Joseph Bohnett v. County of Santa Barbara
Case No: 16CV04932
Hearing Date: Mon Oct 07, 2019 1:30
Nature of Proceedings: Hearing on Plaintiff’s Complaint for Refund
Joseph Bohnett v. County of Santa Barbara (Judge Sterne)
Case No. 16CV04932
Hearing Date: October 7, 2019
HEARING: Hearing on Plaintiff’s Complaint for Refund
ATTORNEYS:
For Plaintiff Joseph Bohnett: Steven C. Von Dollen, Delwiche & Von Dollen
For Defendant County of Santa Barbara: Michael C. Ghizzoni, Michael A. Munoz, Rana Gerges Warren, Office of the County Counsel
TENTATIVE RULING:
For the reasons set forth herein, plaintiff’s claims for relief based upon the application of the parent-child exemption are denied. The court finds in favor of defendant County of Santa Barbara and against plaintiff Joseph Bohnett on plaintiff’s complaint. County shall prepare and submit a judgment consistent with this ruling.
Background:
The property at issue in this action is real property located at 3201 Calle Cedro, Santa Barbara (the Property). (Administrative Record [AR], p. 143.)
On November 9, 1999, Bernard C. Wehe and Sheila F. Wehe recorded a grant deed transferring the Property from themselves, individually, to themselves as trustees of the Wehe Family Trust UDT dated November 3, 1999 (the Trust). (AR, p. 143.)
Bernard C. Wehe and Shiela F. Wehe, husband and wife, were both the settlors and original trustees of the Trust. (Trust, § I(A) [AR, p. 146].) The Trust was revocable during the settlors’ lifetimes and became irrevocable upon their deaths. (Trust, § IX [AR, p. 153].) Under the terms of the Trust, when the first settlor died, the trust estate was divided into a Survivor’s Trust and a Decedent’s Trust. (Trust, § V(A) [AR, p. 148].) On the death of the surviving settlor, all of the remaining assets of the Survivor’s Trust are distributed to the trustee of the Decedent’s Trust to be held, administered, and distributed as part of the Decedent’s Trust. (Trust, § VII(B) [AR, p. 151].) Other than personal property, the Decedent’s Trust is to be distributed after the surviving settlor’s death in equal shares to Sheila Wehe’s children. (Trust, § VIII(A)(2) [AR, p. 152].) The Trust identifies thirteen children of Sheila Wehe, including plaintiff Joseph Bohnett. (Trust, § I(B) [AR, p. 146].)
Sheila Wehe died on October 5, 2003 and Bernard C. Wehe died on September 28, 2008. (AR, pp. 160-162.) Upon the death of Bernard C. Wehe, the Trust, by its terms, became irrevocable and Mary Jo Williams became the successor trustee of the Trust. (AR, p. 160.)
On January 11, 2012, Williams filed a Claim for Reassessment Exclusion for Transfer between Parent and Child based upon the transfer from the settlors of the Trust to the 13 children of Sheila Wehe who were the beneficiaries of the Trust. This Claim for Reassessment Exclusion was allowed by defendant County of Santa Barbara (County) on January 19, 2012, retroactively to September 28, 2008.
On May 16, 2013, plaintiff and his wife, Sandy K. Bohnett, (collectively, the Bohnetts) recorded a grant deed transferring the entire title in the Property from Williams, as successor trustee, to the Bohnetts. (AR, p. 167.)
Also on May 16, 2013, Williams filed a second Claim for Reassessment Exclusion for Transfer between Parent and Child based upon the stated transfer from the settlors of the Trust to the Bohnetts. The Bohnetts reported the transfer as a purchase for $1,030,000.00, with a $417,000.00 loan. (AR, p. 115.) The deed of trust securing the loan identified the Bohnetts as borrowers, Parkside Lending, LLC, as the lender, and the secured property as the Property. (AR, pp. 170-171.) On August 2, 2013, County identified a 92.31 percent change in ownership on May 16, 2013. (AR, p. 188.) The 92.31 percent change in ownership reflects the fact that plaintiff’s share as a beneficiary of the Trust did not change.
The County issued a supplemental assessment based upon a 92.31 percent change in ownership as of May 16, 2013. (AR, p. 192.)
On January 16, 2014, plaintiff filed Applications for Changed Assessment Nos. 14-0012 and 14-0013 (Applications). (AR, pp. 1, 3.) The Applications address roll years 2012 and 2013, respectively. (Ibid.)
