prop 19 pros and cons 2020

Dear Readers:

Election results are in and Proposition 19 passed. For those of you with children, Prop 19 may have a significant effect on your estate planning.

The first provision of Prop 19 allows property owners who are age 55 or older to relocate anywhere within California to a home of equal or lesser value and carry their old home’s Prop 13 assessed value with them. This is good news for property owners looking to downsize their homes after their children grow up and move out or after a spouse dies and the large family home becomes a bit too much to handle. You could still do this prior to Prop 19, but only within the same county, with some exceptions.

The other change brought by Prop 19 limits how much property parents may pass to their children or grandchildren without reassessment. Until Prop 19, the parent to child transfer reassessment exclusion allowed parents to transfer their residence and up to an additional $1,000,000 of real property to their children without a property tax increase. On top of that, the $1,000,000 exclusion was not measured by the fair market value of each property. Instead, it was based on each property’s assessed value as reported on its property tax bill. In some cases, that resulted in millions in property value passing to children with no reassessment.

Many felt this allowed the creation of property tax dynasties in which the children of wealthy families with multiple properties were allowed to pay far less in property tax on inherited property than first time home buyers have to pay on a property of equal value. This was perceived by many to be unfair.

Commencing on Prop 19's February 16, 2021, effective date, the parent to child transfer exclusion will be limited to just the parents’ residence, and only if the child or children inheriting it will also reside there. Furthermore, the transfer exclusion is limited to the old assessed value plus $1,000,000. Thus children inheriting multi-million dollar homes with low assessed values will still see a property tax increase.

What does this mean for you? You now have only until February 16, 2021, to take advantage of the full benefit of the parent to child transfer exclusion. If you own multiple properties today, you may want to consider transferring some of them to your children prior to February 16, 2021. There are other gift and estate tax and capital gains tax issues that arise with such gifting, so you’ll want to consult with your attorney before doing so.

Len & Rosie