Updated: Aug 28, 2021
Proposition 19, which passed by the voters of the state of California last November by a slim 51%, remains largely shrouded in mystery. Although a portion of it took effect on February 16 of this year, the terms of Proposition 19 still have not been formalized into law.
In the meantime, people continue to pass away and the terms of Proposition 19 will affect a child’s ability to keep the lower property tax basis once enjoyed by their parents. Because of this, parents continue to seek a proactive way to avoid or minimize the consequences of this new law. But, we don’t have much in the way of guidance other than the language of the proposition itself and some non-binding interpretations from the California State Board of Equalization.
Before Proposition 19, the principal residence of a parent (no value limit) and up to $1,000,000 (property tax base year value not fair market value) of other real property could be transferred to a child without reassessment. The property remained exempt from reassessment, barring substantial improvements or until transferred again.
With the advent of Proposition 19, the parent-child exclusion has been dramatically limited. The principal residence must now be occupied by the child as their principal residence. If the child moves out (and another child does not move in), then the property will be completely reassessed at that time. The exclusion is also limited to the property tax base year value plus $1,000,000. There is no longer any exclusion for real property other than the principal residence.
Based on what we know now, there isn’t much that can be done to avoid the imposition of Proposition 19’s rules as to the transfer of a parent’s principal residence. Those who own investment real property may be able to take advantage of the separate entity rules for property tax to delay reassessment. Or, they may simply choose to sell or exchange CA investment real property to avoid future reassessment issues altogether.
It is highly encouraged that discuss these issues with your estate planning attorney for advice specific to your situation.