California Proposition 19, also known as the Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act, is a Constitutional Amendment that imposes new limits on property tax benefits for inherited family property. Under Prop 19, children may keep the lower property tax base of their parents only if the property is the principal residence of the children for at least one year. This means that prop 19 can have tragic property tax implications for future generations.
Devastating Property Tax Implications with Prop 19
Prop 19 can significantly impact beneficiaries after homeowners pass away. For example, suppose Tom and Jill both own a $3 Million residence in the Bay Area with an assessed value of $300k. The assessed value is protected by Prop 13, which means that their current property taxes are much lower than the market value. Therefore, both Tom and Jill are only paying around $3k annually in property taxes even though the property is currently worth more than $3 Million.
Both Tom and Jill pass away in 2022 and each of their daughters inherits the property. Tom’s daughter decided to rent the house since she already has a house of her own with her family. If Prop 19 passes, Tom’s daughter’s property tax will permanently increase from $3k a year to over $30k a year.
On the other hand, Jill’s daughter does decide to live on the property for a year. Although this should help Jill’s situation, it only gives her partial protection. Jill’s daughter’s property tax will increase from $3k a year to over $20k a year forever.
Attorney Gilfix provides further examples of the effects of Prop 19 in the webinar above.
Action Steps to Save Family Assets
Thankfully there are options available for families to avoid the pitfalls of Prop 19. Our team at Gilfix & La Poll Associates LLP have developed custom solutions for Prop 19. We call this the Gilfix & La Poll Dynasty LLC process. There isn’t a one size fits all solution to Prop 19, so our team can work with you to help you determine the best avenue to avoid future property tax increases. Estate planning and estate tax laws are changing constantly, so our team can work with you to plan ahead and protect your assets and your loved ones.
Have questions about family protection trusts or the effects of Prop 19? Contact us today at (650) 683-9200 to schedule a consultation!