The property tax regime in California is complicated. For many years, the state has limited the amount by which real property taxes can be raised while the property is held. In a sale between strangers, the value of the property will be reassessed, and the tax rate will go up. However, in a transfer between close family members, that hasn’t happened. The recently-passed Proposition 19 will change that in some cases, however.
Some transfers are still exempt
Under the new Proposition 19 rules, some property will no longer be exempt. That includes properties that aren’t primary residences and properties that are valued at $1 million over the previously assessed value. However, some transfers will still remain exempt. The transfer of properties from one spouse to another, for example, will still be exempt.
Using trusts
Trusts are one popular way of passing on assets from one generation to another. In California, many families have used trusts to ease the transfer of real estate. This is a common strategy in estate planning. When a property comes out of a trust, it is not reassessed for taxes. The trust means that the recipient basically already owned it. The asset was just being managed by a third party for them.
Most families who use a trust to transfer property employ a revocable trust. It’s called revocable because it can be changed while the creator is still living. When they pass away, it becomes an irrevocable trust. However, there are a number of different trust structures apart from this.
It’s best to consult an attorney along with experienced financial professionals when making these decisions. Trusts are complicated, and they are affected by changes to the law. Having the representation of advisers who work with these instruments every day is a great way to avoid problems down the line.