According to Assessor Carmen Chu,
estate planning is an “act of love.”
Read on for advice on how to best
set up your family and your estate.
There is no one quite like Carmen Chu in San Francisco. With a wide range of financial experience under her belt, it is no wonder why she is known as “Money Lady” at City Hall. She used to chair the Budget and Finance Committee at the Board of Supervisors, guiding the city through its complicated budget process and setting priorities. As the elected Assessor, she is responsible for the city’s growing property tax base, which generates over $3.3 billion in revenue per year. More recently, Chu joined the Board of the San Francisco Employees’ Retirement System, which oversees $26 billion in pension investments for over 70,000 active and retired employees. She also organizes an annual financial education event—the Family Wealth Forum—to help connect families to estate and financial planners. Today, we’re connecting with Assessor Chu to catch up and catch on to some key tips for managing personal finances.
SF Apartment Magazine: We’ve recently heard some great news from your office, can you tell us more about some of the latest developments?
Assessor Chu: Absolutely. Over the last few years, we have taken a critical look at how we do business with an eye toward reversing a decades-old backlog of assessments to improve customer service. This year, I am thrilled to announce that not only have we met this ambitious goal, but we have also been selected in recognition of this effort to receive the prestigious 2020 Good Government Award!
Called “Goal to Roll,” the initiative provides the office with clear direction and tools to improve productivity and transparency. The results of our effort have been significant to San Francisco and to taxpayers. Over the last several years, our work has led to over a billion dollars in excess funding for city services, including the return of close to $545 million in ERAF funding from the state. And with growth in our property tax base, it has meant that the city has an additional $2.6 billion in bonding capacity to fund our deferred capital maintenance needs, such as repairs to our seawall and public safety facilities. Meanwhile, non-profit partners and affordable housing developers benefit from faster processing of exemption claims, and taxpayers are no longer burdened with multiple years of “catch-up” bills and instead have more certainty and ability to forecast expenses.
SFAM: We are looking forward to attending your annual Family Wealth Forum. Why did you decide to develop this event? What can attendees expect?
Chu: I grew up with incredibly hardworking parents. As immigrants, they came to this country with few resources and even fewer tools to navigate their new environment. That is why doing more to provide access and information is so foundational to my service as a public official. Yet as I continued to meet families across the city, many who were low-income and monolingual, I saw a pattern emerge. The pattern was a gap in understanding our complex taxation system, a lack of trusted resources to take the first step in planning for their families and sometimes an additional financial and language barrier to seeking help. Seeing these needs, I spearheaded the Bay Area’s first Family Wealth Forum (FWF) in 2017. Since then, we have helped over 1,000 families gain access to free counseling and information.
In a nutshell, the Family Wealth Forum serves as a one-stop shop for families with questions around asset building and estate planning. We understand that people come to us with vastly different challenges. Some people want to generally understand what they need to do to plan for themselves and their families, and others have very specific questions about their financial situation. Our FWF is tailored to address both needs by offering multilingual workshops and free pro bono one-on-one counseling with certified financial planners and legal and tax experts. Our next event is scheduled for May 2, 2020 at Balboa High School. Visit sfassessor.org to sign up and reserve a spot.
SFAM: Do you have advice on how to get started with estate planning?
Chu: For so many, not knowing how to climb out of debt or where to start is paralyzing. So, recognizing that you need to take action is the first and hardest part. Just know that there are free and low-cost resources available to help you and that it is never too early to start.
Make some time to take stock of where you are with your finances. Be honest about your goals and problems and be prepared to write it all down. It may be as simple as making a list of your financial questions or putting down on paper what you hope to accomplish. Once you have a sense of the questions you want answered, it begins to narrow down the expertise and help you need to move forward.
For example, I am often approached by seniors who want to pass on their properties to their children to help secure their future. Should they pass on the property now or pass it on upon death? Should they create a trust, file a Transfer on Death Deed or is a will enough? Unfortunately, the answer depends on each person’s goals, assets, relationships and circumstance. The best way to answer that question is to walk through the risks, benefits and consequences of each action so that the individual can make the best decision on how to move forward. That is why I feel so strongly in the benefit of one-on-one counseling services at our Family Wealth Forum. Each person’s story is unique and so might be their answer.
One final point I want to make is that planning, estate planning specifically, truly is an act of love. Planning ahead spells out your wishes clearly and spares your family and your loved ones from having to sort through a lengthy and sometimes contentious probate process while they grieve.
SFAM: What if a family cannot afford to set up a trust? Do they have other options?
Chu: Individuals can create trusts or wills, designate beneficiaries or use various other instruments to help with estate planning. Another tool in that box is a revocable transfer on death (TOD) deed. As of January 1, 2016, California homeowners can keep their homes out of probate by recording a revocable transfer on death (TOD) deed. When AB 139 passed in 2015, the state made the revocable transfer on death deeds legal in California, along with 26 other states in the country. By recording a TOD deed, you can designate who your property passes on to upon death bypassing probate. The steps are straightforward: complete a TOD form, notarize it and record it with the County Recorder’s Office where the property is located.
Remember, you can revoke a TOD deed at any time and when multiple TODs are recorded, the latest recording takes precedence.
Note, it is very important to understand that a TOD is not a trust. It only applies to residential real property for transfer after death. Further, ownership interests are distributed equally among all beneficiaries. Please consider all your options, with the advice of professionals, before choosing the right tool for you and your loved ones.
SFAM: Are there any programs that help families pass on their homes to their children?
Chu: There is a tax benefit program called Parent-Child Transfer Exclusion, also known as the Proposition 58 program. Proposition 58 was passed by California voters in 1986 to allow the property transferred between parents and children to avoid reassessment if certain conditions are met.
Remember, property tax in California is governed by State law Proposition 13 (1978). Under Proposition 13, the taxable value of a property may only increase by a maximum of 2% per year regardless of its market value growth. The exception is when there is a change in ownership or new construction activities, in which case all or a portion of the property would be reassessed to current market value.
The way Proposition 58 works is that the change in ownership to your child may be excluded from reassessment allowing you to pass on your lower taxable value to your child. A similar program called Proposition 193 exists, which provides tax exclusion for property transferring from grandparents to grandchildren when a child has predeceased the parent. Remember, Proposition 58 and 193 deal specifically with property tax only. Other federal, state or local taxes may apply. You can learn more by visiting https://sfassessor.org/news-information/fact-sheets
SFAM: What other property tax savings tips should we be aware of?
Chu: For New Homeowners—The Homeowner’s Exemption reduces your property taxes by deducting up to $7,000 from your assessed value. In other words, you may save $70-80 dollars in property tax annually. Remember, the tax benefit rolls over automatically every year until you are no longer eligible.
For Seniors—Proposition 60 (1986) may allow owners who are 55 years old or older to transfer the assessed value of their existing home to their new home if both properties are located in the same county and the new property’s value meets certain criteria.
For Owners with Completed Construction—If you just completed a construction project and it includes seismic retrofit, you may want to review the seismic construction exclusion program. The program ensures that your seismic retrofit work is not assessed and added to your tax bill. Just remember to work with your contractor or engineers to keep clear records of the work and costs of the retrofit work and to submit a completed exclusion form to our office within 30 days of completing the construction.
Carmen Chu is the Assessor for the City and County of San Francisco.