Proposition 19 Brings Big Change to California Estate Plans

The November election ballot included a couple of proposed California measures affecting how property was assessed and taxed in California. 

The one that passed was Proposition 19, and its impact will affect most California estates and trusts more than voters were likely aware.  Under current law, Proposition 13 requires that California real property be reassessed on a change in ownership.  If California property is sold, gifted, or otherwise transferred it is appraised by the assessor as of the date of transfer (“reassessed”), and property taxes are then calculated off of this tax base (“property tax base”). 

However, there were several exceptions to this reassessment requirement, and Prop 19 did away with two very beneficial ones for our trust and estate heirs, namely, the parent-to-child exclusion and the grandparent-to-grandchild exclusion.

Property Tax Base for Children and Grandchildren

Under current law, children inheriting property from their parents (or grandchildren if they were inheriting because a parent was deceased) are allowed to keep the property tax base of their parents/grandparents.  This was a huge benefit to inheriting children, as the property tax base of the parent is likely much lower than the value of the property at the date of death.  It allowed families to keep properties for generations at a generally fixed (and lower) cost.  However, Proposition 19 requires that all inherited properties be reassessed unless the inheriting child intends to occupy the residence as their primary residence.  If the child intends to live in the property following the death of the parent, then there is still an exclusion from reassessment.

There was a global benefit to Proposition 19. Homeowners over the age of 55, severely disabled beneficiaries, and homeowners who have lost their homes in a fire or other natural disaster, can transfer their property tax base to a new home purchase in any county in the State, of any value, and retain the tax rate on the transferred property with an upward adjustment for properties or greater value. They may do this for up to three (3) separate transfers. 

Under current law this could only be done with one (1) transfer, and the replacement property had to be of equal or lesser value.

This law will affect transfers occurring after February 15, 2021, so if you feel that this law will impact your estate plan please schedule a time to discuss it with us so that we can determine how to adjust your plan accordingly.