In Steinhart v County of Los Angeles, the California Supreme Court was called upon to address whether a statute enacted to implement Article XIII A of the California Constitution (commonly called “Proposition 13”) is consistent with the intent of the article. Section 2 of Article XIII A provides that real property can be re-appraised for purposes of the property tax only following new construction or a “change in ownership.” To implement Proposition 13, the legislature enacted a number of statutes including Revenue and Taxation Code Section 61, which provides that a change in ownership occurs when any interest in real property vests in persons other than the trustor when a revocable trust becomes irrevocable.
Esther Helfrick established a revocable living trust and transferred her home to the trust. Upon her death in 2001, the trust became irrevocable. Under the terms of the trust, one of her sister’s had the right to occupy the house for her lifetime after which the house was to be sold and the proceeds distributed to Esther Helfrick’s living siblings and their issue. The County Assessor for Los Angles County re-assessed the house for property tax purposes upon Esther’s death and its valuation was increased from $96,638 to $499,000. Esther’s sister paid the increased property tax bill and filed a claim for refund on the basis that Esther’s death did not cause a change in ownership with respect to the home. The claim was denied and the litigation began.
When the case reached the California Supreme Court, the Court actually held against Esther’s sister on the basis that she did not first exhaust her administrative remedies by appealing to the Assessment Appeals Board before she filed her refund claim. However, because of the importance of the issue, the Court also addressed the change in ownership question on its merits. On that issue, the Court held that the portion of Section 61 which provides a change in ownership occurs when a revocable trust becomes irrevocable is consistent with the intent of Proposition 13.