California Proposition 19

Proposition 19 is a constitutional amendment that substantially restricts property tax benefits for real property inherited by children from parents, while substantially expanding base-year value transfers of property for persons over age fifty-five. It will be effective started February 16, 2021.

Under current law, parents can transfer a principal residence of unlimited value plus up to $1 million of adjusted base-year values of any non-principal residence properties to their children without triggering reassessment. Proposition 19 severely limits these non-reassessment transfers. Effective as of February 16, 2021, the parent to child reassessment exclusion will be limited to the principal residence of the parent and will require that the child utilize the property as their own principal residence. Additionally, even if the child utilizes the residence as his or her own, there is a cap of $1,000,000 on the exclusion.

As the new law is effective February 16, 2021, there is a sense of urgency that is creating a bit of panic among many of our clients. Let me try to calm those fears.

IF one or more of your children would move into your primary residence as their primary residence after your death, you do not need to do anything at this time.

IF your children most likely will sell the family home, rental properties or commercial properties after your passing, you do not need to do anything at this time. Section 1014 of the Internal Revenue Code provides that properties that you own receive a step up in basis after you pass, thus "washing away" all capital gains upon your death. On the other hand, if you give the property to your children during your lifetime, your adjusted basis carries over to them, and they essentially inherit your capital gains. The ability to receive a step up in basis on properties owned by you at your passing can save tens of thousands of dollars in capital gains taxes, and is often far better than potentially saving thousands of dollars in property taxes by gifting property at this time.

IF you have a vacation home that your children will most likely retain when you die and are therefore not concerned with potential capital gains taxes, it is worth considering gifting the property to one or all of your children before February 15, 2021, either as an outright gift or in an Irrevocable Trust.

IF you have rental properties and/or investment properties well in excess of $1 million in value, you should consider placing those assets into a limited liability entity and gifting fractional interests to your children, grandchildren, etc. to protect the current assessed value from reassessment upon your death.

The other components of Proposition 19 are beneficial to seniors.

Under current law, Proposition 60 allows a person who is over age fifty-five to sell their principal residence and transfer its base-year value to a replacement dwelling of equal or lesser value assuming it is in the same county or one of the ten counties that allow transfers from other counties. This transfer is only allowed once. Proposition 19 expands these transfers to three transfers per lifetime, in any county, and can be utilized when the purchase price of the replacement property is greater than the purchase price of the original property. In the case of a property purchased with a higher value than the original property, the new taxable value would be equal to that of the taxable value of the original property, plus the difference in value between the sales price of the original property and the sales price of the replacement property. The new law also expands the persons these transfers are available to by including victims of wildfire or other natural disasters.

If you are planning on transferring non-principal residence property to your children, or are currently utilizing a Qualified Personal Residence Trust (QPRT) with a vesting date after February 16, 2021, please contact Anne E. Rosenthal's assistant, Joelle Vera (916-419-2100), to schedule an appointment to further discuss your planning options. As the window to make pre-Proposition 19 transfers is limited, your prompt attention is appreciated.

This testimonial or endorsement does not constitute a guarantee, warranty or prediction regarding the outcome of your legal matter.