On the Ballot: How could Proposition 19 affect my estate plan?

DISCLAIMER: This is neither an endorsement nor condemnation of Proposition 19. Britton Law Group, P.C. is not affiliated with the “Yes” or “No” on Prop. 19 campaigns in any way.

The passage of Proposition 19, among other things, would ensure sweeping changes to property assessment for certain types of real property transfers. The point we will focus on today specifically affects estate planning and how your heirs may inherit from you.

Currently, in the state of California, parents or grandparents have the ability to transfer their primary residences and a second property to their children or grandchildren, both exempt from property tax reassessment. That is, they may gift up to two real properties without either being reassessed at current market value. The first is required to be the transferor’s home, but the second property may be a second house, vacation house, rental property, or even a business property with an assessed value of up to one million dollars. Both properties may be then used (or not used) in any way that the child or grandchild sees fit.

All of this may change on February 15, 2021. If Proposition 19 passes, only inherited homes transferred after this date that will be used as principal residences by the transferees (usually a child or grandchild) will be free of reassessment. Not only does this reduce this exemption amount from two to one, but it requires that the transferee resides in the property they receive.

As of the date of this post’s publication, property taxes in California are increased by no more than 2% annually unless ownership changes. This is due to the passage of Proposition 13 in 1978, or the Tax Limitations Initiative, which capped annual increases of a property’s assessed value to an inflation factor. If Proposition 19 passes, however, the assessed value of the inherited residence will now be calculated based on whether the property’s value at the time of transfer is greater than the transferor’s past assessed value by more than one million dollars. That is, if it exceeds by the previous value by fewer than one million dollars, then the child inherits the parent’s assessed value. On the flip side, if it exceeds the previous value by more than one million dollars, the new assessed value is the current value of the property minus one million dollars. On February 16, 2023, the taxable value of an inherited residence would then be adjusted each year according to the California House Price Index.

For more information on Proposition 19, please check out the proposed amendment on the official California Legislative Information website.

Happy planning, and happy voting!

B.B.

Disclaimer: The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. Brittany Britton is licensed to practice law in the state of California only.

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