As many readers know, Proposition 19 recently passed. It was sold as a way to make it easier for certain homeowners, predominantly over age 55, to move and carry over their low Prop. 13 assessed value to their new residence. What was not well publicized is that, to fund the tax shortfall from this change, parents who want to transfer property to their children face greater restrictions on their ability to pass on their lower assessed value under Prop. 13.
Under existing law, parents (and in limited instances grandparents) can transfer title of certain real estate parcels to their children without causing a reassessment under Prop. 13. Effective for transfers after Feb. 15, 2021, such transfers will generally be reassessed unless the property is used as the child’s residence and the assessed value does not exceed $1 million. If the assessed value of the property exceeds $1 million the rules are more complex.
Although the new rules are complicated, if you own property in California and you plan to transfer it to your children as part of your overall estate plan, you should consider consulting with your estate planning advisor to see whether it is advisable to take any steps now to avoid the adverse consequences of Prop. 19. For post-Feb. 15 transfers, the proposition will potentially make it more expensive for your children to own the property. Each person’s situation is unique and avoiding the consequences of Prop. 19 cannot be contemplated outside of the context of an overall estate plan.
That’s why readers should consider discussing this matter with their estate planning advisor. This letter should not tax be considered tax advice, but an attempt to make readers aware.
Jim de Bree