Parent-to- Child and Grandparent-to-Grandchild Transfers
Prop 58 & Prop 193 allowed parents, and in certain qualified cases grandparents, to transfer their existing property assessments of a “principal” or “primary” residence of any value without triggering property reassessment, which is generally required upon a change in ownership – even when real property was used as a rental property by [offspring] beneficiaries.
Prop 58 & Prop 193 enabled assessments of inherited residential or commercial property up to $1,000,000 – covering additional real estate being gifted to, or inherited by, an heir.
Now, under CA Proposition 19 (as of Feb 16, 2022), parents and grandparents can leave their home, with Proposition 13 base year value intact, to their children or grandchildren – as long as inherited property was the primary residence of the parents or grandparents – as well as the primary residence of the beneficiaries moving into the home that is now being inherited…
Moreover, a beneficiary has plenty of time to move into an inherited home as a primary residence (12 months), plus a good deal of time to file a Homeowners’ Exemption (one year) to qualify for a parent-child or exclusion.
A Prop 19 exclusion from reassessment of a primary residence of a parent or grandparent, keeping a low property tax base when inheriting a home, plus all updated requirements, qualify beneficiaries for these types of base-year-value transfers; avoiding property tax reassessment and enabling these new homeowners with the right to transfer property between siblings through a loan to an irrevocable trust; plus all the usual property tax relief bells & whistles that go along with property tax transfer.
Naturally, this includes the right to transfer parents property taxes and keep parents property taxes by inheriting property taxes generally through a parent-child transfer and parent-to-child exclusion (from paying currently reassessed property taxes).
Selling An Old Home – Distributing Cash Equally Among Heirs
A trust loan from a trust lender, to create equal cash distribution for co-beneficiaries looking to sell off their inherited property, can help those beneficiaries become sole primary owners of an inherited residence. Moreover, a primary residence homeowner in California over age 55 can transfer a low property tax base to a “replacement residence” (that is also a primary abode).
In order to qualify for a CA Prop 19 exclusion from reassessment (of your property taxes) – at the same time keeping your parents’ low property tax base – distribution of your trust funds to all beneficiaries have to be equal… especially when it comes to beneficiaries that are selling their inherited property shares to a co-beneficiary inheriting the same property. Each sibling must get the same amount whether it is cash, equity or other assets – to qualify for a Prop 19 exclusion from reassessment.
Many times the trust or estate will not have enough cash or other assets to make an equal distribution. In these situations the trust or estate can borrow the money from a third party (not the person taking the property) and use the loan proceeds to pay off the other siblings’ share.
A Commercial Loan Corp calculator will demonstrate “how long it will take for the property tax savings to cover the costs of a loan from a third party. One needs to be fairly certain they will live in the home longer than the time it takes to break-even on third party loan costs or have a plan to transfer the low tax base to another property after the sale of the parents’ home.”