California's Prop 19 Planning Attorney In The West Valley & Beverly Hills

With the advent of California’s Proposition 19, the opportunity to transfer your home or other real estate to your children without triggering property tax reassessment has been considerably curtailed. Prop 19, which affects all real property transfers occurring on or after February 16, 2021, marks a significant shift in California’s property tax landscape. Historically, California law offered generous provisions allowing parents to transfer real property to their children while maintaining the lower property tax basis. However, the introduction of Prop 19 brings about the following changes:

• A primary residence can be transferred to children with property tax protections on the first $1 million of the property’s market value, provided the children reside in the home.
• All other inherited properties, including rental, business, and vacation homes, will be subject to full reassessment without exceptions. 

Implications of Prop 19 for Homeowners

With Prop 19 now in effect, California homeowners must revisit their estate planning and property tax strategies, particularly when considering the transfer of their homes to their heirs. If your home serves as your primary residence and you intend to pass it on to children who will also use it as their primary residence, the impact of Prop 19 may be minimal. Your children could continue to benefit from property tax protections on the first $1 million of the home's assessed value. Conversely, if the property is not utilized as their primary residence or is an income-generating or investment property, it will be subject to reassessment at market value, likely resulting in a substantial increase in property taxes. This could aƯect the feasibility of keeping such properties within the family. Prop 19’s modifications introduce critical considerations for homeowners when planning the future of their real estate holdings. Understanding these new regulations is essential for making informed decisions and exploring alternative strategies to mitigate property tax reassessment.

Common Pitfalls to Avoid Post-Prop 19

• Adding your child to the title prematurely: Making your child a co-owner or joint tenant may seem like a simple solution to ensure continuity, but it can trigger immediate tax reassessment and diminish your control over the property.
• Gifting property during your lifetime: Transferring ownership through a gift while you are alive not only forfeits the step-up in basis for capital gains tax purposes but could also prompt an immediate property tax reassessment under Prop 19’s rules.
• Oversimplifying estate plans: Directly bequeathing your property to your children without considering Prop 19’s nuances can result in the loss of valuable property tax exemptions. Given these new complexities, a basic will or trust might no longer suffice.
• Using entities without professional legal advice: Holding your property within an LLC, corporation, or limited partnership without fully understanding the implications can lead to unfavorable property tax reassessment. Similarly, forming a trust without addressing Prop 19’s intricacies, along with capital gains and estate taxes, can be a costly error.
• Failing to plan: Taking no action and hoping for the best leaves your estate vulnerable to potential property tax increases, which may compel your heirs to sell the property due to an unaffordable tax burden. 

Advanced Property Tax Planning: Prop 19 and LLCs

A distinct set of rules governs property tax reassessment for real estate owned by LLCs, presenting an opportunity to sidestep future property tax reassessment. However, these laws are intricate, often confusing, and subject to change.

The optimal solution will depend on various factors, including the number of properties involved, the number of beneficiaries, the value of your estate, and your need to retain rental income.

We have assisted numerous California families in safeguarding low property taxes for the next generation. Our sophisticated toolkit caters to every family scenario, optimizing for property taxes, capital gains taxes, and estate taxes.