Prop 19: Do You Have Appreciated California Real Estate That You Plan to Leave to Your Children?

If you’re hoping your children will keep your low property tax basis, please read on – This is time-sensitive.

California’s Proposition 19, passed in November, has dramatically changed how you can leave or give California real estate to your children. Effective February 15, 2021, most gift, trust, or inheritance transfers of real property will trigger a reassessment, resulting in your children incurring much higher property taxes for all the years they will own the property.

This law change may affect your principal residence, second home or investment property.

Because of the complexity and time-sensitivity of this issue, we recommend that you contact your estate planning attorney now if appropriate. If your estate attorney cannot counsel you on this matter, we can refer an estate planning attorney who may be able to help.

Here are some considerations to see if this new law may or may not affect you:

  • If your home is worth less than a million dollars over its assessed value AND you are sure one of your children will live there, you do not need to make a change.
  • If your home has appreciated by more than a million dollars above its assessed value OR if your children might choose to rent out the property after inheritance but not make it their primary residence, you may want to explore solutions.
  • If you have investment property — regardless of its value — that you would like your children to keep, you may want to explore solutions to preserve their ability to benefit from the rental income without paying a large increase in property taxes.
  • If you expect that your children will liquidate whatever real estate you leave them, you do not need to make a change.

ALL CHANGES NEED TO BE FILED BY JANUARY 30, 2021, SO TIME IS OF THE ESSENCE.

The solution is complex, and it would require you to transfer the real estate to your children now. This solution may not be an appropriate fit as you need to consider your loss of control, capital gains tax your kids pay if they sell, the impact on your income if this is investment property (although there are possible workarounds), the impact on your estate plan, etc.  We want to emphasize this is a complex issue, and getting legal advice is necessary. This article is not legal advice and should be verified with an attorney.

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