Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2016

Property Tax Annotations

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Annotation 625.0235.025

625.0235.025 Trusts—Share and Share Alike. Parents' trust became irrevocable upon the death of the surviving parent. The trust document stipulates that, after certain specific bequests, the trust remainder is to be divided equally between their son and daughter. The trust document also gives son the option to include the property in his share of the trust remainder so long as he provides sufficient assets to his sister's share to equalize the distribution. Son has chosen to exercise this option. The trustee is given the authority to borrow funds, using the property as security, to equalize the distribution. Son will receive the property from the trust subject to the loan.

In the typical share and share alike trust, each beneficiary has a beneficial ownership interest in each of the trust's assets, including each piece of real property. In this case, since son exercised the option to equalize distribution, daughter does not have a beneficial ownership interest in the property. Instead, her interest is in receiving an equalizing payment, which is in the nature of a security interest created by an equitable charge. The nature of the daughter's relationship to the property created by son's exercise of the option would appear to be that of an equitable encumbrancer. The effect of the equitable charge is that son receives the entire legal and beneficial ownership of the property from his parents, subject to a security interest in his sister of his payment to the trust of the equalizing amount. Thus, it is immaterial whether son as an individual acts as co-borrower or guarantor on the loan. In either case, the entire property would be eligible for the parent-child exclusion. C 2/22/2010.