California Real Property law for gifts or deaths on or after February 16, 2021, allows children who move into their parent’s residence to retain a parent’s property tax valuation for the parent’s primary residence for the factored base year and $1,022,600 ($1,000,0000 Adjusted for inflation annually from February 16, 2023. The next adjustment is in 2025) of the present FMV. If the current value is over $1,022,600, as adjusted for inflation, it is reassessed by formula. For example: The value limit under Proposition 19 is the sum of the factored base year value plus $1 million, adjusted for inflation. If the market value exceeds this limit, partial relief is available. The amount exceeding the excluded amount will be added to the factored base year value.
For example, if a family home has a factored base year value (FBYV) of $300,000 and a fair market value of $1,500,000. The excluded amount under Proposition 19 is $300,000 + $1,022,600 = $1,322,600. The difference, $1,500,000 – $1,322,600 = $177,400. Thus, the adjusted base year value is $ 477,600 (FBYV $300,000 + difference of $177,600) See WW.boe.ca.gov/prop19/#Charts. Look at the Tabs for details. This Proposition could be reversed by another proposition. This requires that the child move into the property as their primary residence within one year of death and file for the Homeowner’s Exemption. Have the child do this ASAP, if residing in or moving into the residence. If a grandchild’s parent is deceased and has no surviving spouse, then a similar grandchild/grandparent provision applies.
If a child would like to have the decedent’s personal residence as a part of their share and their share of the trust is less than the net value of the trust, to retain 100% of the decedent’s lower assessment, (the decedent’s lower property tax bill), a strategy is to have the Trustee, as Trustee borrow from a third party lender and distribute the property, subject to the loan, to the beneficiary. (Normally, loans to an irrevocable trust are short term at a higher interest rate and with points). This loan needs to be through a third party lender, and not the Trustee, the beneficiary or other interested party. The child receiving the property would then refinance the property at a lower conventional loan rate.
All other California Property will be reassessed to the date-of-death value. The higher property tax is billed retroactively to date of death, as an escaped assessment. The bill for the escaped assessment sometimes is not mailed for 6-9 months. Be careful to maintain a reserve to pay the tax. You should expect the escaped assessment. Keep a reserve for it.
