The property tax laws in California were dramatically altered by the passage of the Prop. 19 in November 2020, some of which officially went into effect on Feb. 16, 2021. Of the more consequential outcomes of the new rules is the impact on children inheriting property from their parents.
The team at Venable broke down the changes, explaining that Prop. 19 will now require that children inheriting property from a parent must use the residence as their own principal residence or the property’s value for tax purposes will be reassessed. Even if the child uses the residence as his or her own, there is a cap of $1 million on the exclusion.
Prior to the proposition, when a parent transferred ownership of a principal residence to a child, the property’s value for tax assessment purposes was not reassessed, regardless of how the child uses the residence—including use as a vacation home or a rental property.
Per Venable, this change to the parent-child exclusion may also affect prior estate planning trusts.
If parents have QPRTs whose fixed term ended on or after February 16, 2021, the value of their home could be reassessed to its current value, lead to potential large property tax increases. Check with a qualified estate planning resource prior to any terms coming to an end to discuss mitigation options.