Proposition 19 and estate planning FAQ
What is Proposition 19?
Proposition 19 is a California statewide ballot initiative passed during the November 2020 election by a narrow margin of approximately 51% of voters. The intended goal of Proposition 19 is to provide property tax relief for age 55+ homeowners by allowing them to buy and move to a different home anywhere in the state and receive tax advantages (transfer of base year value) when doing so. In this respect, Proposition 19 merely expands on benefits previously granted by Propositions 60 and 90.
How does Proposition 19 impact parent-to-child and grandparent-to-grandchild transfers?
Until now, Propositions 13 (stabilization of property taxes), 58 (reassessment exemption for parent-to-child transfers), and 193 (reassessment exemption for grandparent to grandchild transfers), acted together to allow children or grandchildren to inherit real property without an increase in property taxes in most cases.
Effective February 16, 2021, Proposition 19 eliminates many of the benefits of Proposition 58 and 193 by limiting the reassessment exemption only to the “family home” (primary residence) of the parents or grandparents. To claim the reassessment exemption, the recipient(s) of the home must occupy it as their primary residence within one year of becoming the new owner(s). Even then, the reassessment exemption applies to only the first $1,000,000 ($1 million) of the fair market value of the home. If the home is worth more than $1 million, the excess value of the home will be subject to reassessment.
Will a trust help me avoid a reassessment triggered by Proposition 19?
Simply put, no. If the transfer of a property is subject to reassessment according to Proposition 19, the reassessment will occur regardless of whether the property was in a trust or not.
What can I do to avoid the reassessment of a property under Proposition 19?
One option is to transfer the property to your children or grandchildren prior to the effective date of Proposition 19. In practical terms, this means submitting the grant deed for recording on or before February 11, 2021, as many recorder’s offices will be closed Friday, February 12 and/or Monday, February 15 in observance of Presidents’ Day.
Should I change my estate plan because of Proposition 19?
The answer to that question is influenced more by financial planning than legal considerations. Regardless of whether Proposition 19 is in effect at the time of your death (there is always a chance it will be repealed or modified in the future), the wishes expressed in your estate plan still will be legally effective and binding on your successor trustee(s).
If you have an extensive real estate portfolio that you planned to pass on to your offspring, it may make sense to consult your financial and tax planning professionals and explore your options for restructuring your portfolio prior to your death. But the absolute worst case is the children or grandchildren who receive your property as a gift will simply pay higher property taxes than they otherwise would have if Proposition 19 had not been passed.
If you need a new trust or will – or need to review your existing estate plan – speak to experienced estate planning attorney Barbara Craig to discuss your needs.