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. From a bankruptcy attorney's perspective, understanding these changes is crucial, especially when advising clients on estate planning and asset protection strategies. absolutetrustcounsel.com
Key Changes Under Proposition 19
Under the previous law, 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: vrmlaw.com
- 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. absolutetrustcounsel.com
- Value Limit: The exclusion applies only to the property's assessed value plus $1 million. Any value above this limit is subject to reassessment. vrmlaw.com
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. Alameda County Assessor
- 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 in Bankruptcy Proceedings
In bankruptcy cases, the timing and manner of filing these claims can significantly impact the debtor's estate:
- Asset Valuation: Failure to file timely can lead to property tax reassessment at current market values, increasing the debtor's obligations and affecting the valuation of the estate. Alameda County Assessor
- Exemption Planning: Properly filed claims can preserve lower property tax assessments, potentially freeing up equity and aiding in exemption planning under bankruptcy exemptions.
- Trust Administration: For properties held in trusts, trustees must be diligent in filing necessary claims to prevent unintended reassessments that could complicate bankruptcy proceedings.
Conclusion
Proposition 19's changes necessitate careful planning and timely action to preserve property tax benefits. Bankruptcy attorneys should ensure that clients are aware of these requirements to protect assets effectively during estate planning and bankruptcy proceedings.
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Whenever possible, we work with a client’s investment and tax professionals to ensure a comprehensive plan is put together. Trust funding is also part of this practice to ensure that a trust is properly funded with a client’s present and future assets. Proper planning also includes the review of existing wills and trusts and helping to make amendments to such documents.