Prop. 19 Webinar Replay, Prop. 19 Overview and Q&As from the Webinar
Our webinar focuses primarily on Prop 19’s effect on gifted and/or inherited properties. There are two main criteria when determining if a property is excluded from reassessment under Prop 19 and they are:
Is the property the primary residence of the transferor? (typically the parent)
Will the property become the primary residence of the transferee? (typically the child).
What is Prop 19?
California's Proposition 19, a significant piece of legislation, was enacted on February 16, 2021, and it brings about substantial changes in the realm of property transfers and taxation.
This proposition primarily focuses on two key areas:
Property Transfers Between Parents and Children:
Proposition 19 alters the rules regarding the transfer of real property from parents to children. Under the previous laws, such transfers often allowed children to inherit their parents' property tax basis. However, Proposition 19 limits this ability, meaning that in many cases, the children will inherit the property tax basis of the current market value of the property. This change can result in higher property tax bills for those inheriting property, particularly if the property has significantly appreciated over the years.
Senior Homeowners:
Proposition 19 also introduces changes for senior homeowners, allowing them to take their property tax basis with them when they move. This provision is intended to provide greater flexibility for seniors to downsize or relocate without facing a significant increase in property taxes.
The impact of Proposition 19 on property transfers and taxation is substantial, affecting homeowners and their families. Adequate understanding of the intricacies of this proposition is crucial for individuals looking to navigate these new rules effectively. Estate planning and careful consideration of the implications of property transfers have become even more vital in this changed legislative landscape. Proposition 19 is an essential topic for anyone involved in California real estate, and being well-informed about its implications is critical for making informed decisions.
Consequences of Inadequate Planning
A living trust can be a valuable estate planning tool in California, and it may help mitigate some of the issues associated with Proposition 19. Here's how a living trust can be used to address some of the potential challenges introduced by Prop 19:
- Placing your primary residence in a revocable living trust while you are alive may allow your heirs to inherit the property without triggering a reassessment, even if they exceed the income limitations. This can help maintain the property tax basis and potentially reduce property tax expenses for your heirs.
- A Trust gives you control over the distribution. If you have a child that you know will live in the house you can gift that property to them in the Trust or give them the first right of refusal take the property as a part of their overall share.
- Under Prop 19, property tax reassessment was limited for certain transfers between parents and children or grandparents and grandchildren. However, there are income limitations on the heirs.
- When you pass away, property held in a living trust can be distributed to your heirs without going through the probate process. This can streamline the transfer of assets to beneficiaries and potentially help them qualify for the property tax benefits allowed under Prop 19.
- A Trust gives you flexibility. If several children are the beneficiaries, you can claim the exemption if only one lives in the house. Also a Trust is an environment where a buy-out can be structured that would preserve the exemption.
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