Proposition 19, passed in California, has significantly changed the landscape of property transfers between parents and children. Understanding these changes is crucial for preserving tax benefits and making informed decisions about your estate. Here's a look at the parent-child reassessment exclusions, new rules under Prop 19, and trust strategies to maintain tax advantages.

Parent-Child Reassessment Exclusions

Before Prop 19, parents could transfer their primary residence and up to $1 million of other property to their children without triggering a property tax reassessment. This allowed families to keep property taxes low, even as property values increased.

New Rules Under Prop 19

Prop 19 introduced several key changes:

• Primary Residence Transfers: Parents can still transfer their primary residence to children without reassessment, but only if the child uses it as their primary residence. The exclusion is limited to the first $1 million of the home's market value over its assessed value.
• Elimination of Other Property Exclusions: The previous exclusion for up to $1 million of other property has been eliminated. This means any non-primary residence property transferred to children will be reassessed at current market value, potentially increasing property taxes significantly.

Trust Strategies to Preserve Tax Benefits

To navigate these changes, consider the following trust strategies:

• Irrevocable Trusts: Placing property in an irrevocable trust before transferring it can help lock in the current assessed value, potentially avoiding reassessment.
• Qualified Personal Residence Trust (QPRT): This allows you to transfer your primary residence to a trust while retaining the right to live there for a specified period. After this period, the property passes to your beneficiaries, potentially reducing estate taxes.
• Consult with Professionals: Work with estate planning attorneys and tax advisors to explore trust options that align with your goals and comply with Prop 19 regulations.

Conclusion

Prop 19 has reshaped property transfers between parents and children in California, impacting tax liabilities and estate planning strategies. By understanding the new rules and exploring trust options, you can make informed decisions to preserve tax benefits and protect your family's financial future.