On February 24, 2016, County’s Assessment Appeals Board (Board) held a hearing on the Applications. (AR, pp. 379-511.) At the hearing, the Board received evidence and heard argument regarding the parties’ positions on the Applications. (Ibid.)
On May 4, 2016, the Board filed its final decision and findings of fact (Decision). (AR, pp. 365-377.) The Decision determined that there was a “change in ownership” of the Property when Bernard Wehe died on September 28, 2008, and the Trust became irrevocable. (AR, p. 373, finding 4.) At that time, the full beneficial interest in the Property transferred to the 13 named residual beneficiaries, including plaintiff, each receiving a 7.69 percent partial interest. (Ibid.) The May 16, 2013, transfer to plaintiff was a sibling-to-sibling transaction that was a change in ownership not eligible for an exclusion from reassessment. (AR, p. 374, finding 9.) The Board therefore denied the Applications. (AR, pp. 374-377, finding 10.)
On November 1, 2016, plaintiff filed his complaint in this action for a refund in property taxes.
On December 5, 2016, County filed its answer to the complaint, admitting and denying the allegations of the complaint, and asserting seven affirmative defenses.
The matter is now before the court for determination based upon the AR and the briefs of the parties.
Analysis:
The dispute between the parties is whether the transaction transferring the Property to plaintiff constituted a “change in ownership” subject to property tax reassessment. The underlying facts of the transaction were found by the Board in its Decision and are not disputed by the parties. The present dispute is solely concerning the legal effect of these facts. The parties agree that what constitutes a “change in ownership” is a question of law and is subject to independent, de novo judicial review. (Shuwa Investments Corp. v. County of Los Angeles (1991) 1 Cal.App.4th 1635, 1644 (Shuwa); Plaintiff’s Brief, p. 4, ¶ 18; County Brief, p. 10.)
“Article XIII A of the California Constitution (Proposition 13) provides that real property shall be reassessed for property tax purposes when a ‘change in ownership’ occurs or the property is ‘newly constructed’ or ‘purchased.’ [Citations.]” (Shuwa, supra, 1 Cal.App.4th at p. 1645; see Cal. Const., art. XIII A, § 2, subd. (a).) Proposition 13 was amended by Proposition 58 on November 4, 1986, which added the parent-child exemption to the Constitution. (Larson v. Duca (1989) 213 Cal.App.3d 324, 328 (Larson)): “For purposes of subdivision (a), 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, as defined by the Legislature ….” (Cal. Const., art. XIII A, § 2, subd. (h)(1).)
The Legislature defined such transfers in Revenue and Taxation Code section 63.1:
“Notwithstanding any other provision of this chapter, a change in ownership shall not include the following purchases or transfers for which a claim is filed pursuant to this section: [¶] (1)(A) The purchase or transfer of real property which is the principal residence of an eligible transferor in the case of a purchase or transfer between parents and their children.” (Rev. & Tax. Code, § 63.1, subd. (a)(1)(A).)
“ ‘Purchase or transfer between parents and their children’ means either a transfer from a parent or parents to a child or children of the parent or parents or a transfer from a child or children to a parent or parents of the child or children. For purposes of this section, the date of any transfer between parents and their children under a will or intestate succession shall be the date of the decedent’s death, if the decedent died on or after November 6, 1986.” (Rev. & Tax. Code, § 63.1, subd. (c)(1).)
“ ‘Transfer’ includes, and is not limited to, any transfer of the present beneficial ownership of property from an eligible transferor to an eligible transferee through the medium of an inter vivos or testamentary trust.” (Rev. & Tax. Code, § 63.1, subd. (c)(9).)
From County’s perspective, the sequence of transactions demonstrates a “change of ownership” requiring reassessment: When Bernard Wehe died on September 28, 2008, the Trust became irrevocable and each of the 13 children became beneficial owners of a 7.69 percent interest in the Property, title to which remained in the Trust. Plaintiff purchased the remaining 92.31 percent interest in the Property beneficially belonging to his 12 siblings by obtaining legal title from the Trust in exchange for payment from plaintiff in part obtained by a bank loan to plaintiff secured by the Property. This transfer was, argues County, a sibling-to-sibling transfer and not a parent-child transfer. Hence, the transferred 92.31 percent interest was not a transfer exempt from reassessment.
From plaintiff’s perspective, the sequence of transactions demonstrates no “change of ownership”: Plaintiff’s parents (an “eligible transferor”) contributed the Property to the Trust, the Trust transferred the Property to plaintiff (“an eligible transferee”) through the medium of an inter vivos trust.
