In the ever-changing landscape of estate planning, new laws and regulations can significantly impact your strategies. One recent development Californians should be aware of is Proposition 19, passed in November 2020.
This measure has introduced significant changes to property tax rules, which could have profound implications for your estate planning. In this blog post, we will delve into the nitty-gritty of California’s Proposition 19, examining its key provisions and how it might affect your estate planning decisions.
Whether you’re a homeowner, a potential inheritor, or just interested in understanding the intricacies of this proposition, this article will provide valuable insights. Stay with us as we navigate through the complexities of CA Proposition 19 and its potential consequences on your future planning.
A Brief Overview of CA Proposition 19
California Proposition 19, passed by voters in November 2020, is a significant change to the state’s property tax laws and has important implications for elder law. The measure allows homeowners to transfer their tax base to a replacement home anywhere within the state, an increase from the previous limit of one or two counties.
The Act is especially beneficial for seniors, the severely disabled, and victims of wildfire or natural disasters; it provides these individuals the flexibility to move without experiencing a drastic increase in property taxes.
Moreover, Proposition 19 enables the transfer of a family home or farm between parents and children without causing a change in ownership for property tax purposes. However, it restricts this provision to primary residences only and imposes a new value limit.
While the proposition offers certain benefits, it also increases property tax bills for some, as it amended the state constitution and changed how property taxes are assessed. These changes have significant implications for estate planning and elder law.
How Proposition 19 Affects Estate Planning in California
Proposition 19 has brought significant changes that affect estate planning in California. One crucial aspect is the impact on property held in trust. For instance, a parent leaving real property to their child may face a change in trust ownership, triggering reassessment and potentially higher property taxes.
The new law expands the number of homeowners who can keep the taxable value of a previous home if they move to a new one, even if the new property is in a different county. This flexibility can be beneficial for seniors or those affected by natural disasters, but it also introduces complexities into estate planning.
Limitations Under Proposition 19
A significant limitation under Proposition 19 is the restriction on transferring vacation rentals or investment properties without triggering reassessment. Previously, parents could transfer up to $1 million of the assessed value of secondary properties to their children without reassessment. Now, this provision is completely eliminated.
Moreover, Proposition 19 caps the exclusion of appreciation at one million dollars. Given the surge in California real estate prices, many properties may exceed this cap, resulting in higher property taxes upon inheritance.
In essence, while Proposition 19 offers some benefits, it also presents new challenges and complexities in estate planning.
Pros and Cons of Proposition 19 on Estate Planning
Proposition 19 has introduced several benefits and drawbacks that impact estate planning in California.
The Pros
On the positive side, the proposition allows residents aged 55 or older, disabled homeowners, and those impacted by natural disasters to relocate while maintaining their existing property tax base.
This provision enhances mobility and financial stability for these groups. The measure also enables property tax basis transfer, which can result in potential tax savings.
The Cons
However, Proposition 19 carries significant drawbacks. It eliminates certain property tax exemptions previously available under Prop. 193 and Prop. 58 on the transfer of non-primary residences, with some exceptions for agricultural property. This change could lead to increased property taxes for heirs inheriting such properties.
Another downside is the restriction on the intergenerational transfer of vacation rentals or investment properties without triggering reassessment. This could increase the property tax burden for children inheriting these types of properties.
Furthermore, Proposition 19 caps the exclusion of appreciation at one million dollars, which considering the dramatic surge in California real estate prices, may result in higher property taxes upon inheritance.
Strategies for Estate Planning Under Proposition 19
Navigating estate planning under the new rules of Proposition 19 requires careful strategy and foresight. One approach to avoid reassessments under Prop 19 is creating a Family Property LLC. This strategy may allow you to maintain your current property tax base during the transfer of property.
Another critical strategy is to focus on the primary residence, as Proposition 19 has eliminated almost all exemptions on parent-child transfers other than the primary residence. Ensuring the property is classified as a primary residence can be a beneficial move.
Property tax planning must now be integrated with estate planning due to the implications of Prop 19. This might include considering the potential property tax implications when deciding whether to hold onto property or sell it.
Estate planning attorneys can provide expert advice on Prop 19 transfer strategies, potentially saving hundreds of thousands in property taxes. It’s crucial to seek professional advice to navigate the complex changes brought about by CA Proposition 19.
Lastly, parents should note that they can no longer transfer real property that is not their primary residence to their children without triggering reassessment. Hence, revising estate plans to reflect this change can be beneficial.
Get Estate Planning Legal Services Today
Navigating the complexities of California Proposition 19 can be challenging without the right expertise. Working with an experienced real estate lawyer is crucial to understanding its implications on your estate plan.
A seasoned real estate attorney can help you strategize and protect your estate from potential tax consequences, ensuring your heirs get the maximum advantage. It’s essential to seek professional advice to make the most of Proposition 19.
Nick Beljajev Law is here to guide you through this process. Don’t hesitate, take proactive steps to protect your estate today. Call us at (714) 425-5862 or fill out our contact form to book your free consultation.
