Estate Planning Blog

Prop 19 Is Here; Now What?

Proposition 19, formally known as The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act, and more informally referred to as Prop 19, is here. It was approved by California voters in the November 2020 election. The proposition went into effect December 16, but the changes to the parent-child and grandparent-grandchild exclusion didn’t begin until February 16, 2021. And the base year value transfer provisions just went into effect on April 1.

The Basics of Prop 19

As defined by the Los Angeles County Office of the Assessor Jeffrey Prang, Prop 19 “imposes new limits on property tax benefits for inherited family property. …Children may keep the lower property tax base of the parents only if the property is the principal residence of the parents and the children make it their principal residence within one year.
“The other component of Proposition 19 allows homeowners who are over 55 years of age, disabled, or victims of a wildfire or natural disaster to transfer their lower assessed property value of their primary home to a newly purchased or newly constructed replacement principal residence up to three times (or once per disaster). The tax base may be transferred to a property located anywhere in the state.”

Benefits of the New Proposition

There is one great thing about Prop 19: Residents aged 55 or higher, those who are disabled, or victims of wildfires or disasters can move three times statewide. This is an increase from the previous one time allowed. During the move, these individuals can transfer their lower property value to the newly purchased property.

The Negative Side of Prop 19

There are many implications of this new regulation that will have a negative impact on California residents:
  • Only the principal residence may be covered, and $1 million of the other property is eliminated.
  • For the principal residence, the assessed value plus $1 million will not be reassessed (adjusted for inflation starting February 16, 2023).
  • Children must file homeowners’ or disabled veterans’ exemption within one year instead of the three years previously, and they must use the home as their primary residence.
  • If the current property value exceeds the assessed value plus $1 million, the property will be reassessed at fair market value minus $1 million.
One of the big issues that has come to light since Prop 19 passed is that a number of people don’t have a solid, basic estate plan in place. And that’s something everyone most definitely needs. Unfortunately, deed errors didn’t allow for Prop 19 planning.

What You Need to Know

There are some stipulations that allow your estate to follow the previous stipulations outlined in Prop 13:
  • Only one child has to move into the home.
  • The child must move into the home within one year of the parent’s death.
  • The child must file a claim for homeowner exception within one year of the parent’s death.
  • Even if the parent does not own 100%, the $1 million exemption will apply to their share.
  • The child must use the home as a primary residence; however, a period of temporary absence is allowed.
  • A family farm does not need to be a primary residence.
  • If the date of death or transfer is before February 16, 2021, it preserves Prop 13. Of course, proper documents must be filed.
  • Gift deeds signed by February 15, 2021 don’t need to be recorded by that date pursuant to a California State Board of Equalization (BOE) memo dated February 16, 2021.
  • The $1 million assessed value exemption applies to inheritances and gifts.

How Can You Move and Keep Prop 13?

Prop 13 instituted a base-year value for property tax assessments and limitations on the tax rate and assessment increase for real property. While Prop 19 changed this 1978 proposition, there are some things you can do to retain its original intentions when moving:
  • Your home purchase or new construction must occur within two years of selling the prior property.
  • The older property must be reassessed at the time of sale.
  • If the new property costs more than the old property, the difference will be reassessed.
  • The two-step transaction, or sale and purchase, only requires that one step is completed after April 1, 2021, according to the State Bar. As stated by the BOE, “The transfer of the base year value must be on or after April 1, 2021, and not the purchase or sale of either the original or replacement property. If the replacement primary residence is purchased or newly constructed on or after April 1, 2021, the primary residence may be sold either two years prior to or after the purchase or new construction of the replacement primary residence and qualify.”
Each spouse can make this move, sale, and purchase three times.
Forms for the process are available on the BOE website.

Hope for the Future of Estate Planning

Senate Bill (SB) 668 is coming down the pike, and it may delay the effective date of Prop 19 for two years. That means you’ll have until February 16, 2023 to make any changes to your estate plan.

Still Have Questions? Contact Estate Planning Expert Joel A. Harris

For over 30 years Joel A Harris has been protecting the estates of families throughout California. If you need help navigating the ins and outs of protecting your estate, feel free to visit us online, in person or call us by phone at (925) 757-4605.

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