11/25/2020 Update – Proposition 19 and Changes to Property Tax Rules

Proposition 19 and the Change in Property Tax Rules:

Proposition 19 recently passed in California, and contains two main changes in California property tax assessments that may impact your estate planning.

 Changes to the Parent-Child Exclusion and Grandparent-Grandchild Exclusion

Effective February 16, 2021, Proposition 19 will substantially restrict the availability of the parent-child exclusion from property tax reassessments.

Under the current law, a property owner can leave their primary residence and up to $1,000,000 of assessed value of other real estate to their children, and the assessed value would transfer with the property to the child.

After Proposition 19 becomes effective, the inherited assessed value can only be transferred to the child (or qualifying grandchild) subject to the following requirements:

  • It is the parent’s primary residence;
  • The child (or qualifying grandchild) is going to use the property as their primary residence; and
  • The reassessment exemption applies only to the extent the fair market value of the property does not exceed the assessed value by more than $1,000,000 (subject to inflation after February 16, 2021). If the difference in value in the property exceeds $1,000,000, the increase after the $1,000,000 is added to the tax assessed value.

The lifetime $1,000,000 non-principal residence exemption will be eliminated entirely, and any non-principal residence transfer will trigger a reassessment in property taxes.

Best practices would dictate that any changes made to your estate plan in anticipation of Proposition 19 be made well before February 15, 2021. Any transfers after February 15, 2021 will be subject to Proposition 19.

Changes to the Transfer of Taxable Value for Seniors, Disabled, or Wildfire Victims

Proposition 19 also expands the class of eligible homeowners who could transfer the tax assessment to a newly-purchased or newly-constructed home, allowing them to move to a new home in California without paying higher property taxes. Prior to Proposition 19, eligible homeowners would only be able to make this transfer once in their lifetime, to a property of equal or lesser market value, within the same county or to a county that accepts the transfer.

Effective April 1, 2021, all homeowners over age 55, certain disabled individuals, and victims of wildfire or other natural disasters, regardless of age, will be able to transfer the taxable value of their current home to a new home, including a more expensive home, anywhere in California, up to three times during their lifetime.

Please consult with your attorney regarding the effects on Proposition 19 to your estate, and what options you may have before its enactment in 2021.