Historically, Californians have been able to give their children and grandchildren their home and up to $2 Million ($1 Million from each parent) in assessed value of all other real estate without triggering a property tax reassessment for the transferred property. This meant that parents could pass on their very low tax base to their children as well.
Unfortunately, this is all about to change as a result of Prop 19 that was approved by voters in November 2020.
When implemented on February 16, 2021, Prop 19 will, with limited exceptions, eliminate a parent’s ability to leave to their children or grandchildren their Proposition 13 taxes and tax base. All Property will be reassessed at its current fair market value, with two very narrow exceptions:
- Family Home – but only if the child moves into the home permanently and only the first $1 Million of Fair Market Value is exempt
- Family Farm – must be a real working farm
Time is limited. Proposition 19 should force an urgent rethinking of tax strategies for any property owner with children.
Every property owner should review past transfers to trusts to determine whether the County missed a reassessment event that needs a parent-child exclusion. Often this occurs when 1 spouse dies and the trust is required to split into multiple sub-trusts but no one records deeds reflecting the division of assets. Often times families do not file their parent-child exclusion application until years later when the second parent dies. Applications to exclude these past transfers must be filed with the County before February 16, 2021. Failure to file the application prior to February could result in a denial of any future application, even if the transfers technically occurred prior to the change in law.
If property is intended to be passed to children in the future, consider making those transfers before February 16, 2021 to avoid property tax reassessment. Parents should consult with legal counsel to consider ways to transfer property to children using irrevocable trusts or entities such as LLCs or Family Limited Partnerships. Due to the limited amount of time before February 16, 2021, legal counsel should be consulted immediately to discuss possible transfer options.
This Tax Update is for educational purposes only and is not intended to provide legal counsel or serve as legal advice. Any tax advice contained in this Tax Update is not intended or written to be used, and cannot be used, by you or any other recipient for the purpose of (a) avoiding penalties that may otherwise be imposed by the IRS, or (b) supporting, promoting, marketing, or recommending any transaction or matter to any third party. If you have a legal matter, it is best to consult the advice of an attorney. You can talk with an experienced attorney at Gresham|Savage by calling (909) 890-4499.