Author: Rhonda Morgan
California Proposition 19, also known as “the Property Tax Transfers, Exemptions, and Revenue for Wildfire Agencies and Counties Amendment,” squeaked through the ballot box on November third with 51% of the vote. When it takes effect February 16, 2021, the tax effects on a transfer of one’s tax base of their primary residence to a new residence will be broader, but the ability to transfer California real property to children and grandchildren will change drastically.
Prior to Proposition 19, disabled persons, those over 55 years old and those whose homes were destroyed by natural disasters had a one-time option to transfer the assessed value of their primary residence to another property of equal or lesser market value within the same county. Prop 19 added upon this incentive in the following ways:
While the expanded ability to transfer one’s tax base to a new primary residence can be beneficial, the details of Prop 19 reveal some potential unfavorable tax changes, especially those planning for the next generation. Prop 19 changes the transfer of an estate in the following ways:
Given these changes, it is important to reassess one’s options for inter-generational transfer of property to assess your options and determine if action is necessary. After consulting a professional, if it makes sense, a transfer of property can take place before February 16, 2021, when Prop 19 takes effect, potentially avoiding the effects of the changes brought by Prop 19. You should immediately consult with your financial and legal advisors to determine whether an immediate transfer of some or all of your real property to your children or grandchildren is right for you.
There are other options, such as transfer of partial interests in property and transfers utilizing limited liability company interests. Again, you should consult with your personal financial and legal advisors to determine what structure works best for you.
Reassessment of real property takes place on a “change of ownership”. If the would-be transferor previously transferred property but retained an estate for life or term of years in the property; the transfer is not complete until that right ends. So trusts such as Medi-Cal planning trusts, QPRTS and other trusts or deeds where a life estate was retained did not result in an immediate change of ownership and will not be entitled to the previous exclusions if the effective transfer date is after February 15, 2021. . In instances where one of these arrangements exist, one may still be able to gift or disclaim their retained interest before February 16.
A skilled financial advisor can work with you to move quickly through the process of evaluating your situation, creating a potential course of action, and working with your personal tax or legal advisor to help build a strategy and work with these professionals on implementation..
* Transfers between grandparent/grandchild were and continue to be excluded from reassessment on the same basis as parent/child transfers where the parent(s) of the grandchild are deceased.
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