Proposition 19 creates changes that should be considered when planning your estate, or when preparing for the probate sale of California real estate. The new rules affecting transfers of inherited property take effect February 16, 2021.
California’s inherited real estate will be subject to higher tax assessments under Proposition 19. In essence, property will automatically be reassessed upon the death of the owner, with limited exemptions allowed.
In the case of inherited vacation and rental properties, no exemptions will apply; these properties will be re-assessed at full market value when ownership changes hands.
To qualify for a reassessment exclusion, the decedent’s heir(s) must use the property as their primary residence. A homeowner’s exemption application must be filed at the transfer of ownership, or within one year of the transfer of ownership.
If there is more than one heir or beneficiary, all parties would need to use the property as their primary residence. The primary residence exclusion has a cap of $1,000.000 above the current assessed value.
Also, for the above exclusion to be allowed, the property in question must have been the primary residence of the deceased.
While we cannot provide legal advice to you, our understanding is that a basic will or trust cannot avoid property reassessment under Proposition 19. However, property held in joint tenancy may be excluded from reassessment if the joint tenant also lived in the property as a primary residence for at least one full year. Please discuss your situation with a qualified estate planner who can give you specific legal guidance.
With the limited scope of exclusions, Proposition 19 may create an untenable tax obligation for the beneficiaries of an estate if they are unwilling, or unable, to occupy inherited property as a primary residence.
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