Court Opinion

ID: 4652220
Source: CourtListenerOpinion
Date Created: 2021-01-19 18:02:26.176999+00
Date Added: 2024-06-11T08:01:46.219991
License: Public Domain

Filed 1/19/21
                  CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                  SECOND APPELLATE DISTRICT

                            DIVISION SIX

 JOSEPH BOHNETT,                        2d Civ. No. B303520
                                    (Super. Ct. No. 16CV04932)
      Plaintiff and Appellant,        (Santa Barbara County)

 v.

 COUNTY OF SANTA
 BARBARA,

      Defendant and Respondent.

             After the death of both surviving spouses and co-
trustors of a family trust, the trustee certified that their former
residence was transferred to the trustors’ children. Later, one
beneficiary purchased his siblings’ shares in the trust. We
conclude that the purchase by one beneficiary from his siblings
and co-beneficiaries was not a parent-child transfer exempt from
reassessment for property tax purposes.
              Joseph Bohnett (Bohnett) appeals from the judgment
denying him a property tax refund after a court trial. He
contends the home he purchased from his parents’ trust after
their deaths was exempt from reassessment as a transfer
between parent and child. We affirm.
          FACTUAL AND PROCEDURAL BACKGROUND
              In 1999, Bernard C. Wehe and Sheila F. Wehe
created the Wehe Family Trust (“the trust”) and recorded a grant
deed transferring their home (“the property”) to themselves as
trustees. The trust was revocable during their lifetimes and
became irrevocable upon the death of the surviving spouse. The
trust provided that after the death of the surviving spouse, the
estate (other than furniture, furnishings, and personal effects)
“shall be distributed in equal shares” to Sheila Wehe’s thirteen
children, including Bohnett.
              The trustee was empowered “to partition, allot and
distribute the trust estate, in undivided interests or in kind, or
partly in money and partly in kind . . . and to sell such property
as the Trustee may deem necessary to make such division or
distribution. The Trustee is also authorized to distribute a
disproportionate share of any asset to a beneficiary entitled to
receive a distribution, provided that the fair market value of all
the assets distributed to such beneficiary is equal to the fair
market value of the proportionate interest such beneficiary is
entitled to receive in all of the assets then available for
distribution.”
              Sheila Wehe died in 2003. Bernard Wehe died in
September 2008. The thirteen siblings “could not decide ‘what to
do,’” so the property was rented out, with all siblings entitled to
share the rental receipts. The rent was deposited into the trust’s
bank account.
              In January 2012, the successor trustee filed a Claim
for Reassessment Exclusion for Transfer Between Parent and
Child (first Proposition 58 claim). The successor trustee signed it
under penalty of perjury. It listed Sheila and Bernard Wehe as

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transferors, her thirteen children as transferees, and the date of
Bernard Wehe’s death as the date of transfer. The County
allowed the claim.
             On May 16, 2013, a grant deed was recorded
transferring the property from the successor trustee to Bohnett
and his wife (the Bohnetts). A Preliminary Change of Ownership
Report signed by the Bohnetts listed the trust as the
seller/transferor, stated that the purchase was from a family
member and was a transfer between parent(s) and child(ren), and
listed the sale price as $1,030,000. A deed of trust secured a
$417,000 loan to the Bohnetts from Parkside Lending, LLC, to
purchase the property. The trustee distributed the purchase
money in equal shares to the thirteen siblings, including Bohnett.
             On May 16, 2013, a second Claim for Reassessment
Exclusion for Transfer Between Parent and Child (second
Proposition 58 claim) was filed. It was signed by the successor
trustee and the Bohnetts, listed Sheila and Bernard Wehe as
transferors, the Bohnetts as transferees, and left blank the date
of purchase or transfer. The County found that on May 16, 2013,
there was a 92.3 percent (i.e., twelve-thirteenths) change in
ownership. The County reassessed the property from a previous
value of $157,731 to $962,873 for 2012/2013, and $963,114 for
2013/2014.
             Bohnett filed an Application for Changed Assessment
for each of the two tax years. After a hearing, the County’s
Assessment Appeals Board denied the applications. Bohnett
then filed a complaint seeking a refund of taxes, claiming that
the County should have allowed exclusion from reassessment as
a transfer between parent and child. Following a court trial, the
court entered final judgment in favor of the County.

