What Does Proposition 19 Mean for Estate Planning and Inheritances?

If you live in California, you’ve probably heard a lot about Proposition 19. It was on the ballot in the 2020 general election alongside Proposition 15. Proposition 15 would have raised taxes on commercial properties, but it was defeated in the vote. Proposition 19, however, was passed by the state of California. What exactly does it mean?

Before we explain it, let’s take a brief look at who it applies to:

  • California homeowners over the age of 55
  • California homeowners who lost their home to a natural disaster
  • California homeowners with severe disabilities

For all of these groups, Proposition 19 means they can move and transfer their current home value onto their new house. The value of a home is determined by tax assessment and dictates how much homeowners have to pay each year in taxes. It tends to go up over time, meaning homeowners will have to pay more taxes if their home value is reassessed. With Proposition 19, some homeowners can transfer their existing home value onto a new house of a similar price range.

Who Does it Not Apply To?

There is another change arising from Proposition 19. Since it was passed, children or grandchildren who inherit property from their family will now have the property’s tax value reassessed. Importantly, this rule does not apply to those whose primary residence is the inherited property. This means that if you inherit a house and live there, your home value will stay the same as it was for your family. However, if you inherit a house and rent it out or use it for your business, the tax will be reassessed and likely go up.

Getting Around the Exemption

For those inheriting property whom the exception does not apply to—such as those who already have a primary residence when their parents pass away or want to use the inherited property to help their career—the tax reassessment is bad news. It ends the practice of parents’ being able to leave a house they own to their children with very little outside involvement. There are a few alternative paths you can take to work around Proposition 19, though:

  1. Gift the property now. If you are concerned about how your property will be handled after you’re gone, consider passing on the ownership now. This will put you in charge of the legal process. Although you must trust the person to whom you are transferring the property and there are certainly risks in doing this, it doesn’t mean that you have to leave the house now, just legally change the ownership.
  2. Create a Trust. A Trust, unlike a Will, is funded while you are still alive. Trusts can be revocable, or irrevocable. A revocable trust will do nothing to prevent reassessment under Proposition 19. However, there are numerous kinds of irrevocable trusts, and one of them may do the trick to prevent reassessment.
  3. Form a Business. You can transfer a rental property that would otherwise be subject to reassessment to a business (i.e. LLC) that is owned by you and/or your spouse and children. You may be able to strategically transfer ownership in the business over time, or through an inheritance, in a way that will avoid reassessment under Proposition 19.
  4. Talk to an Attorney. Every situation is different, and we won’t know what is best for you unless you reach out first. Proposition 19 does not mean the end of inheriting property in California, it just means that it takes more careful planning.

With the passing of Proposition 19, you may be uncertain of how your property or inheritance is affected. If you need help with estate planning or your family and business, contact the Law Offices of Tyler Q. Dahl. Our dedication to quality legal advice and representation, respect, and trust are the foundation of our business and our relationship with clients.

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The Law Offices of Tyler Q. Dahl

At the Law Offices of Tyler Q. Dahl, we’re not just a law firm. We’re your trusted advisor for your business and family from beginning to end. As your family and business grow, we will be there by your side. Our passion is providing you with peace of mind and protection through personalized estate and business planning. Attorney Tyler Q. Dahl is one of less than 100 attorneys in the nation who is also a Certified Tax Coach.

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