Article on Prop 19

I wish to inform you about a recent change in the law. This change will only affect you if you own real property in California and have adult children that are your beneficiaries under your trust or will. 

With the passage of Proposition 19 on November 3 it may be that you might want to make a change in your estate plan. Proposition 19 essentially gutted the Parent-Child property tax exemption except in limited circumstances. 

Back in 1981 California voters passed Proposition 58. That law changed the California Constitution as enacted by Proposition 13 so that a transfer between a parent and a child was not considered a change in ownership. That meant there would not be a reassessment of the property for property tax purposes. The exemption was unlimited as to the parent’s principal residence, and up to $1,000,000 of assessed value for all other property.

Now, for transfers occurring after February 15, 2021 there will be a change in ownership, unless the property was the parent’s principal residence and the child-beneficiary will occupy the property as his or her residence within one year of the transfer. Whereas before the value of the principal residence did not matter, now there can be a reassessment for fair market values over the principal residence’s assessed value plus $1,000,000.

Because of this change in law, and the $11,550,000 gift tax exemption, some parents are transferring property to their children now rather than at time of death. In this manner the property taxes will not be increased due to the transfer. 

However there are three drawbacks to a transfer prior to February 16, 2021:

1. The child may decided to kick the parent out
2. The children will lose the benefit of a possible step up in cost basis for income tax purposes if the child ever sells the property
3. The property will be subject to the child’s creditors

If you would like to discuss this change in the law please call for an appointment at (562) 421-9354.