HOAs Have Election Questions

By Kelly G. Richardson, Esq. CCAL

Good afternoon Kelly.

Transferring property ownership to a trust is one of California’s most popular estate planning techniques. Here in the Santa Barbara area, many of the homes we come across as REALTORS® are owned in a trust. A trustee is tasked with overseeing the management of the assets held by a trust on behalf of beneficiaries. In California, having assets in a trust has several advantages, such as avoiding probate, maintaining privacy, offering asset protection, allowing for flexibility, offering tax advantages, and guaranteeing continuity of management.

Eliminating Probate

The ability to sidestep the probate process is one of the main advantages of holding assets in a trust. When a property owner passes away, their assets become subject to probate, a procedure for dispersing assets to heirs or beneficiaries that is governed by the court. Having a trust in place can help avoid going through the time-consuming and expensive process of probate. When a trust is established, the property is given to the trust, and the trustee is in charge of overseeing and allocating the assets in accordance with the conditions of the trust agreement. Beneficiaries may save time and money by doing this.

Maintaining Privacy

Unlike the probate process, which is a matter of public record, a trust allows for privacy in the distribution of assets. Since the trust document is not a matter of public record, the distribution of assets can be kept confidential. This can be particularly important for individuals who value their privacy or who have sensitive family situations that they want to keep private.

Protection of Assets

In the case of litigation or a creditor claim, a trust can preserve assets. Due to the fact that the trust is a separate legal body and the assets held inside are not regarded as a part of the individual’s personal assets, this is the case. In a trust, the property is shielded from liens and court orders directed at the individual owner. People who are at risk of being sued or who have significant assets they want to protect may find this to be especially crucial.

Making Room for Flexibility

Asset distribution to recipients is flexible thanks to trusts. The trust document may stipulate how and when assets are allocated according to certain circumstances. A trust may, for instance, provide that distributions be made gradually over time or only in specified circumstances. This might be especially crucial for people who have unusual family situations or wish to make sure that their assets are dispersed in a specific way.

Providing Tax Benefits

A trust can provide tax benefits to property owners. For example, a revocable trust can help avoid estate taxes and capital gains taxes by allowing for a stepup in basis at the time of the property owner’s death. This means that the property’s value is adjusted to its fair market value at the time of the property owner’s death, which can reduce or eliminate capital gains taxes if the property is sold. Additionally, a trust can help minimize estate taxes by allowing property owners to transfer assets to their beneficiaries outside of the probate process.

Ensuring Continuity of Management

A trust can ensure that the property is managed and distributed according to the property owner’s wishes. The trustee appointed to manage the trust will have the authority to manage and distribute assets according to the trust document, even after the property owner’s death. This can provide peace of mind for property owners, knowing that their assets will be managed and distributed according to their wishes.

As you can see, having properties in a trust in California can provide several benefits. Most importantly, start with reaching out to your local REALTOR®, who can assist in answering more questions and connecting you with a great estate planning attorney. Getting a trust set up is something that can be done by some great local professionals here in town. It’s important to work with a qualified estate planning attorney to determine if a trust is a right option for your individual circumstances. It is well worth exploring these options if you are a property owner here in Santa Barbara.

No one on our HOA board has been elected and they all remain on by default year after year. We never meet quorum. I suspect foul play and would like to have the property manager as well as the board members investigated. I was wondering if you had any ideas on how we can investigate them all.

– C.M.

An HOA that I am involved with is holding upcoming elections and is looking for a truly independent inspector of elections. I am wondering whether you know of any paralegals or junior associates who might be willing to perform that function for a modest fee or as pro bono work to enhance their resume.

– Regards, C.S.

Dear C.M.:

Low voter turnout in HOA elections could be caused by member discouragement, but it also could be caused by contentment and a lack of desire to have different people staff the board of directors. Either way, directors can sit on a board for years without ever being re-elected. There may be some hope on the horizon from Assembly Bill 1458, recently introduced in the California Legislature.

Assembly Bill 1458, by Member Ta of Westminster, would add a new subpart 2 to Civil Code Section 5115(d), allowing a member election that fails for lack of quorum to proceed within 5 to 30 days later, changing the quorum to be those members participating. It’s very early in the legislative session, so it is very difficult to predict if the bill has a chance.

Generally, I find that boards are staffed by well-intentioned people, and outright foul play is rare. However, boards can easily create the impression that they are hiding something when they become defensive in response to criticism and behave in a less transparent manner.

HOAs are little democracies – if you talk to enough neighbors who want a new board, you can elect a new board.

– Best regards, Kelly Mr. Richardson:

Thank you for the great columns that you write. Each weekend my wife and I wait for the paper to see what your next column will bring.

Dear C.S.:

The HOA election reforms from 2005 and Senate Bill 61 dramatically changed the way HOA elections are conducted. One new requirement was that an “inspector of elections” be appointed to run the election and count and announce the vote. This created a small cottage industry of election inspector businesses. However, not all HOAs need professional inspectors. The law allows the board to appoint a volunteer inspector, so long as they are not a director or candidate and are not related to a director or candidate (Civil Code Section 5110(b)). Management and legal counsel can assist the Inspector but cannot act as Inspector.

– Best, Kelly

Dear Kelly:

Can a member waive their “secret ballot” vote and sign, date and return a ballot via e-mail?

– D.K.

Dear D.K.:

No. California law, unfortunately, does not permit voting for directors, governing document amendments, or major assessments, by any other method than secret written ballots contained in sealed envelopes. The procedure, described in Civil Code Section 5115(c), does not allow for emailing or faxing of a ballot. Interestingly, California HOAs are still the only nonprofit corporations in California that are not allowed to use electronic voting.

– Thanks, Kelly