The Proposition 19 Kerfuffle

The stealth passage of Prop 19 is actually a significant change and affects the ability to keep real estate in the family after the original owners die.

In a (simplified) nutshell, before Prop 19 took effect (February 16, 2021), children receiving the primary residence from a parent would also inherit the same low property tax base under Prop 58. For example, if mom paid $2,000 in annual property taxes at the time of her death, her children would inherit the property with the same $2,000 property tax basis.

Under Prop 19, a primary residence bequeathed to children would be fully reassessed for property tax purposes at today’s fair market value. So the $2,000 in annual property taxes that mom paid could easily increase to $20,000 a year after her death. There is a minor exception if a child lives in the residence, but the details are vague. 

Under Prop 58, parents could also leave additional real property to their children (up to $1,000,000 in assessed value), without an increase in the property tax basis. The passage of Prop 19 completely eliminates this benefit.

What does this mean for the average person? It means that on the death of a parent, the family home and/or vacation home is more likely to be sold than kept in the family because the property taxes will increase exponentially. Not surprisingly, the California Association of Realtors lobbied hard for the passage of this bill.

Families scrambled during the end of 2020 and the beginning of 2021 to address this new law. Parents made hurried life-time transfers of real estate to their children before the Prop 19 kicked in. Estate planning lawyers offered their wealthier clients aggressive and largely hypothetical strategies to preserve the low property tax basis.

Because Prop 19 presented such a dramatic change to the law and the quick passage gave families so little time to get their affairs in order, Senator Patricia Bates sponsored Senate Bill 668 seeking to delay the property inheritance provision of Prop 19 until February 16, 2023.

http://www.oc-breeze.com/2021/03/03/194396_sen-patricia-bates-seeks-to-delay-part-of-prop-19-to-help-families/ 

So after tremendous gnashing of teeth and folks taking aggressive (and expensive) legal countermeasures to work around Prop 19, the law may not be implemented until 2023! Stay tuned to see how this all plays out.