Did transferring a vehicle and other assets to a living trust create a taxable sale when the transferor kept paying all related debts from nontrust income?

Plain-English summary

California considered two living-trust transfers under 1990 law.

First, a vehicle with an outstanding loan moved into a trust, but the transferor kept making every payment from current income outside the trust and the trust did not assume the debt. California found no consideration, no sale, and no use tax unless the trust later began making vehicle payments.

Second, a debt-free vehicle moved into a trust with a house, jewelry, and other property carrying debt. The transferor again kept paying from nontrust income. The source reached the same no-consideration result. If the trust later paid the house or jewelry debts, a sale could arise and part of that consideration would have to be allocated to the vehicle.

CDTFA's current annotation page warns that a later statutory change affects transfers to revocable trusts and points to section 6285(b).

Common questions

Did an outstanding vehicle loan automatically create consideration?

No under the stated historical facts because the trust neither assumed nor paid it.

Could later trust payments change the result?

Yes. The source said trust payment of vehicle or other transferred debt could create consideration.

Is the 1990 conclusion current law?

Not necessarily. CDTFA expressly flags a subsequent statutory change.

Citations and references

• California Revenue and Taxation Code section 6285(b), identified by CDTFA as a subsequent statutory change

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/495-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/495-0733.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. Robert Nunes

From:

Ronald L. Dick

Subject:

Living Trusts

495.0733

Date:

November 21, 1990

This is in reply to your September 25, 1990 memorandum regarding the application of use tax to transfers of vehicles to living trusts. You asked for the application of tax to the following transactions: “1. A vehicle is transferred into a trust with a balance owing. The transferor continues to make payments from current income which is not part of the trust's assets. Effectively the transferor continues to make transfers to the trust from current income from his/her employment.” We believe that under these facts, the transferor transfers the vehicle to the trust for no consideration, since the transferor of the trust makes the payments. No use tax would be due, since there would be no sale; that is, unless the trust later begins making payments on the vehicle. “2. A vehicle is transferred into a trust simultaneously with a number of other assets such as household furnishings, a house, and jewelry. The vehicle is free and clear, but there is a balance outstanding on the home and jewelry. The transferor continues to make payments from current income from his/her income.” The same result obtains. However, if there were a sale whereby the trust were to make the payments, we believe that some of the consideration paid would be attributable to the transfer of the vehicle. Tax would apply pro-rated according to the amount of consideration attributable to the transfer of the vehicle. If you have any further questions on this, feel free to contact me again. RLD;cs 0029E