He bought the first one in 1969. He paid $21,600 for it.
By the time he came to see me, a widower in his late seventies, he owned five rental properties across the San Fernando Valley, bought one at a time over about thirty years. His two daughters had already told him what they wanted. They were not looking to sell. They wanted to keep all five and run them the way their father had.
That is a good problem to have. It is also the exact situation where a well-meaning family loses the most money.
What he actually owned
Across the five properties, he had paid $411,600 in total. As of 2021, those same five were worth $3,992,000. The difference between what he paid and what they were worth was $3,580,400.
That 1969 purchase tells the story by itself. Twenty-one thousand six hundred dollars, and more than eight hundred thousand in value by 2021. Under Proposition 13, the value the county taxes you on goes up only a little each year, no matter what the property is actually worth. That is why a portfolio built in the 1960s, 70s and 80s carries a tax bill that looks nothing like the value of the buildings.
That low tax bill is the asset. It is also the thing most at risk when the properties change hands.
Wanting to keep them is not a plan
Here is what most families with rentals do not know. Proposition 19 lets a child keep a parent’s low tax rate on the family home, but only if that child moves in and meets a list of requirements. For a rental, there is no version of that break at all.
So without planning, each of those five properties would have been taxed on its full current value once it passed to the daughters. Not one of them. All five. The yearly tax bill would have jumped permanently, and it would have landed at the same moment two sisters were taking over properties they had never managed. That is the central problem with any Prop 19 rental portfolio, and no amount of good intention solves it.
Why his trust alone would not have fixed it
He had a trust. Most people in his position do, and they assume it covers this.
A living trust is genuinely useful here. It keeps the properties out of probate, the court process that otherwise settles an estate, and it controls who gets what and when. What it does not do is change how the county treats the properties for tax purposes when they move to the next generation. The trust answers one question. Proposition 19 is a different question with a different answer.
What the structure actually changed
The planning for this family involved moving the properties into an LLC during his lifetime, with his trust built around it. An LLC is just a business entity that owns the buildings instead of his owning them in his own name.
That shift matters more than it sounds like it should. When buildings are owned by a business rather than by a person, a different set of California property tax rules applies to what happens when ownership passes to the next generation. An attorney who works in this area can use those rules so the daughters can take over the business that holds the properties without the properties themselves being taxed on their full current value. Our page on Prop 19 and multi-property families covers how this works across a portfolio.
I want to be careful here, because this is where families get into trouble reading about it online. These rules have limits of their own. Hand over too much of the business at once, or in the wrong order, and every property it owns can be taxed at full value, which is worse than having done nothing. This is not a form you download. It takes drafting, retitling, a look at the mortgages, and timing that all have to line up.
The part that cannot be fixed later
All of this was done before his death. That is not a small detail. It is the whole thing.
Once property passes to the next generation, the tax question is answered and there is no going back to redo it. Everything that works here works because it was in place beforehand, while the parent was living and able to sign. For a family holding property built up over decades, waiting is the most expensive choice on the table. Our page on avoiding property tax reassessment walks through the options.
Key Takeaways
- Rentals get no version of the break that lets a child keep a parent’s low tax rate on the family home.
- A trust handles probate. It does not decide how the county taxes rentals when they pass to children.
- Holding property in a business brings a different set of California tax rules into play, which an experienced attorney can plan around.
- Those rules have limits. Done wrong, every property can be taxed at full value at once.
- All of it depends on being in place before the property changes hands.
If you own rental property in the Valley
If you own one rental or several, and you expect them to go to your children, the useful question is not whether your estate plan is well written. It is whether anything in it deals with what happens to the tax bill when those properties change hands.
Call 818-292-8160 or schedule a consultation. We serve families throughout Woodland Hills, Calabasas, Tarzana, Encino, West Hills and the broader West Valley.