Inheriting commercial property in California: the first 90 days

Most people who inherit a shopping center or a small commercial building did not run it before. A parent may have dealt with the tenants and lender for years. Now a successor trustee or executor has the leases, and siblings may be asking what happens next. This guide covers the first 90 days for a Los Angeles or Orange County owner in that position, under California and federal rules as of October 2026.

This is general information, not legal or tax advice, and a trust attorney and a CPA should be involved from the start.

Start with how title is held

Start with the most recent deed. Deeds are public records at the county recorder's office (California Courts Self-Help Guide), and the vesting tells you which rules apply.

A living trust. The successor trustee named in the trust takes over. The courts' self-help guide describes a living trust as a way for heirs to avoid the waiting period and expense of probate.

The decedent's own name. Unless it passes to a surviving spouse, expect formal probate. For deaths on or after April 1, 2025, the simplified affidavit procedure for real property under Probate Code 13200 is limited to $69,625 of California real property, and the $750,000 petition under Probate Code 13151 applies only to the decedent's primary residence (California Courts Self-Help Guide). The court appoints a personal representative, who is entitled to the rents until distribution (Probate Code 9650) and must file an inventory and appraisal within four months after letters issue (Probate Code 8800). The courts' guide says formal probate typically takes 9 to 18 months.

Joint tenancy. When one joint tenant dies, the property passes to the other (California Courts Self-Help Guide).

An LLC or partnership. The decedent owned an interest in the entity, not the real estate. The operating or partnership agreement determines who manages it. Different property tax rules apply, as described below.

What a successor trustee owes the beneficiaries

The trustee must administer the trust according to its terms and the Probate Code (16000), take reasonable steps to take control of and preserve the property (16006), make it productive (16007) and keep it separate from other property (16009). The standard is the reasonable care, skill and caution of a prudent person acting in a like capacity (16040). Management decisions are judged against the trust portfolio as a whole (16047), with a duty to diversify unless it is prudent not to (16048). If one center is most of what the trust owns, write down your reasons for holding, re-leasing or selling.

When a revocable trust becomes irrevocable because the settlor died, the trustee must serve a notification on each beneficiary and each heir within 60 days (Probate Code 16061.7). It identifies the settlor, the trust and each trustee, and tells recipients they may request the trust terms. It also carries a boldface warning: a recipient generally cannot contest the trust more than 120 days after service, or 60 days after a copy of the terms is delivered during that period, whichever is later (16061.8).

The trustee must keep beneficiaries reasonably informed (16060) and, subject to exceptions, account at least annually (16062). An account shows receipts and disbursements, assets and liabilities, trustee compensation, and the agents hired and what they were paid (16063). For a commercial property, keep a ledger from the date of death showing each rent check, CAM recovery, repair bill and management fee.

The trustee has power to sign leases, including terms that run past the life of the trust (16231). The IRS says a revocable trust that changes to an irrevocable trust needs a new EIN, so open the rent account under that number.

Property tax: reassessment and Prop 19

Under Proposition 13, assessed value generally rises no more than 2 percent a year and resets to market value on a change in ownership (BOE Publication 29). A death is a change in ownership. The BOE says inherited property is reassessed to market value as of the date of death unless an exclusion applies, even if it stays in the trust and is distributed years later (BOE Publication 800-9). For a revocable trust, Property Tax Rule 462.260 uses the date the trust becomes irrevocable.

Under Proposition 58, a parent could pass property other than the home to children without reassessment, up to $1,000,000 of factored base year value per parent. Proposition 19 eliminated that for transfers on or after February 16, 2021. The parent-child exclusion now covers only a family home that was the parent's principal residence and becomes the child's, or a family farm (Revenue and Taxation Code 63.2; BOE Proposition 19 page). The BOE's FAQ says even a rental home passing from parent to child does not qualify, so a strip center or commercial building passing to children is generally reassessed. If the parent died on or before February 15, 2021, the Proposition 58 rules apply, because the date of death is the date of change in ownership.

Property passing to a surviving spouse or registered domestic partner is excluded (Publication 800-9). If one parent survives, ask the attorney what passed to the children at the first death.

After a reassessment, the assessor issues a supplemental assessment for the rest of the fiscal year, and a higher value brings a supplemental bill (Publication 29). An appeal must be filed within 60 days of the notice (Publication 800-9), and notices go to the mailing address on file, so update it right away. On the regular secured bill, the BOE notes a 10 percent penalty if the first installment is not paid by December 10 or the second by April 10; a supplemental bill mailed November through June has later delinquency dates (Publication 29). On an NNN center, check whether each lease lets the higher tax pass through, since some leases limit recovery after a reassessment.

