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A bill is currently being debated in the California Senate that would significantly increase the cost to record a real estate document.
Basically any document related to real estate must be recorded with the applicable county recorder's office. For example, a deed of trust involving a home in Gilroy would need to be recorded with the Santa Clara County Recorder's Office. Since thousands of documents are recorded each day in California, California is a large state geographically and very populated, the revenue that can be generated by a recording fee increase is immense. In particular, analysis by the California Senate Transportation and Housing Committee stated that between $300M and $750M could be generated each year if the bill passes. The range is due to the fact that in some years more documents are recorded than in others.
SB-391 (Saulnier) would add a $75 fee to every recordable real estate instrument. These funds would be allocated to principally support affordable housing programs for modest income individuals. The fee would apply to the following instruments: deed, grant deed, trustee’s deed, deed of trust, reconveyance, quit
claim deed, fictitious deed of trust, assignment of deed of trust,
request for notice of default, abstract of judgment, subordination
agreement, declaration of homestead, abandonment of homestead, notice of
default, release or discharge, easement, notice of trustee sale, notice
of completion, UCC
financing statement, mechanic’s lien, maps, and covenants,
conditions, and restriction.
The typical cost to record a 1-page document is between $10-25. The reason for the variance is that each county sets its own recording fee. Santa Clara County charges $25 for the first page to record a document whereas Modoc County charges $10. Yes Modoc County is a California county. This bill would significantly increase the cost to record a document. For example, if SB-391 passes, to record a 1-page affidavit of death of a joint tenant in Santa Clara County would cost $100 instead of $25.
Still, the bill does exempt the $75 fee from documents where the documentary transfer tax is in effect. For example, if a person purchases a home, the $75 fee would not apply.
The bill's author previously attempted to pass a similar bill in 2012 but fell 2 votes shy on the Senate floor. Since the bill amounts to a tax increase, at least a 2/3 vote is required in both chambers of the California legislature.
To be clear, this is just proposed bill. It is not California law unless it passes both chambers of the California legislature, Senate and Assembly, and signed by Gov. Brown.
I express no approval or disapproval of the proposed bill whatsoever. This a legal blog, not a political blog.
A common question from a homeowner who is interested in writing a revocable trust, is what are the costs and obligations, other than attorney fees, involved with the process? The following are
some topics raised by that question.
Property taxes
Whenever there is a “change in ownership”, the property taxes for that particular parcel of land will be re-assessed to its current the fair market value. Rev & T C §60. For example, if Bobby purchased from Sam a home for $500,000 in San Jose in 2007, Bobby’s property taxes would be based off of that $500,000 figure. Now assume that Bobby had purchased the property for $40,000 from Sam in 1979. In 2011, Bobby decides he wants to write a trust to avoid probate. However, Bobby is hesitant to write a trust and fund it with his home. He is worried that the Santa Clara County Assessor will try to re-assess his property taxes to its 2011 fair market value and in turn raise his property taxes. Fortunately for Bobby, California law is very specific in saying that a home transfer to a revocable trust is not considered a “change in ownership.” Rev & T C § 62(d)(2). Thus, the fear of re-assessment for property taxes when funding a revocable trust with a home is unwarranted.
Documentary transfer tax
In the case of a real property transaction, the transfer of a home from seller to buyer for example, there is the inclusion of a fee known as the documentary transfer tax. Rev & T C § 11911. The deed, the document which denotes the identity of the seller and buyer, must show the amount of the documentary transfer tax due. Rev & T C §11932. For reference, the tax rate is $0.55 per $500 of value (0.11 percent) sold. Rev & T C §11911.
Since a trust needs to be properly funded, whereby a trust transfer deed will need to be drafted, the documentary transfer tax becomes an issue, albeit only superficially. The reason for the superficiality is that California law states that a transfer of a home to a revocable trust is exempt from the fee imposed by the documentary transfer tax because there is no consideration tendered. Rev & T C §11930. Therefore, the documentary transfer tax is not an issue when a homeowner funds his or her trust when their home.
Income tax returns
Most revocable trusts are known as “Grantor Trusts” in IRS language. IRC §§671, 676. This means during the time that the trust is revocable, the settlor, the person who wrote the revocable
trust, is not required to file an additional tax return for the revocable trust. Hence, the creation of a revocable trust will not result in the settlor having to file more paperwork with the IRS and
California Franchise Tax Board.
Gift taxes
The inapplicability of gift tax in regards to creating a revocable trust bears mentioning to erase any confusion. There is no gift tax if you transfer property from yourself to a revocable trust that you created. A revocable trust is not a separate legal entity. Goldberg v. Frye (1990) 217 CA3d 1258. Hence, if you transfer property to your revocable trust it would be as if you handed an item from
your left-hand to your right-hand. Thus, there is no gift tax in the revocable trust creation equation because there is no third-party involved.
