For decades, many California families assumed they could pass real estate to their children without major property tax consequences. Proposition 19 dramatically changed that landscape.

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Families throughout Orange County are now discovering that inherited property may be reassessed to current market value, sometimes causing property taxes to increase by thousands or even tens of thousands of dollars per year.

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What Changed Under Proposition 19?

Before Proposition 19, many parent to child transfers avoided reassessment regardless of whether the property was:

• a rental

• vacation property

• family investment property

• inherited home

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Now, the rules are far more restrictive.

In many situations:

• the child must move into the property as their primary residence

• filing deadlines must be met

• homeowner exemptions must be maintained

Otherwise, reassessment may occur.

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Why This Creates Problems for Families

Many California families own homes purchased decades ago with very low Proposition 13 tax bases.

 

Examples we commonly see:

• parents purchased home for $150,000 decades ago

• current market value exceeds $1,800,000

• annual property taxes remain relatively low

 

After reassessment:

• taxes may increase dramatically

• inherited homes may become unaffordable

• beneficiaries may feel forced to sell

 

Sibling Buyouts Create Additional Risk

One of the biggest traps under Proposition 19 involves sibling buyouts.

Example:

• three siblings inherit a home

• one sibling wants to keep the property

• that sibling buys out the other two

 

Depending on how the transaction is structured, reassessment issues may arise.

 

Families often assume:

“It’s all staying within the family.”

 

Unfortunately, California property tax law does not always work that way.

 

Trust Planning Matters More Than Ever

Poorly drafted trust language can create:

• liquidity problems

• unequal inheritance issues

• forced sales

• property tax exposure

• beneficiary conflict

 

Many older trusts were drafted before Proposition 19 existed and may not adequately address modern property tax concerns.

 

Proposition 19 Planning Is Not One Size Fits All

Every family situation is different.

 

Important considerations may include:

• whether children intend to keep the property

• whether the property is a rental

• blended family concerns

• trust structure

• capital gains consequences

• long term investment goals

• Medi-Cal considerations

 

Planning Before Death Often Creates More Options

Many of the best planning opportunities occur before a property transfer happens.

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Waiting until after death may significantly reduce flexibility.

Families often benefit from reviewing:

• trusts

• deeds

• ownership structures

• tax basis issues

• succession plans

• buyout strategies

before a crisis occurs.

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California Proposition 19 Guidance

At California Estate Planning Services, we regularly help families evaluate Proposition 19 property tax issues involving estate planning, trust administration, inheritance planning, sibling buyouts, and family real estate transfers throughout Orange County.

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If your family owns California real estate and you are concerned about future property tax consequences, contact our office to discuss your planning options.