By John Ambrecht
New state rules that go into effect Feb. 16 could substantially increase property taxes for children or grandchildren who inherit family property. To protect your family’s assets, it’s important to take immediate action, by reaching out to a financial planner or attorney.
The change is due to Proposition 19, approved by California voters on Nov. 3. The ballot measure did two substantial things:
• It allows homeowners 55 and older, those with disabilities and those impacted by wildfires or other natural disasters to move up to three times and take their current tax assessment with them, up to the current value of their home.
• It eliminates the exemption that allowed children and grandchildren to inherit homes and preserve the existing property tax assessment unless the home becomes the heir’s primary residence.
Currently, parents can leave their child a home without it undergoing a property tax reassessment, regardless of whether the child plans to live in the home. Proposition 19 changes that, which means the home’s annual real estate tax could be reassessed using its current fair market value.
That could drive up property taxes substantially, in some cases necessitating a sell-off.
California law allows an established assessed value to be increased no more than 2% per year unless there is new construction or a change in ownership.
But children and grandchildren can continue to use the current assessment before Feb. 16, with options including transferring ownership directly to children or by creating a trust. Consult a financial planner or attorney to see what could work best for your family.
Supporters of Proposition 19 argued it closed “unfair tax loopholes used by East Coast investors, celebrities, and wealthy trust fund heirs on vacation homes and rentals.” What it left out was the wide-ranging implications for middle-class families, who could be forced to sell perhaps their only major asset.
Families who have owned property for decades have made lasting, meaningful contributions to the stability and growth of their community. Make sure that legacy remains intact.
The new rules got into effect Feb. 16. The time to act is now.
• John Ambrecht is an estate planning and tax specialty law attorney in Santa Barbara. He can be reached at [email protected]