In support of plaintiff’s position, plaintiff first points to examples from the California State Board of Equalization, Assessors’ Handbook (2010) Section 401, Change in Ownership (Assessors’ Handbook). (Note: Excerpts from the Assessors’ Handbook appear in the AR at pages 269-273. The entire Assessors’ Handbook is available from the State Board of Equalization at
Plaintiff cites the following from the Assessors’ Handbook:
“If a trust limits the trustee’s powers and requires the trustee to distribute the trust property on a share-and-share-alike basis, a distribution of real property is considered to be a direct transfer from the trustor to the beneficiaries. For example, if trust assets must be distributed to four children on a share-and-share-alike basis and the real property is distributed to the four children as joint tenants, this transaction would be 100 percent excluded as a parent-child transfer because the percentage of interests transferred equals each child’s proportional interest in the estate.
“On the other hand, if a trust provides for distributions on a share-and-share-alike basis and the trustee’s statutory authority to make non-pro rata distributions is not limited, the trustee may either give the beneficiaries equal ownership in each trust asset (pro rata) or may allocate specific assets to individual beneficiaries (non-pro rata), the value of which do not exceed each beneficiaries’ equal percentage interest in the trust property.
“Example 12-3
“X transfers her home with a fair market value of $500,000 and securities valued at $500,000 to her trust for the benefit of her children B and C, to be distributed on a share-and-share-alike basis.
“The trustee’s authority to make non-pro rata distributions is not limited by the trust. The trustee could make a pro rata distribution by giving B and C each a 50 percent interest in the home and $250,000 in securities. Alternatively, the trustee could make a non-pro rata distribution by giving B the home and C the securities. The home could qualify for exclusion under either allocation.” (Assessors’ Handbook, pp. 88-89.)
“Furthermore, unless prohibited by the trust, a trustee who makes a non-pro rata distribution may encumber the property with a loan prior to distributing the property to one beneficiary. The trustee may then distribute the loan proceeds to the other beneficiaries to equalize the value of the distributions to all of the beneficiaries. However, the trustee must be the party encumbering the property and the trustee may not encumber the property with a loan from the beneficiary who will receive the property. The trustee may obtain a loan secured by the property from a third-party lender, such as a bank, or a beneficiary who will not receive the property as part of the trust distribution.” (Assessors’ Handbook, p. 90.)
Plaintiff also cites to examples provided in advice letters to county assessors from the State Board of Equalization. (AR, pp. 299-326.) Plaintiff points out, consistent with the above quotation from the Assessor’s Handbook, that the State Board of Equalization’s position is that the parent-child exemption may be maintained by use of an equalizing loan and the distribution of encumbered property to one trust beneficiary and loan proceeds to other trust beneficiaries. The principal thrust of plaintiff’s argument is that the transaction should be viewed as equivalent to the equalizing loan transaction stated to be within the parent-child exemption. Central to this argument, plaintiff notes that the Legislature has expressly emphasized liberal construction of the parent-child exemption: “It is the intent of the Legislature that the provisions of Section 63.1 of the Revenue and Taxation Code shall be liberally construed in order to carry out the intent of Proposition 58 on the November 4, 1986, general election ballot to exclude from change in ownership purchases or transfers between parents and their children described therein.” (Stats. 1987, ch. 48, § 2.)
Neither party points to any case law directly addressing the issue presented here. However, some of the case law cited is instructive. In Larson, supra, 213 Cal.App.3d 324, the court addressed the issue of when a “change of ownership” occurred where the subject property was transferred by will from mother to son. (Id. at p. 327.) While expressly limiting the holding of the case to probates involving a decedent who died prior to effectiveness of Proposition 58 but whose property had not yet been ordered distributed, the Larson court nonetheless stated: “The child, while he may acquire bare legal title thereto on his parent’s death, subject to probate administration, does not in such circumstances acquire the full right of possession and beneficial use of the decedent’s real estate, to the exclusion of others, until a transfer of title to him results from the court’s decree of distribution in the parent’s estate. We believe ‘ownership’ of real property, for purposes of section 2 as it exists with the amendment of Proposition 58, continues to mean the right of possession and beneficial use of property as opposed to acquisition only of bare legal title.” (Id. at pp. 333-334.)
