California Trust Case: Steinhart v. County of Los Angeles, 2010 Cal. LEXIS 869 (Feb. 4, 2010)

February 17, 2010

This case examines an ad valorem tax on real property that is applied upon a change in ownership. Esther Helfrick established a revocable trust, made herself trustee and sole beneficiary during her lifetime, and transferred her residence to the trust.

Upon Helfrick’s death on March 21, 2001, the trust became irrevocable and Helfrick’s sister, Lorraine Steinhart, received the right to occupy and use the residence during her lifetime. On Steinhart’s death, the trustee would sell the residence and distribute the proceeds to Helfrick’s then living siblings and the living descendants of any deceased siblings.

After Helfrick’s death, the County of Los Angeles reassessed the residence and sent property tax bills to Steinhart. Steinhart paid the tax bills, but filed a claim with the county auditor seeking a tax refund, asserting that no change in ownership had occurred to trigger reassessment.

The county auditor denied Steinhart’s claims, and Steinhart filed an action against the county, seeking refund of the taxes. The county demurred, stating that Steinhart failed to exhaust her administrative remedies before filing suit, and alternatively, that the Revenue and Taxation Code section 60 defined a change of ownership to include the transfer of a life estate to a non-spouse third party.

The Supreme Court of California examined the procedural issues and held that Steinhart’s claim failed as a matter of law because Steinhart had failed to exhaust her administrative remedies; the county was not estopped from relying on Steinhart’s failure; and no exception was applicable.

Nevertheless, the court elected to address the change in ownership issue. The court recognized that under general principles of trust law, Helfrick’s transfer of the residence to the trust, of which she was the sole present beneficiary and which she held the power to revoke, was not a change of ownership because Helfrick continued to hold the equitable estate or beneficial interest in the property. However, upon Helfrick’s death, the trust became irrevocable and the entire equitable estate in the residence transferred from Helfrick to Steinhart and her siblings.

The court held, based on the statute and accompanying regulations, that whether a change in ownership occurred depended on the interest Helfrick transferred, rather than the interest received by Steinhart, as Steinhart argued. Therefore, a change in ownership occurred within the meaning of the statute because the entire equitable estate in the property was transferred upon Helfrick’s death.

Kelly L. Hellmuth is the principal author of this release.