HOW PROP 19 AFFECTS PROBATE

PROPOSITION 19 ON INTRA-FAMILY TRANSFERS 

As we all considering Prop 19 it’s good to note the pros and cons of the proposition. But as I delved deeper into the proposition, I found out that it dramatically affects inheritance.  

PROPOSITION 19 OVERVIEW 

First, let’s review what is included in proposition 19. The law gives the ability for qualified homeowners (55 years and above, homeowners with disabilities, and victims of wildfires and other natural disasters) to transfer and retain their property tax value to a new property anywhere in the state of California. It provides a great opportunity, especially for wildfire and other natural disaster victims, to save the extra money on the possible reassessment as with the previous law. But for families planning to transfer their properties to other family members, it’s best to have an open mind when reading into the new law. The proposition removes the exemptions on tax reassessment on children or grandchildren’s property inheritance. Unless the inheritor uses the real property as their primary residence, the child will have to face a significant increase in the property tax value reassessment. You will have to make a decision with your property attorney and make plans with the involved parties before the implementation of this portion of the proposition before February 16, 2021.   

Group of multiethnic senior friends spending time together and laughing

PROP 19 AND PROBATE 

The proposition leans more to the advantage of qualified homeowners who plan to move to a new property without a tax increase burden. But some fail to realize that this is only one side of the coin. Suppose a spouse of a deceased person decides to distribute the properties. In that case, it’s best to seek professional help as soon as possible and look into what the proposition offers regarding the transfer of inheritance and other assets.   

If an inheritor decides to keep the transferred property and turn it into a primary residence, the property tax paid will not be the same as with their parents. Still, it will have up to $1 million of the reassessed value excluded from the new property-tax basis. Suppose the inheritor keeps the property but only uses it as a vacation or a secondary home. In that case, there will not be a $1 million exclusion, and the inheritors may face a tax increase. 

Proposition 19 eliminated the longstanding protection from tax reassessment of parent-to-child transfers. Initially, this portion of the law aimed to eliminate unfair tax loopholes used by East Coast investors, celebrities, and wealthy non-Californian residents and trust fund heirs. One of the loopholes taken advantage of for quite some time now is the monopoly of properties only distributed to their descendants.   

The tax increase garnered would then be used to extend the funds for firefighters and wildfire containment. But as further discussion improved, prop 19 affects probate, posing a disadvantage to ordinary homeowners who wish to transfer their properties upon their passing. It will be more likely to force homeowners to push through selling the property rather than passing it down to their descendants.   

FINAL THOUGHTS 

Property transfers have been a safety net for passing down a family inheritance without tax reassessment for the family’s next generation.  But with the proposition being just around the corner, it’s better to be familiar with its terms and clauses, especially on how prop 19 affects probate.  

As a top producing agent with 20+ years of experience in the East Bay, I have helped hundreds of clients showcase and maximize the sale of their homes in the Greater San Francisco Bay area and the counties of Alameda and Contra Costa. My experience as a former appraiser allows me to help my clients understand the market. If you have any questions, I am here to be a resource for you.