In Empire Properties v. County of Los Angeles (1996) 44 Cal.App.4th 781 (Empire Properties), the court addressed the issue of when a “change of ownership” occurred in the trust context. Giving effect to the regulations adopted by the State Board of Equalization, the Empire Properties court stated: “Thus, under the statutory language and regulations interpreting that language the conclusion is inescapable a change in ownership did not occur upon creation of the revocable [trust] in 1975, or when the real property was transferred into the revocable trust. Instead, the change in ownership occurred when the [trust] became irrevocable. The trust became irrevocable upon the death of [the settlor] in October 1987 and at that time the full beneficial interests in the property transferred to his daughters as residual beneficiaries of the trust.” (Id. at pp. 786-787.) “Consequently, the real property was subject to reassessment, unless exempted under the exclusion from reassessment for transfers between parents and their children.” (Id. at pp. 788-789.)
Similarly, the California Supreme Court in Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298 (Steinhart) addressed the issue of whether a transfer constituted a “change in ownership” when the interests that became irrevocable upon the death of the sole settlor was a life estate to one beneficiary with the remainder to other beneficiaries. (Id. at pp. 1318-1319.) The court concluded that a “change of ownership” occurred upon the death of the settlor making the trust irrevocable:
“Upon [the settlor’s] death, the trust became irrevocable and the entire equitable estate in the residence, which [the settlor] had personally held during her lifetime, transferred from [the settlor] to [the life tenant] and her siblings (or their issue) as beneficiaries of the irrevocable trust. [Citation.] It is true that, under the terms of the trust, the beneficial estate in the residence was divided among [the life tenant], who, as life tenant, held the right to immediate possession, and [the life tenant’s] siblings (or their issue), who held only a remainder interest in any net proceeds that might someday be realized from sale of the residence after [the life tenant’s] death. But that circumstance does not alter the fact that, upon [the settlor’s] death, the entire equitable estate in the residence was transferred from [the settlor] to, collectively, [the life tenant] and her siblings (or their issue) as beneficiaries of the irrevocable trust. In other words, upon [the settlor’s] death, real ownership of the residence—which, as explained above, follows the equitable estate—transferred from [the settlor] to [the life tenant] and her siblings (or their issue) as beneficiaries of the irrevocable trust. For purposes of section 2, subdivision (a), this transfer constituted a ‘change in ownership’ within the common and ordinary understanding of that phrase.” (Steinhart, supra, 47 Cal.4th at p. 1320.)
In Penner v. County of Santa Barbara (1995) 37 Cal.App.4th 1672 (Penner), the plaintiff-mother transferred the subject property to a limited partnership wholly owned by her and her adult children. (Id. at p. 1674.) The issue presented was whether the transfer was exempt as a transfer between parent and child. (Id. at p. 1676.) The Penner court determined that the statutory language of “parent” and “child” applied only to natural persons. (Id. at p. 1677.) The court then explained that the step transaction doctrine did not change the result:
“The parties agree that [the plaintiff] could have avoided a reassessment if she had transferred the property to herself and her children and then to the partnership. Had she done so, the first step of this theoretical transaction would be exempt under section 2(h). The second step would not constitute a ‘change in ownership’ for purposes of section 2(a) if the transfer changed only the method of holding title to the property and not the proportional ownership interests of the family members.
“[The plaintiff] argues that the same result should apply here. If she could have transferred the property through her children to the partnership without triggering a reassessment, then she should be able to transfer the property directly to the partnership and still avoid reassessment. She contends that any other result would be inconsistent with the ‘step transaction’ doctrine of tax law.
“The step transaction doctrine ‘is a corollary of the general tax principle [that] the incidence of taxation depends upon the substance of a transaction rather than its form. [Citation.]’ [Citation.] It 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. [Citation.] Thus, if a taxpayer, rather than taking a direct route to the desired end, interjects economically or legally meaningless transactions between the starting point and the end to obtain more favorable tax treatment, the intervening transactions will be disregarded and taxes will be assessed as though the taxpayer had taken the most direct route. [Citations.]
“The doctrine has no application here. Under the step transaction doctrine certain steps actually taken are ignored. The doctrine does not, however, allow a taxpayer to invent steps that never existed. [Citation.] [The plaintiff] never transferred the property to her children. Neither party asks us to ignore transfers actually made by [the plaintiff]. Instead, [the plaintiff] argues that the tax consequences of her transaction should be determined by pretending that she took steps which, in reality, she did not. We cannot base our decision on hypotheticals. ‘[A] transaction is to be given its tax effect in accord with what actually occurred and not in accord with what might have occurred.’ [Citation.] Having chosen to transfer the property directly from herself to the partnership, [the plaintiff] ‘must accept the tax consequences of [her] choice whether contemplated or not, [citations] and may not enjoy the benefit of some other route [she] might have chosen to follow but did not.’ [Citation.]” (Penner, supra, 37 Cal.App.4th at pp. 1678-1679.)
