Proposition 19, approved by California voters on November 3, 2020, and effective February 16, 2021, introduced significant changes to property tax reassessment exclusions for intergenerational transfers. Previously, Proposition 58 provided for much more favorable property tax reassessments. Understanding these changes is crucial, especially when advising clients on estate planning and asset protection strategies.
Key Changes Under Proposition 19
Under the previous law (Proposition 58), parents could transfer their primary residence and up to $1 million of other real property to their children without triggering a property tax reassessment. Proposition 19 narrows this exclusion:
- Primary Residence Requirement: The transferred property must be the parent's principal residence and become the child's principal residence to qualify for the exclusion.
- Value Limit: The exclusion applies only to the property's assessed value plus $1 million. Any value above this limit is subject to reassessment.
Filing Requirements and Deadlines
To benefit from the reassessment exclusion:
- Homeowners' Exemption: The child must file for the homeowners' exemption within one year of the transfer date, which is typically the date of the parent's death. This exemption confirms the property as the child's principal residence.
- Claim for Reassessment Exclusion: The child must file a Claim for Reassessment Exclusion (Form BOE-19-P) within three years of the transfer date or before transferring the property to a third party. Filing within this period allows the exclusion to apply retroactively to the date of transfer.
Implications
The timing and manner of filing these claims can significantly impact the debtor's estate:
- Failure to file timely can lead to delayed property tax reassessments
- Properly filed claims can preserve lower property tax assessments
- For properties held in trusts, trustees must be diligent in filing necessary claims to prevent unintended and delayed reassessments
Conclusion
Proposition 19's changes necessitate careful planning and timely action to preserve property tax benefits. Successor trustees, beneficiaries, and heirs need to be aware of these requirements to protect assets effectively during estate planning and estate administrations.
Certified specialist David Arietta offers comprehensive services for creating and updating wills and trusts to ensure your wishes are respected and to manage your assets effectively. Wills are fundamental for detailing how your estate should be handled, appointing executors, and addressing guardianship issues for children, while trusts can streamline asset distribution, avoid probate, and offer control and privacy benefits. Additionally, we provide powers of attorney and advance health care directives, empowering individuals to make financial and medical decisions on your behalf if you become incapacitated, essential for everyone regardless of estate size.