Update on Prop 19, inheritance concerns

Prop. 19 was approved by the voters last November by a slim margin and, yes, it’s wreaking havoc among taxpayers and assessors statewide, according to L.A. County Assessor Jeffrey Prang. (MC)

By Jeff Prang

Los Angeles County Assessor 

Last month, I visited with you about a new Constitutional amendment to Proposition 13 that threatens the ability of middle-income and working-class families to leave their homes to their children without forcing them to pay a huge property tax.

I am revisiting this topic this month because my office has received scores of inquiries about this challenging new law and it’s important to understand the issues.

To not put too fine a point on it, Proposition 19 may actually drive working-class families of modest means into selling their homes, family farms as well as other property to avoid an enormous unintended tax burden because the property faces reassessment.

Prop. 19 was approved by the voters last November by a slim margin and, yes, it’s wreaking havoc among taxpayers and assessors statewide.

To make matters even more severe, some of the most challenging  provisions are already in effect as of Feb. 16.

Let’s review: Under current law, parents (Proposition 58) and grandparents (Proposition 193) were able to transfer residential and commercial properties to their children and grandchildren without any tax hike because the homes would not be reassessed, allowing the original tax base to be carried over.

Between 60,000 to 80,000 property owners statewide had been embracing this tax savings annually, avoiding as much as $10 billion in assessed value from reassessment, according to data from the Legislative Analyst’s Office.

However, in 2018, a Los Angeles Times investigation revealed that Hollywood celebrities Beau and Jeff Bridges inherited a beautiful Malibu home with access to a semi-private beach and panoramic views of the Pacific Ocean from their famous father, actor Lloyd Bridges of Sea Hunt fame. The Times investigation revealed the brothers rented the home for $16,000 a month, but retained their father’s annual tax property tax payment of about $5,000. This was possible because they inherited their parent’s home under Proposition 58 which has been informally referred to as the “Lebowski loophole.”

Under the new law and prior to transferring, the home now must be the parent’s principal residence, and become the principal residence of the children/child after the transfer. This was intended to eliminate the “Lebowski” loophole.

Although it certainly appears the intent of the measure was to eliminate the Lebowski Loophole, the measure impacts a broader range of the public and includes working families and middle-income families whose family assets are in modest real estate investments, placing new stress on the ability to pass along new found generational wealth.

In essence, this new law threw the baby out with the bath water.

It’s now estimated that Prop. 19 will impact 40,000 to 60,000 families each year with higher property taxes and, according to the Legislative Analyst’s Office, will result in hundreds of millions of dollars a year coming out of taxpayer pocketbooks. Prop. 19, in effect, repeals Propositions 58 and 193.

The simple fact is this was rushed on to the ballot at the end of the legislative session, and would have benefited greatly by further study and deliberation.

Because of this rush to the ballot box, the Constitutional amendment is deficient, confusing and in direct conflict with the intent of the measure.

It was touted as the initiative that would give much-needed assistance to seniors, the severely disabled and victims of fires and natural disasters, while simultaneously providing revenue for wildfire protection agencies and counties.

Just look at the official title of the measure: “The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act.” And it does have some positive aspects for seniors and the disabled.

However, as I said, as of Feb. 16th, parents and grandparents are no longer able to transfer property to their children or grandchildren without the possibility of triggering an increase in property taxes, unless certain requirements are met.

The good news is there is a solution to this regressive tax, and that is to encourage the Legislature to draft legislation that will serve as a corrective Constitutional amendment to Prop. 19.

This corrective Constitutional amendment will restore the ability of these families to leave their homes and other property to their children that’s currently offered under Prop. 58 and 193.

I am working with the California Assessors’ Association and with state Legislators to do just that with a real sense of urgency.

I have to say absent legislative clarification, the implementation of Prop. 19 will be a challenge and create a great deal of confusion and uncertainty for both the public and administrators.

I will keep you posted as we move forward, but in the meantime, I encourage you to go to my website for the latest information regarding Prop. 19, assessor@
lacounty.gov/prop 19. Talk soon.

 For more information on Prop. 19 or other tax savings programs, visit assessor.
lacounty.gov or call 213-974-3211. Los Angeles County Assessor Jeff Prang has been in office since 2014. Upon taking office, Prang implemented sweeping reforms to ensure that the strictest ethical guidelines rooted in fairness, accuracy and integrity would be adhered to in his office, which is the largest office of its kind in the nation with 1,400 employees and provides the foundation for a property tax system that generates $17 billion annually. 

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