Plaintiff’s argument here is that the transaction falls within the examples of a non-pro rata distribution from the trust to the plaintiff with an equalizing loan. Plaintiff argues that, notwithstanding the statements in Empire Properties that there is a change in ownership upon a trust becoming irrevocable, there could not be a change in ownership at the time of Bernard Wehe’s death on September 28, 2008, because if that were true, then it would be impossible to obtain an equalizing loan and make a non-pro rata distribution consistent with the examples in the Assessor’s Handbook and in advice from the State Board of Equalization.
Plaintiff’s argument fails at several levels. On its own terms, the transaction does not comply with the terms identified by the State Board of Equalization required for a non-pro rata distribution with an equalizing loan: “[T]he trustee must be the party encumbering the property and the trustee may not encumber the property with a loan from the beneficiary who will receive the property. The trustee may obtain a loan secured by the property from a third-party lender, such as a bank, or a beneficiary who will not receive the property as part of the trust distribution.” (Assessors’ Handbook, p. 90.) Although the source of the loan is a third-party lender, the trustee is not the encumbering party. The encumbering party is the beneficiary. Thus, the loan transaction is a loan to the beneficiary (the plaintiff here) (AR, p. 170 [“ ‘Borrower’ is Joseph Bohnett ….”]) not to the trustee. In order for plaintiff’s argument to succeed on this level, the court must deem this transaction to be equivalent to the transaction that is identified by the State Board of Equalization.
The court does not find the transactions substantially identical for the reasons explained in Penner: the tax consequences of the transaction are not determined by pretending that the trustee took steps which, in reality, she did not. Assuming that the non-pro rata distribution with equalizing loan transaction described in the Assessor’s Handbook otherwise complies with the law, the reasoning behind that transaction is that the trustee, and not the beneficiary, is exercising the trustee’s own discretion under the terms of the trust as to how to distribute the trust assets and not that the trustee is implementing a beneficiary’s plan for distribution. As in Penner, it does not matter that the transaction may have been able to have been structured differently to effect different tax consequences. The structure of transactions frequently is a balance of business concerns against tax consequences (the difference between which creates much work for tax lawyers and accountants). The failure to comply with the requirements described in the Assessor’s Handbook instead demonstrates that the transaction here was a non-exempt sibling-to-sibling transfer rather than an exempt parent-child transfer.
The discrepancy pointed out by plaintiff between the Empire Properties holding that the change of ownership occurs at the time the trust became irrevocable and the non-pro rata distribution with equalizing loan transaction identified in the Assessor’s Handbook is not a significant factor under the facts of this transaction. The express intent of the Legislature in enacting section 63.1 provides a basic framework: “It is the intent of the Legislature that the provisions of Section 63.1 of the Revenue and Taxation Code shall be liberally construed in order to carry out the intent of Proposition 58 on the November 4, 1986, general election ballot to exclude from change in ownership purchases or transfers between parents and their children described therein. Specifically, transfers of real property from a corporation, partnership, trust, or other legal entity to an eligible transferor or transferors, where the latter are the sole owner or owners of the entity or are the sole beneficial owner or owners of the property, shall be fully recognized and shall not be ignored or given less than full recognition under a substance-over-form or step-transaction doctrine, where the sole purpose of the transfer is to permit an immediate retransfer from an eligible transferor or transferors to an eligible transferee or transferees which qualifies for the exclusion from change in ownership provided by Section 63.1. Further, transfers of real property between eligible transferors and eligible transferees shall also be fully recognized when the transfers are immediately followed by a transfer from the eligible transferee or eligible transferees to a corporation, partnership, trust, or other legal entity where the transferee or transferees are the sole owner or owners of the entity or are the sole beneficial owner or owners of the property, if the transfer between eligible transferors and eligible transferees satisfies the requirements of Section 63.1. Except as provided herein, nothing in this section shall be construed as an expression of intent on the part of the Legislature disapproving in principle the appropriate application of the substance-over-form or step-transaction doctrine.” (Stats. 1987, ch. 48, § 2, italics added.)
