Here is a bit more information about Prop 19:
When California voters approved “Proposition 19” last November, it potentially reduced your children’s ability to retain your below market property tax assessment when they inherit your primary residence and could even force them to sell it. As a result, if you pass away after February 15, 2021, or gift your home to your children after that date, the property taxes may go way up, reflecting the full fair market value of the property, unless one or more of your children will actually reside in your home as their principal residence.
Therefore, if you plan to keep your home rather than sell it, and wish to have one or more of your children inherit it, but none will likely live in it as their primary residence, you may want to transfer your home to your children (or better yet, perhaps to a trust for them) right away, so they may continue to take advantage of your low property tax assessment.
This type of property transfer has both pros and cons which you will need to weigh in your decision whether or not to proceed. Plus, it entails a great deal of detailed work that must be handled properly and quickly – – including deed preparation, establishment of a specialized trust, completion of a property tax reassessment exemption form, signing and in some cases also notarizing of these documents, and filing and recording of the deed and exemption form – – all before February 15th, 2021.
Due to the urgency and complexity of such a transfer of your home, we are offering, on a first come, first serve basis, a one-hour consultation for $750. At the conclusion of the meeting, if you wish to move forward with the transfer by means of a specialized trust or deed, we will quote you a fee for the necessary work. The minimum fee will be $5,000 for trust-related work, but may be more depending on the complexity of the needed planning, which could include modification of your existing trust-based planning. Please realize, however, that these fees could be a small fraction when compared to the tens or hundreds of thousands of dollars it may save your children in coming years in property taxes.
To schedule your consultation by Zoom or in person, simply call our office at (916) 437-3500. Due to the tight time limits involved, our capacity to assist is limited, and will be provided on a first come, first serve basis. If you are serious about saving property taxes for your children, you should act now.
FREQUENTLY ASKED QUESTIONS
Will my existing Living Trust preserve my low property tax rate for my children?
Answer: For most clients, no. With a revocable Living Trust, the actual transfer to your children does not occur until your death. Assuming your death occurs after February 15, 2021, your children may not be able to maintain your low tax base with only a living trust. This is why you may need to act now
If my child receives the property directly or in trust after I die, and lives in it as his or her principal residence, doesn’t he or she automatically qualify to maintain my low tax base?
Answer: At least in part. If the fair market value at your death is more than your tax base plus a $1 million exemption, any excess may be subject to reassessment regardless of whether the child lives in it. For example, let’s say your tax base is now $500,000 and the home’s market value at death is $2 million. The $2 million value exceeds your tax base plus exemption (a total of $1.5 million) by $500,000, and that $500,000 will be added to your inherited tax base. So, if you have a low tax base but potentially high market value at death, you may want to complete the transfer to your child (or, better yet, to an irrevocable gift trust, separate from your Living Trust) before February 15.
Can I continue to live in my home after I transfer it to my children (or to an irrevocable gift trust for them)?
Answer: Depending on the facts, there may be a way for you to continue to reside in it. This would be determined during your consultation.
I heard that the State Legislature may overturn Prop 19 as the result of an outcry by some Californians who did not realize this provision was part of it. If that’s true, why should I act before February 15?
Answer: As a law firm, we cannot control future changes to the laws enacted by Congress, the California Legislature or the people of California through the initiative (proposition) method. Accordingly, any legal planning we do may need to be revised due to those law changes. We do attempt to keep our clients apprised of significant law changes both through our blogs and newsletters.
With that said, when a Proposition becomes law, it is part of the State Constitution and can only be overturned by a subsequent proposition voted on in a statewide election (which may not occur for another two years). It cannot be eliminated by a simple act of the Legislature. There is some speculation that the Legislature may issue regulations defining how Prop 19 will work, including possibly deferring the February 15 deadline. Because of these uncertainties, it may be a better option to act now. One of the benefits of transferring the home to an irrevocable trust, rather than directly to children, is that it may permit the planning to be reversed later, depending on what happens with the law, and to do so in a way that the return of the home to you will not be considered a gift back by your children, which may cause certain tax problems.
My parent has already passed, but the deed to the home has not yet been transferred to me (or to a trust for me, as provided in her estate plan). Do I need to make sure the deed transfer happens before February 15 in order to maintain my parent’s low tax base?
No. The transfer for property tax purposes was deemed made on the date of your parent’s death. So you can keep your parent’s low tax base without having to do anything before February 15.
If I transfer my home to my children now (or to an irrevocable gift trust for them), will they lose the “step-up in basis” at my death and have to pay more capital gains taxes if they sell it after I’m gone?
Answer: An irrevocable gift trust may be designed to retain the desired step-up in capital gain basis that can occur at your death. A transfer made directly to your children will not.
Can I do this type of planning to maintain my low tax base with a rental property or a vacation home?
Answer: There are very limited, if any, other types of planning options available before February 15. These can be addressed in your consultation.
How certain are you about the benefits of Prop 19 planning?
Unfortunately, like many new laws created by a proposition, the proponents of Prop 19 didn’t consider or address all of the impacts of the law changes brought about by the passage of Prop 19. Given the relative recency of its passage, certain details concerning the new law will likely be addressed by further guidance and regulations issued by state and local agencies, such as the Board of Equalization and county tax assessor’s offices. Court decisions may also provide further clarification. However, at this time, we do not yet have the benefit of that additional information and will likely not have it before the February 16, 2021 effective date of Proposition 19.
Why will I be charged for this consultation?
Answer: It is our firm’s practice to offer free phone calls to our clients if they have general questions about their trust and also to offer free periodic reviews of their existing estate plan.
However, the consultation being offered for Prop 19 issues is far beyond those services. Due to the complexity of the new law and the various legal, personal and tax consequences that flow from it, it is a service that is above and beyond phone calls and plan reviews. Due to the anticipated high demand for this service between now and the key deadline date in February, we must limit appointments to only those who are serious about engaging for these services. His initial consultation fee will be credited towards the fee for any trust work that you choose to move forward with.
CONCLUSION
We hope that you have found this information useful.
Time permitting, we stand ready to assist if you are ready to take the next step which is through a Zoom or office conference to explore deeper into the various Prop 19 issues
To schedule a consultation by Zoom, simply call our office at (916) 437-3500. Due to the tight time limits involved, our capacity to assist is limited. If you are serious about saving property taxes for your children, you should act now.
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