Proposition 19 (also known as ACA 11), which will go to a vote on November 3, calls for the repeal of Prop. 58 and Prop. 193, leading to the creation of a new, far more narrow, ownership exclusion. If passed, the outcome of this proposition will have dramatic consequences for our clients, as the long-standing use of Prop. 58 and Prop. 193 allowing for the exclusion of property tax reassessment from parent to child and grandparent to grandchild could be dramatically altered.
The details of the proposition can be found on the Ballot Measures section of CA Secretary of State’s website (sos.ca.gov/elections/ballot-measures). The ability for children and grandchildren to inherit family farms, commercial properties, rental homes, or anything but owner-occupied single-family homes with present values less than $1M may be eliminated as of February 15th, 2021. This change will leave several beneficiaries with no way to preserve the family wealth that generations have built up as they will be forced to sell these legacy properties since the taxes would skyrocket to unaffordable levels.
A Quick Look at Proposition 19
California Proposition 19, the Property Tax Transfers, Exemptions, and Revenue for Wildfire Agencies and Counties Amendment will appear on the CA ballot as a legislatively-referred constitutional amendment.
Essentially, the ballot measure, if passed, would change the rules for tax assessment transfers. In California, eligible homeowners (those over 55, those with severe disabilities, and victims of natural disasters or hazardous waste contamination) can transfer their tax assessments to a different house of the same or lesser market value, which means they can move without paying higher taxes.
The ballot measure may allow eligible homeowners to transfer their tax assessments to anywhere within California, allowing tax assessments to be transferred to a more costly home with an upward adjustment. The number of times a tax assessment can be transferred could increase from one to three.
Presently, parents or grandparents in California can transfer primary residential properties to their children or grandchildren without a limit on the value, and without the tax assessment being reset to market value. Other types of properties, such as business properties and vacation homes, can also be transferred from parents to children or grandparents to grandchildren with the first $1 million exempt from reassessment when transferred.
The ballot measure could eliminate the parent-to-child and grandparent-to-grandchild exemption if the child or grandchild does not plan to use the inherited property as their principal residence, such as when using it as a second home or rental income. When the inherited property is used as the recipient’s principal residence but has a market value of more than $1 million, an upward adjustment in assessed value would take place.
There is no telling what will happen at the polls come November, so we are advising estate planning attorneys to advise their clients who are involved in an equalization or distribution to complete the transaction well before the February 15th deadline. HCS Equity is prepared to provide a third-party loan to a trust or estate to assist with the equalization, backed by plenty of capital and resources available to get these transactions completed before it is too late.
To learn more about Proposition 19 and how it will affect you or your clients, contact HCS Equity at 844-394-9300.