The focus of the Legislature in identifying the purpose of section 63.1 and the command to liberally construing its terms is the immediacy of the transactions which were designed to effect the parent-child transfer. There is a reasonable argument that the purpose of section 63.1 would be reinforced by exempting transactions, such as the non-pro rata distribution with equalizing loan transaction, to fall within section 63.1, where the transaction cannot be accomplished instantly, but is accomplished by a series of necessary steps undertaken “immediately.” In this respect, the step transaction doctrine is conceptually useful. As noted above, the step transaction doctrine is a legal doctrine that “has been applied to determine whether the transaction should be treated as a whole or whether each step of the transaction may stand alone.” (Shuwa, supra, 1 Cal.App.4th at p. 1648.)
One test applying the step transaction doctrine is the “end result test,” where “purportedly separate transactions will be amalgamated with a single transaction when it appears that they were really component parts of a single transaction intended from the outset to be taken for the purpose of reaching the ultimate result.” (Shuwa, supra, 1 Cal.App.4th at pp. 1650-1651.) Applying this test to the present facts, it is clear that the end result of a transfer from parent to child was not intended from the outset. The evidence shows that the end transaction took five years after the Trust became irrevocable because it took that much time for the beneficiaries to come to an agreement. (AR, p. 443.) Originally, the beneficiaries were going to keep the house forever and then rent it out, but later the beneficiaries decided to sell it within the family. (AR, p. 455.) Consistent with this original intent to keep the house forever, the Trustee completed an application for and was granted a parent-child tax exemption based upon a transfer at the time the Trust became irrevocable to each of the 13 beneficiaries of the Trust, including plaintiff.
Another test applying the step transaction doctrine is the “interdependence test,” which requires an evaluation of ‘whether on a reasonable interpretation of objective facts the steps [are] so interdependent that the legal relations created by one transaction would have been fruitless without a completion of the series.’ [Citations.] This test concentrates on the relationship between the steps and queries whether one step would have been taken without any of the others.” (Shuwa, supra, 1 Cal.App.4th at pp. 1651-1652.) Applying this test, too, demonstrates that the actions of the Trustee following the Trust becoming irrevocable were not interdependent. The Trustee started upon one course of action, namely to retain the Property for the benefit of all beneficiaries, and changed to a different course of action.
A third test applying the step transaction doctrine is the “binding commitment” test, which is “the most restrictive test and generally forbids the use of the step transaction doctrine unless ‘if one transaction is to be characterized as a “first step” there [is] a binding commitment to take the later steps.’ [Citations.]” (Shuwa, supra, 1 Cal.App.4th at pp. 1652-1653.) Again, the evidence shows no original intent, and no binding commitment, to distribute the Property from the Trust as ultimately accomplished.
To emphasize, this discussion of the step transaction doctrine is not for the purpose of applying that doctrine directly here. This discussion is intended to use this analysis to harmonize the apparent discrepancy between the rule of Empire Properties and Steinhart by which a change of ownership occurs at the time a trust becomes irrevocable and the exceptions asserted in the Assessor’s Handbook. One approach to harmonization is to follow the legislative policy of liberality of construction of section 63.1 where the intended and resulting transaction is an immediate transfer within section 63.1. The above analysis demonstrates that there was no intent here to effect an immediate transfer and hence no policy within the express legislative intent of section 63.1 to expand section 63.1 beyond its express provisions.
Another consideration related to the immediacy policy comes from the fact of the five year delay in completing this transaction. The delay was occasioned by a change of intent by the beneficiaries from continued possession and renting the Property for the benefit of all beneficiaries to the transfer of the Property to plaintiff with equalizing payments made to the remaining beneficiaries. The delay was not occasioned by disputes, business matters, or terms of the Trust that impeded the prompt distribution of the Property to plaintiff.
As Penner explains, the parent-child exemption is intended as a means of avoiding reassessment for transfers between natural persons. Although the transfer between natural persons may be effected through non-natural-person-means such as an inter vivos trust, the policy behind the exemption is to avoid reassessment for immediate inter-generational transfers. The parent-child exemption is not a blanket intra-familial exemption. Where, as here, the original manifest intention of the Trustee is to provide for beneficial ownership of the Property to all beneficiaries (as expressed by the original application for exemption), a subsequent reorganization of interests resulting from a change of intention can only reasonably be characterized as a transfer of interests among the then-identified beneficiaries and not as a direct transfer of interest from long-dead parents. This transaction, as it actually occurred, does not fit within even a liberally construed statutory exemption.
Consequently, plaintiff’s claims for relief based upon the application of the parent-child exemption will be denied. The court finds in favor of County and against plaintiff Joseph Bohnett on plaintiff’s complaint. County shall prepare and submit a judgment consistent with this ruling.
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