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The estate planning tax perils of California’s Proposition 19

On Behalf of | Oct 14, 2021 | Estate Planning

As you may know, California residents voted to approve Proposition 19 in 2020. The proposition promises significant financial advantages for property owners entering their senior years.

For example, Proposition 19 gives residents 55 or older the option to transfer their property tax base to a different home. Those who need to downsize or have lost their home to a natural disaster (fire, etc.) can do so without incurring higher taxes. However, the proposition, which went into effect on Feb. 16, 2021, may pose tax hardships to those inheriting a family member’s home.

Prop 19’s tax impact on inheriting real estate 

Before Prop 19 went into effect, heirs were not required to reassess inherited real estate for tax purposes. Under Prop 19, an inherited home must now undergo reassessment, and its tax rate will fall in line with the property’s full market value.

If the heir decides to make the home their primary residence, they will receive some tax increase protection, but only on the first $1 million of the home’s value. Potentially, Prop 19 could increase property tax obligations for state residents by many thousands of dollars.

With Prop 19 in mind, it is time to reexamine your estate plan to uncover methods of limiting property tax increases for your heirs. Discussing your concerns with a knowledgeable advocate can reveal previously unconsidered techniques to meet this goal. For example, you might be able to avoid significant tax burdens by transferring ownership of the home to a trust.

Learning more about Proposition 19 and California estate planning can help you create a plan to protect your heirs from overwhelming tax obligations.