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                            DISCUSSION
             Bohnett contends the property was exempt from
reassessment as a sale or transfer from parent to child. We
disagree.
             We review de novo whether a change of ownership
has occurred triggering reassessment for property taxes. (Empire
Properties v. County of Los Angeles (1996) 44 Cal.App.4th 781,
785 (Empire Properties).)
             Proposition 13, approved by the voters on June 6,
1978, provides that the tax on real property shall be based on
“the appraised value of real property when purchased, newly
constructed, or a change in ownership has occurred.” (Cal.
Const., art. XIIIA, § 2, subd. (a).) An exception for parent-child
transfers was added by Proposition 58, approved by the voters on
November 4, 1986. It provides, “the terms ‘purchased’ and
‘change in ownership’ do not include the purchase or transfer of
the principal residence of the transferor in the case of a purchase
or transfer between parents and their children.” (Cal. Const., art.
XIIIA, § 2, subd. (h)(1).)
             Proposition 58 is construed in Revenue and Taxation
Code section 63.1. It provides that for purposes of the exemption,
“children” includes a stepchild, son-in-law, or daughter-in-law.
(Rev. & Tax. Code, § 63.1, subd. (c)(3)(B) & (C).) The statutory
scheme “shall be liberally construed in order to carry out the
intent of Proposition 58 . . . to exclude from change in ownership
purchases or transfers between parents and their children
described therein.” (Stats. 1987, ch. 48, § 2.)
             As a “general principle[,] . . . transfers by reason of
death occur at the time of death.” (Rev. & Tax. Code, § 63.1,
subd. (g).) A transfer includes “transfer of the present beneficial

                                 4
ownership of property . . . through the medium of an inter vivos
or testamentary trust.” (Rev. & Tax. Code, § 63.1, subd. (c)(9);
see Cal. Code Regs., tit. 18, § 462.001.) A transfer of ownership
occurs when a revocable trust including an interest in real
property that vests in persons other than the trustor or their
spouse becomes irrevocable. (Rev. & Tax. Code, § 61, subd. (h);
Cal. Code Regs., tit. 18, §§ 462.160, subd. (b)(2), 462.260, subd.
(d)(1).) “With the creation of an irrevocable trust, trust
beneficiaries acquire a vested and present beneficial interest in
the trust property.” (Empire Properties, supra, 44 Cal.App.4th at
p. 787.) Thus, beneficial ownership of the property was
transferred to the thirteen children when Bernard Wehe died and
the trust became irrevocable. (Steinhart v. County of Los Angeles
(2010) 47 Cal.4th 1298, 1320 (Steinhart).)
              The death of Bernard Wehe thus resulted in the
transfer of “the property’s primary economic value” to the
thirteen children. (Reilly v. City and County of San Francisco
(2006) 142 Cal.App.4th 480, 485 (Reilly).) The parties recognized
and ratified this transfer when the trustee filed the first
Proposition 58 claim listing the thirteen children as the
transferees and owners of the property. The change in ownership
occurred then, as certified in the first Proposition 58 claim, not
when “a deed [was subsequently] recorded transferring title out
of the trust,” and not when possession was transferred. (Id. at
pp. 490, 492, 495.) While the trustee held “bare legal title,” the
beneficiaries held equitable title. (Id. at p. 489; Steinhart, supra,
47 Cal.4th at p. 1320.) “For purposes of determining change in
ownership, the relevant inquiry is who has the beneficial or
equitable ownership of the property, not who holds legal title.”
(Reilly, at p. 489.)

                                 5
             Bohnett later purchased the interests of his siblings.
This constituted a sibling-to-sibling sale rather than a sale or
transfer from parent to child. The fact that Bohnett received title
from the trustee does not negate the earlier transfer of the
equitable interest in the property to the thirteen children.
“[S]uccession of beneficiaries during the term of a trust
constitutes a change in ownership except to the extent an
exclusion from change in ownership applies.” (Reilly, supra, 142
Cal.App.4th at p. 490, fn. 6.) The transfer to the thirteen
children was excluded from reassessment, but the subsequent
transfer to Bohnett was not.
             For purposes of property tax assessment two
transfers of ownership occurred here: an exempt transfer in 2008
to the thirteen children (as confirmed by the first Proposition 58
claim), and a non-exempt transfer in 2013 when Bohnett
purchased his siblings’ shares. (Phelps v. Orange County
Assessment Appeals Board No. 1 (2010) 187 Cal.App.4th 653,
666.) In Phelps, when the trustor died, beneficiaries including
Wilson received the right to the income from real property held
by the trust. When Wilson died, the income passed to his
children. The court rejected the argument that only a single
transfer had occurred because there were two transfers—one on
the death of the trustor and the second on the death of Wilson.
“Proposition 13 tracks real ownership of real property, which
Steinhart determined follows the equitable estate.” (Ibid.)
             The trustee here had the authority to distribute
property “in divided or undivided interests and to adjust
resulting differences in valuation.” (Prob. Code, § 16246.) The
trust authorized the trustee to partition the property, to
distribute disproportionate shares of an asset, and to sell

