Transferring your legacy
California property tax changes to parent-child exclusion
Recently passed Proposition 19 will seriously limit the ability to transfer California real property to a child without causing a reassessment and higher property taxes. The new law takes effect February 16, 2021, so if you want to and are able to take steps to preserve this benefit it is important that you act immediately.
Because real property in California is not reassessed except on a change in ownership, many California properties are assessed for property tax purposes at values far below their actual market value. Current law provides two ways in which a parent can transfer real property to a child without causing a reassessment that will increase the property taxes on the transferred property. (A child can also transfer property to a parent using these exclusions.)
When Proposition 19 takes effect, two new limits will apply to the transfer of the parent’s primary residence.
Proposition 19 eliminates the second current alternative completely. After February 15, 2021, there will no longer be any parent-child exclusion for a transfer of California real property other than the parent’s primary residence and a family farm.
These new rules will apply to any transfer of California real property after February 15, 2021, whether by a lifetime gift or a transfer at death. They also will apply to any irrevocable trust (such as a Qualified Personal Residence Trust or a trust created for your benefit by a predeceased spouse) that owns California real property and that will pass to your children from that trust in the future.
So if it is important to you to keep a current low assessed value and low property taxes for your children when you transfer real property to them, you should consider whether you want to transfer a property now to take advantage of the current parent-child exclusion. Any current transfer would involve many factors besides property taxes, and you should consult your estate planning attorney promptly to discuss what options might be available to you.
This article was written by Sheppard, Richter, Mullin and Hampton Llp from National Law Review and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to firstname.lastname@example.org.
The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views or opinions of Union Bank, its subsidiaries or affiliates.
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