FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs. COMMENTS: 1)Author's Statement : The author has provided the following statement in support of this bill: 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. SB 909 Page 4 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 or 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. 2)Arguments in Support : Proponents of this bill state the following: This bill will clarify the law to allow low-income persons with disabilities to participate in the Senior Citizens and Disabled Citizens Property Tax Postponement Law, regardless of whether their homes are held in special needs trusts. Preventing these Californians from staying in their homes simply because their homes are in trusts, as one interpretation of current law would require, may be the ultimate unintended consequence of all time. 3)Property Tax Postponement Program : The PTP Program was originally enacted by a constitutional amendment (California Constitution, Article XIII, Section 8.5) in 1977, in response to concerns that senior homeowners on fixed incomes may lose their homes because of the inability to pay rising property tax bills. The PTP Program was subsequently amended by voters in 1984 to extend the program to eligible blind and disabled persons, regardless of age. In 2009, the Legislature indefinitely suspended the PTP SB 909 Page 5 Program [SBx3 8 (Ducheny), Chapter 4, Statutes of 2009], thereby prohibiting persons from filing new claims and the State Controller from accepting applications in light of diminishing home sales prices, which resulted in less loan funds being paid back to the State Controller, and General Fund budgetary constraints. The PTP Program was reinstated in 2014 with additional provisions to help control costs (AB 2231 (Gordon), Chapter 703, Statutes of 2014), and the State Controller is slated to begin accepting new PTP Program applications later this year. 4)Special Needs Trusts : A special needs trust is a specific type of trust that can be created by individual beneficiaries, family members, attorneys, or county public guardians or conservators in support of a person with a disability, while simultaneously allowing that person to remain eligible for public benefits. Many government benefit programs, such as Medi-Cal and Supplemental Security Income, have asset or income restrictions that may otherwise disqualify a beneficiary from receiving services, and assets in a special needs trust do not count towards those restrictions. A special needs trust allows the beneficiary to remain eligible for life-supporting public benefits, while the trustee manages the beneficiary's assets held for other important matters such as education. However, there is no clear, comprehensive definition of a special needs trust in state law. Current law allows the State Controller to accept PTP Program applications from ownership interests held in trusts if the trust is revocable, or if the transferor of assets into the trust is also its beneficiary. However, special needs trusts do not always satisfy these criteria. This bill would add the interest of a beneficiary of a special needs trust to the list of ownership interests the State Controller is allowed to accept for the PTP Program, but again references R&TC Section 62(d), which describes revocable trusts or trusts in which the transferor of assets into the trust is also its beneficiary. SB 909 Page 6 As such, it is not clear what the practical effect of this bill may be, as the State Controller already has discretion to determine PTP Program eligibility for certain special needs trusts on a case-by-case basis. Nonetheless, if the purpose of this bill is to clarify that beneficiaries of special needs trusts who meet all other criteria for PTP Program participation are eligible program applicants, it may be preferable to restructure this provision to avoid duplicative and potentially confusing language, as follows: "?(4) the interest , including the interest of a beneficiary of a special needs trust, in the residential dwelling in which the title is held in trust, as described in subdivision (d) of Section 62,and (5) the interest of a beneficiary of a special needs trust, in which title is held in trust, as described in subdivision (d) of Section 62,provided that the Controller determines that the state's interest is adequately protected." 5)Double Referral : This bill was double-referred to the Assembly Committee on Local Government, which passed this bill on June 15, 2016, on a vote of 9-0. For additional discussion of local government issues, please refer to the analysis prepared by the Assembly Committee on Local Government. REGISTERED SUPPORT / OPPOSITION: Support County of Santa Clara (Sponsor) SB 909 Page 7 California State Association of Public Administrators, Public Guardians, and Public Conservators The Arc and United Cerebral Palsy California Collaboration Opposition None on file Analysis Prepared by:Irene Ho / REV. & TAX. / (916) 319-2098