                                 6
property as necessary to distribute the estate. The trustee also
had the power to encumber trust property (Prob. Code, § 16228)
but did not do so. Instead, Bohnett obtained a loan and used it as
part of the funds he provided to buy out the interests of his
twelve siblings.
             The transfers here do not constitute a “step
transaction,” which “treats a series of nominally separate
transactional ‘steps’ as a single transaction if the steps are, in
substance, interdependent and focused toward a particular
result.” (Penner v. County of Santa Barbara (1995) 37
Cal.App.4th 1672, 1679.) In Penner, we held that a transfer from
a mother to a limited partnership owned by her and her children
was not an exempt parent-child transfer. Although she “could
have avoided a reassessment if she had transferred the property
to herself and her children and then to the partnership,” the step
transaction doctrine “does not . . . allow a taxpayer to invent
steps that never existed.” (Id. at pp. 1678-1679.) As in Penner,
Bohnett “‘must accept the tax consequences of [his] choice
whether contemplated or not, [citations] and may not enjoy the
benefit of some other route [he] might have chosen to follow but
did not.” (Id. at p. 1679.)
             Bohnett relies on interpretations of the Board of
Equalization (BOE) to support his contention that his purchase
was an exempt transfer. The BOE is empowered to “[p]rescribe
rules and regulations to govern . . . assessors when assessing”
and to “[p]repare and issue instructions to assessors . . . in the
assessment of property for the purposes of taxation.” (Gov. Code,
§ 15606, subds. (c) & (e).) The BOE’s interpretations of the law
are not binding on the court. But because the BOE “undoubtedly
has expertise in property tax matters,” its interpretations are

                                7
entitled to deference, even if “embodied only in an informal
advice letter to the county assessors.” (Holland v. Assessment
Appeals Board No. 1 (2014) 58 Cal.4th 482, 494.)
             The BOE’s interpretations do not support an
exemption here. Bohnett discusses Example 12-3 of the
Assessors’ Handbook. (Bd. of Equalization, Assessors’ Handbook
(Sept. 2010) § 401, ch. 3, p. 89.) In that example, the trustor
leaves her two children her home and an equivalent amount in
securities. The trustee distributes to each child a 50 percent
interest in the home and 50 percent of the securities.
Alternatively, the trustee gives the home to one child and the
securities to the other. The example concludes, “The home could
qualify for exclusion under either allocation.” But that did not
happen here. The home was transferred to all thirteen children
first, and Bohnett later purchased his siblings’ shares.
             A BOE property tax annotation concludes that “a
loan made by the beneficiary of the real property rather than the
trustee in order to equalize the trust interests would be
considered payment for the other beneficiaries’ interests in the
real property resulting in a transfer between beneficiaries. In
that event, the parent-child exclusion would not apply to the
interests transferred between beneficiaries.” (BOE Property Tax
Annotations, Annotation 625.0235.005, Trusts—Share and Share
Alike (Aug. 4, 2003),
 [as of Jan. 4, 2021], archived at
.) A back-up letter to the
annotation reaches the same conclusion. (Lou Ambrose, Tax
Counsel for Bd. of Equalization, opinion letter to Assessor
Stephen Vagnini, Aug. 4, 2003,

                                8
 [as of
Jan. 4, 2021], archived at .) Here,
Bohnett purchased his siblings’ interests in the property by
paying cash to the trust, including funds he obtained through a
loan from a commercial lender. “The transfer of [the other
siblings’] interest to [Bohnett] in exchange for [Bohnett’s]
payment results in a change in ownership for which the parent-
child exclusion under section 63.1 is not applicable.” (Id. at p. 3.)
              The BOE reached the same conclusion in a letter to
assessors. (BOE Letter to County Assessors No. 2008/018,
Revenue and Taxation Code Section 63.1: Parent-Child and
Grandparent/Grandchild Exclusion Questions and Answers (Feb.
29, 2008), Question 36, pp. 11-12,
 [as of Jan.
4, 2021], archived at .) It states
that a trustee may encumber trust property and distribute the
loan proceeds to equalize the distribution. “However, a loan
cannot be made by any of the beneficiaries of the real property to
the trust in order to equalize the trust interests. Such loan would
be considered payment for the other beneficiaries’ interests in the
real property resulting in a transfer between beneficiaries rather
than a transfer from parent to child, which would disqualify the
transfer from the parent-child exclusion.” The exemption is also
inapplicable here because Bohnett made an outright purchase of
his siblings’ interests.

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                        DISPOSITION
             The judgment is affirmed. Respondent shall recover
its costs on appeal.
             CERTIFIED FOR PUBLICATION.

                                    TANGEMAN, J.

We concur:

             GILBERT, P. J.         PERREN, J.

                               10
                   Colleen K. Sterne, Judge

            Superior Court County of Santa Barbara

               ______________________________

            Delwiche & Von Dollen and Steven C. Von Dollen for
Plaintiff and Appellant.
            Michael C. Ghizzoni, County Counsel, Rana Gerges
Warren, Deputy County Counsel, for Plaintiff and Respondent.