Recording Fees
Once a person has executed a trust transfer deed, it needs to be recorded in order to give proper notice to third-parties that the buyer is now the owner of the property. However, whereas there are exemptions with the previously mentioned fees and taxes, there is no such exemption for recording a deed. Each county has their own schedule of fees to record a document. For example, to record a deed in Santa Clara County, it is $15 for the first page and $3 for each additional page. The deed may be presented personally to the clerk-recorder or you can mail it in.
Notary Fees
It should be mentioned that a notarized signature is not required to execute a revocable trust. In that, there is no California law that says that a signature has to be notarized when executing a revocable trust. However, out of custom, a signature is notarized when executing a revocable trust.
A California notary may charge up $10 per signature when executing a revocable trust. Govt C § 8211. Often times, the attorney drafting the trust doubles as a notary and the fee is waived.
The process for transferring legal title to real property in California is actually quite simple.
It merely requires the filing of two documents, a deed and a preliminary change in ownership (“PCOR”), with the appropriate County Recorder’s and County Assessor’s Office.
The deed needs to be recorded in the county in which the property sits. For instance, if the property is in Davis, CA the deed would need to be filed with the Yolo County Recorder’s Office, or if the property was located in Scotts Valley, CA the deed would need to be filed with the Santa Cruz County Recorder’s Office. My personal experience with the Santa Cruz County Recorder’s Office has been quite pleasant. The clerks there have been very helpful. As for the PCOR, this is filed simultaneously with the deed. The County Recorder will forward the PCOR to the County Assessor.
The following information must be included on the deed:
1. The name of the grantor (the seller essentially). CC §1096,
2. The name of grantee (the buyer essentially). CC § 685.
3. A legal description of the property.
4. The signature of the grantor. CC § 1091.
5. The name of the person requesting recordation. Govt C §27361.6.
6. The name and address to which further tax statements may be mailed. Govt C §27321.5.
7. The amount of the documentary transfer tax due. Rev & T C §11932.
Thought not statutorily required, the assessor’s parcel number should be included on the deed nonetheless. In light of these requirements, deeds are typically only a few pages long.
The other part of the equation is the completion of a preliminary change in ownership (“PCOR”).
California law says that a PCOR must be filed whenever there is a change in ownership of real property. Rev & T C §480(a). The reason for the PCOR is to inform the county assessor whether a change of ownership has occurred that will trigger property tax reassessment (See Prop 13). The PCOR is a 2 page form that asks questions pertaining to the identity of the new owners, the location of the property, the sale cost, etc. Each county may have its own PCOR form but the general format is modeled after a template drafted by the State Board of Equalization.
A key distinction between these two documents is the fact that a deed is subject to public inspection whereas the PCOR is not. For example, if I wanted to know who owned the home across the street from me, I could ask my real estate agent to pull the title for that home. However, I could not ask them to obtain the filed PCOR for that property.
For illustrative purposes, assume that Samantha Seller sold her Malibu dream home to Brooke Buyer for $100, 000. In order for Samantha to transfer ownership of the home to Brooke she would need to execute a deed, and in turn, Brooke would need to file a PCOR with the Los Angeles County Recorder’s Office so as to inform them that the house should be re-assessed for property tax purposes.
In a California home purchase, there is the inclusion of a fee in the transaction known as the documentary transfer tax. Rev & T C §11911.
The deed, the document which denotes the identity of the seller and buyer, must show the amount of the documentary transfer tax due. Rev & T C §11932. The tax rate is $0.55 per $500 of value (0.11 percent) sold. Rev & T C §11911.
For example, if a house was sold for $500,000, then the documentary transfer tax would be $550. Hence, the documentary transfer tax is not prohibitively expensive. Although in some locations where the city documentary transfer tax is quite high, such as Berkeley and Oakland, the tax can be burdensome.
Each county or city, or both, may impose a documentary transfer tax. Rev & T C §11911. For example, the County of San Mateo imposes a documentary transfer tax as does the City of San Mateo. This means that a home sale in the City of San Mateo would result in both a city and county documentary transfer tax.
In terms of payment of the tax, the seller and buyer are responsible for the tax. Rev & T C §11912. However, it is customary for the seller to pay the tax.
The reason why the documentary transfer tax is relevant for estate planning purposes is because it is common for an estate to include a home. Since the transfer of a home requires the execution of a deed, the documentary transfer tax becomes an issue, albeit only superficially.
For instance, if a person creates a trust they would need to execute a deed transferring ownership of the home from themself into the trust. However, California law states that a transfer of a home to a living trust is exempt from the fee imposed by the documentary transfer tax. Rev & T C §11930. Similarly, California law states that if a daughter inherits a home from her mother through probate, the deed transferring ownership of the home from mother to daughter would not require a documentary transfer tax payment because the transfer was the result of inheritance not a sale. Rev & T C §11930.