Filing the BOE-502-D

Revenue and Taxation Code 480(b) requires a change in ownership statement after a death. For property held in trust, the trustee files it with the assessor within 150 days after the date of death. In probate, the personal representative files it at or before the filing of the inventory and appraisal. The form is the BOE-502-D, Change in Ownership Statement, Death of Real Property Owner (the BOE's sample is REV. 15, 07-25), one per parcel, and the Orange County Assessor and the Los Angeles County Assessor each post it on their forms pages. If the assessor sends a written request and nothing is filed within 90 days, the penalty is the greater of $100 or 10 percent of the taxes on the new base year value, capped at $20,000 for property not eligible for the homeowners' exemption when the failure was not willful (R&T 482).

If an LLC or partnership owns the property

A transfer of interests in a legal entity is generally not a change in ownership of the entity's real property. The exceptions are when someone obtains more than 50 percent control, or when the original co-owners of property that entered the entity under an exclusion cumulatively transfer more than 50 percent (R&T 64(c) and (d)). The BOE notes that an interest holder's death can trigger either one (Publication 800-9). The filing is form BOE-100-B, due to the BOE, not the county, within 90 days, and a late filing costs 10 percent of the taxes on the new value (R&T 480.1, 480.2 and 482(b)). Proposition 19 cannot help, because section 63.2 says real property does not include any interest in a legal entity.

Income tax basis

For federal income tax, property acquired from a decedent, including property in the decedent's revocable trust, generally takes a basis equal to its fair market value at the date of death, or on the alternate valuation date if elected (26 U.S.C. 1014). In community property states, including California, the IRS says the surviving spouse's half generally gets the new basis too, if at least half the community interest is included in the decedent's gross estate (IRS Publication 551). For deaths in 2026, the federal estate tax basic exclusion amount is $15,000,000 (IRS). Order a date-of-death appraisal early. The trust accounting and your CPA will both rely on it.

The first 30 days on the property

Insurance. Call the insurance broker in the first week. Confirm the named insured reflects the trust or estate and the current trustee, read the vacancy provision against any dark spaces, and collect tenant certificates naming the landlord as additional insured.

Rent. Open an account in the name of the trust or estate, then send every tenant a signed letter with the new payee, remittance details, maintenance contact and effective date.

Security deposits. Find where they are held. Civil Code 1950.7 says a landlord holds commercial deposits for the tenant and, when the landlord's interest ends by sale, death or otherwise, must transfer them to the successor with notice to the tenant, or return them.

Documents. Assemble the rent roll, every lease with amendments and guaranties, past estoppels, CAM reconciliations, service contracts, utility accounts, tax bills and policies. Check whether last year's CAM reconciliation went out, because unbilled recoveries may still be collectible under the lease.

The loan. Read the note and deed of trust for a transfer or due-on-sale clause and for what the borrower's death triggers, then notify the lender in writing. The federal rule that stops a lender from calling a loan on a transfer to a relative at the borrower's death covers residential property with fewer than five dwelling units (12 U.S.C. 1701j-3(d)), not a shopping center loan.

Reading the leases

Abstract each lease. Look for:

• Renewal options, and whether option rent is fixed or fair market.
• Rights of first refusal, rights of first offer and purchase options, which can control how and to whom the property is sold.
• Exclusives that limit what you can lease vacant space for.
• Co-tenancy clauses that cut rent or allow termination if an anchor goes dark or occupancy drops.
• Expirations and option notice dates over the next three years.
• Below-market rent on long-term tenants.
• What each tenant pays toward taxes, insurance and CAM, and any caps.

Keep, reposition or sell

Keep and manage. Holding works best when the center is mostly leased to tenants who pay on time and the beneficiaries are content with distributions. Someone has to run it, and the accounts have to show who was paid for what.

Lease up and reposition. A center with vacancy or below-market leases may be worth more after re-leasing, but that takes money for TI and leasing commissions, and it takes time. Section 16047 lists the trust's need for liquidity and regular income among the factors a trustee weighs.

Sell. A sale turns one asset into cash that can be divided or diversified. If the price is close to the date-of-death value, the stepped-up basis may leave little federal gain, which your CPA should confirm. Check for rights of first refusal and purchase options first, and expect a buyer to ask for tenant estoppels.

Deciding with siblings

Start from numbers everyone has seen, such as the date-of-death appraisal and a current broker opinion of value. Then read the trust. If it gives the trustee discretion, the trustee decides within the duties above. If it calls for distribution in shares and the siblings want to keep the property, sign a co-ownership agreement or form an LLC before the deed goes out, covering management, reserves, buyouts and how a sale gets approved.

Partition risk

Once the property is deeded to siblings as co-owners, any of them can bring a partition action. Partition of concurrent interests is a matter of right unless barred by a valid waiver (CCP 872.210, 872.710). The court can divide the property or order it sold (872.810, 872.820). For tenancy in common property with no written agreement binding all co-owners on partition, the Partition of Real Property Act applies to actions filed on or after January 1, 2023 (874.311). Under it, the court generally orders an appraisal, co-owners who did not request a sale may buy out those who did at the value the court sets, and a court-ordered sale is an open-market sale through a licensed broker unless sealed bids or an auction would serve the co-owners better (874.316, 874.317, 874.320). A written co-owner agreement can govern partition. Consider signing one before distribution.

A 90-day checklist