Prop 19 Effects on Inherited Property for California residents

On November 3, 2020, California voters approved Proposition 19, a measure that brings significant changes to the way inherited property is treated in the state. This new law has important implications for California residents who are planning to pass down property to their heirs. In this blog post, we will explore the effects of Prop 19 on inherited property and what it means for you and your family.

What is Prop 19?

Prop 19, also known as the Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act, is an amendment to California's state constitution that replaces certain provisions of Proposition 58 and Proposition 193, which previously governed the transfer of property between parents and children or grandparents and grandchildren.

Changes to Property Tax Assessments

One of the key provisions of Prop 19 is the change it brings to property tax assessments for inherited properties. Under the previous rules, when a property was transferred between parents and children or grandparents and grandchildren, the property's tax assessment would generally remain unchanged. This meant that the property could be passed down to heirs without triggering a reassessment of its value for property tax purposes.

However, with the passing of Prop 19, the rules have changed. Starting February 16, 2021, inherited properties not used as the primary residence of the new owner will be reassessed at market value for property tax purposes, and thus, property taxes on the inherited property may increase significantly.

Impact on Family Homes

One of the most significant effects of Prop 19 is on family homes. Under the new law, if you inherit a family home and intend to use it as your primary residence, you may be eligible for a property tax transfer. This transfer allows you to retain the original property tax assessment of the home, even if its market value is higher than the assessed value.

However, it's important to note that there are certain limitations to this provision. The exemption only applies if the market value of the inherited property does not exceed $1 million more than its assessed value. Additionally, the transfer must be completed within one year of the transferor's death.

Other Implications of Prop 19

Aside from the changes to property tax assessments, Prop 19 also has other implications for inherited property in California. For instance, the new law eliminates the parent-child and grandparent-grandchild exclusion for properties not used as the primary residence of the new owner. This means that if you inherit a property that is used as a rental, secondary, or vacation home, it must be reassessed at market value for property tax purposes.

Additionally, Prop 19 allows eligible homeowners who are over 55 years old, disabled, or victims of wildfires or natural disasters to transfer their property tax base to a replacement property. This can be a significant benefit for those who wish to downsize or relocate without facing a substantial increase in property taxes.

Planning Ahead

Given the changes brought by Prop 19, it is crucial for California residents to review their estate plans and consider the implications for their inherited properties. Consulting with a qualified estate planning attorney can help you navigate the complexities of the new law and ensure that your assets are protected and transferred according to your wishes.

Conclusion

Overall, Prop 19 has introduced significant changes to the treatment of inherited property in California. Understanding the implications of this new law is essential for anyone who plans to pass down property to their heirs. By staying informed and seeking professional guidance, you can make informed decisions about your estate plan and ensure the smooth transfer of assets to future generations.

Contact Khalil Law Corporation for all your estate planning needs today!