Thanks to Proposition 13, if you’ve owned real property in California for several years, it is likely that your property taxes are relatively low. Proposition 13 essentially freezes the assessed value of your California real property for property tax purposes until either there is (1) new construction or (2) a change in ownership. The idea is to give homeowners predictability with regard to their annual property tax liability, especially in a state where real property values have soared over the past 30 years while many homeowners’ incomes have not necessarily increased. Many homeowners have become accustomed to their property tax rates and hope that their heirs can enjoy the same benefits.
Under Proposition 58, a transfer of the principal residence between a parent and a child is completely exempt from a property tax reassessment despite the change of ownership. In addition, a transfer of real property other than a principal residence between a parent and a child is exempt up to $1,000,000 of assessed value. In order to preserve this exemption, proper estate planning and estate / trust administration is essential. For example, if multiple children are the beneficiaries of an estate but only one child wants to keep certain real property, the trustee or executor should determine whether the trust or will allows non-pro rata distributions of property. If this is the case, the trustee or executor should refrain from distributing all of the inheritance in equal shares to the children and instead transfer 100% of the real property to the child who wants to keep the real property and transfer other assets of equal value to the other children.
In addition, Proposition 193 excludes from reassessment transfers of real property from grandparents to grandchildren, providing that all the parents of the grandchildren who qualify as children of the grandparents are deceased as of the date of transfer.
In order to claim either the parent/child exclusion or the grandparent/grandchild exclusion, be sure to file the proper forms upon the death of a real property owner. These forms include the Death of Real Property Ownership Report, the Preliminary Change of Ownership Report, and the Parent/Child or Grandparent/Grandchild Exclusion forms.