Estate Planning After the Election

California Proposition 19 Creates a Limited Time Frame to Transfer Certain Appreciated Real Property to Lock in Current Tax Benefits

Although the election results will not be certified until December 11, the “Unofficial Election Results” on the California Secretary of State’s website shows that Proposition 19 has passed by a slim margin.  While Proposition 19 provides additional property tax benefits to homeowners who are 55 or older, severely disabled, or wildfire victims, it also severely limits the ability of parents to pass property to their children without reassessment for property taxes.  Families may wish to consider transferring appreciated real properties to children or grandchildren prior to February 16, 2021, to take advantage of the benefits available under the current rules.

Affected Property:

  • Commercial and rental properties
  • Second homes
  • Principal residences that have appreciated
  • more than $1 million

Proposition 19 Changes, Effective Feb. 16, 2021:

Under current law, parents and eligible grandparents can transfer a primary residence of any value and up to $1 million of assessed value of other property without reassessment. Proposition 19 abolishes the reassessment exclusion for any property that will not be used by the recipient as a primary residence or farm.  A transfer of a family home will avoid reassessment only if the recipient begins using it as his or her primary residence within one year of the transfer and the difference between the assessed value and current market value does not exceed $1 million (indexed for inflation). If the transferred property is used as the new owner’s primary residence, but the difference in value exceeds $1 million, then the home will be partially reassessed, but not to full market value, according to a formula. 

Estate and Gift Tax Considerations:

There is much speculation about whether the gift and estate tax exclusion amount, which is $11.58 million per person and $23.16 million per married couple in 2020, will decrease under the Biden administration. The exemption amount is set to automatically decrease to $5 million, adjusted for inflation, at the end of 2025.  Now there is concern that this decrease may be accelerated, or the exemption reduced even further.  Many wealthy taxpayers are considering using their remaining exemption amounts sooner rather than later.  Gifts of appreciated California real estate could be made to address both the changes coming under Proposition 19 and the risk of a decreased gift and estate tax exclusion amount.

For more information, please contact SCMV estate planning attorney Rhonda Crandall.

November 24th, 2020  |  Categories: News, Estate Planning & Administration
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